Summer, 2002

From the Editor

Supermarket Specialty Food Solution

The biggest threat to the specialty food trade is in the current focus of supermarkets on consolidation and the attempt of management at supermarket chains to leverage their operation’s size to obtain efficiencies and better prices.

In order to leverage size, supermarket chains want to offer vendors large volume purchases by featuring the same item in all the stores in a chain. Further, supermarkets want to gain efficiencies by consolidating transportation, reducing the number of deliveries received at store level, reducing the number of companies the chain buys from, and, in general, gaining all the advantages of being a mass operator. This is all wildly problematic for the specialty food industry and, indeed, for the future of supermarket chains.

Here is the dilemma: If a supermarket chain looks to purchase a specialty food item that can be sold in all of its thousands of stores across the country, and if it looks to buy this item directly and process it through its own warehouse facilities, the end result is clear. Either it is an item that scarcely qualifies as a specialty food because its volume is too high or the item will languish on the shelves in a large percentage of the stores because it is an inappropriately forced distribution item.

The quandary is maddening. On one hand, the merchandising and marketing teams want the chains to get the benefit of selling specialty foods, which includes both the high margins and appeal to valuable shoppers and the ability to distinguish a chain’s stores from its competitors. On the other hand, the procurement and operations teams want to buy in mass, rationalize procurement and distribution and present a uniform offer across the country.

The sad truth is that it is the operations and procurement side that has been winning. The problem is that the savings realized by consolidation is obvious and quantifiable – the type of stuff that sells well to Wall Street analysts. The merchandising and marketing push is soft and fuzzy: “We’ll sell more, more profitably, by attracting a higher margin consumer with a great specialty food offering.” Too vague and indefinite a concept to sell on the Street.

But, of course, in the end, no business can save itself into prosperity. Supermarkets have to find ways to sell.

Supermarket executives know this, and they also know that the efforts to centralize and rationalize are bumping up against demographic trends, which point to a more diverse population with large and increasing numbers from Latin America and Asia.

Recognizing the need to address consumer needs that vary from place to place and acknowledging that serving these varied consumers means knowing subtle differences between the divergent groups, supermarket executives have hit upon a solution to address this dilemma.

The hot job today is to be an Ethnic Foods Director.

There is much to commend here. For one, it turns the table on a lot of outdated food marketing. Whereas food has generally been marketed based on where it came from – a production-oriented ethos – now it can be marketed based on who will buy it – a consumer-oriented approach.

Beyond this, supermarkets need to do a better job of sourcing ethnic and specialty product to counteract the homogenizing influence of consolidation and centralized procurement. Yet, while I wish these new ethnic foods directors well – and a few will surely triumph – for most I see the image of the little Dutch Boy with his finger in the dike.

Simply establishing a new job is unlikely to change things very much. This will especially be true when the new ethnic foods director has no shelf space under his control, no authority to purchase anything, to order changes in merchandising, advertising practices or much else.

I’m reminded of the situation a few years back when Home Meal Replacement (HMR) was the hot and happening thing at retail. Many a supermarket brought in people from the restaurant business with the charge to develop foodservice offerings and, most important of all, the direction to change the culture of the supermarket to a more foodservice-oriented mentality.

Almost all of these folks have been fired. Without actual square footage to direct, without buyers under their control, they never could implement any vision of their own. Those retailers who were most open culturally to doing things in a foodservice way didn’t need the advisors. And those companies that had cultures closed to foodservice initiatives weren’t going to be changed by a restaurant guy hanging out in the office.

Which means only that real change has to start at the top. It’s the job of the CEO to change the corporate culture, and if he can’t or won’t, no ethnic foods director will make much headway. CEOs must lead the charge, explaining to the troops that success has to come from marketing and merchandising products customers want and that, ultimately, success will be determined more by the chain’s ability to sell than its ability to save.

Then an ethnic foods director can be a disciple for that message, and the specialty food industry will be an important ally in the success of that kind of chain, just as that kind of chain will be an important ally in the success of the specialty food industry. It’s a win (for the manufacturer), win (for the retailer) and win (for the consumer) kind of solution.  FDM