Winter, 2004

From the Editor

Future Signs

Here at Food Distribution Magazine we estimate that 2004 will be a milestone year for the specialty food industry with sales surpassing 60 billion dollars for the very first time. It is a formidable accomplishment, meriting industry pride.

It is, quite literally, one of the great triumphs of western civilization to be able to gather the most extraordinary foods from all corners of the globe and bring them within the easy reach of virtually every citizen. Yet, this mighty triumph may atrophy if we don’t look at the big challenge before us in 2004 and the years ahead.

In most areas of the food industry, it is easy to indentify the fast growers of the last half-decade – simply look at who has had Wal-Mart business.

In business, choosing your customer is, perhaps, the most important choice of all. If your customer is growing fast, you can grow along with your customer. If your customer base is stagnant or shrinking, your business is in trouble, too.

While Wal-Mart Supercenters are where the growth is in the food business, specialty foods are a relatively minor part of the concept. Wal-Mart so dominates the supercenter business that it is not clear yet whether the underrepresentation of specialty foods in its operation is a function of Wal-Mart’s clientele or the more limited assortment dictated by the supercenter concept.

It is tempting to think that other companies, such as Target, with its demographic skewing to a higher income bracket, might tweak the supercenter concept to assure a more generous assortment of specialty foods.

But there are two problems with this line of thought. The first is that there is a real premium in supercenters on selling general merchandise, and the battle for square footage is intense because the competitive product isn’t just another food item, it’s the whole range of general merchandise.

The other problem is that it may not matter what other supercenter operators do. When supermarkets were created, an industry developed with multiple operators offering competing versions of the supermarket concept all around the country. Supercenters don’t seem to be playing out this way. Kmart, the biggest competitor to Wal-Mart, closed all its supercenters. Kroger bought into a supercenter concept in the Northwest, but has made no effort to roll it out nationally. Meijer seems likely to remain a regional player and is showing signs of stress as Wal-Mart expands.

It seems that competition in the food industry of the future is less likely to be based on the supermarket model and more likely to be a competition of concepts: supercenter versus warehouse, etc. Where does this leave the specialty food industry?

Costco is a giant in specialty foods, but only with a limited assortment. Increasingly, the specialty food industry is becoming a lottery economy. Those players who manage to get carried by Costco and Wal-Mart supercenters hold the golden ticket to success as the mighty distribution arms of these organizations buy and sell almost incomprehensible quantities of products.

But for those without a golden ticket, the future is troubling. The Internet has not yet realized its potential as a vendor of specialty foods; undercapitalized specialty and gourmet stores are not in growth modes; it is unclear if supermarkets have a viable business plan anymore.

It is easy to miss the signs.

In the short run, specialty food procedures have benefited from supermarkets’ desire to be the “anti Wal-Mart” as these operators try to reposition themselves along the lines recommended by consultants – be extra strong in perishables, extra strong in specialty foods, ramp up the customer service and community-based activities.

A few chains surely will successfully reposition themselves as upscale alternatives to Wal-Mart, but this is a horse that the industry can ride just so far.

The consultants’ strategy is not a plan for supermarkets to beat Wal-Mart; it is a plan to surrender the vast middle class consumer of the country and find an isolated niche where the operator doesn’t have to compete with Wal-Mart.

So, while the strategy of being the anti-Wal-Mart can work for an individual supermarket chain, it can’t work for supermarkets as a whole. Equally, it means that the specialty food industry as a whole can’t prosper by relying on retails with obsolete business models.

The solution, of course, is to reposition specialty foods from products consumed by rich elitists to foods consumed by everyone interested in something great. The focus has to be on “Specialty foods, something special in your life everyday!” The industry needs a marketing arm to promote its collective self-interest with the public and retailers.

We can’t ignore Wal-Mart and the Wal-Mart consumer. Increasingly, this is the American consumer, and these consumers need a life filled with specialty foods. We, as an industry, need to be there for them.  FDM