May/June, 2001

From the Editor

Supermarkets: Fundamental To The Industry

We are long past the day when the relationship between supermarkets and specialty foods could be deemed tangential. In today’s modern behemoth of supermarkets, there is enough room for a full range of specialty foods.

The dilemma, however, is that supermarkets have never really reconciled themselves to their vital role as the mainstream source of supply for specialty foods. That is why even out of the rarified air of the specialty food store, supermarkets have been losing the battle to control the specialty food marketplace to other high volume outlets – warehouse clubs, whole-food-type grocery stores, even mass market discounters such as Marshall’s.

But it is a market well worth fighting for. Not only is it less price-sensitive and thus more profitable than conventional mainstream items, but the consumers who buy these specialty foods are the most profitable customers for a store as they lean toward higher margin products and are less likely to be influenced by sales promotions or coupons.

But supermarkets are generally weak in the way they handle specialty foods. The problem is that in the modern grocery store, category management has become the primary tool for deciding what to stock and what to display. Category management, however, is a very weak tool for maximizing the potential of specialty foods.

Part of it is that the mathematics of a category just may not reflect meaningfully the store’s true interest. In other words, if evaluated solely on its own merits, it may be true that a comparatively slow moving but expensive salad dressing could be eliminated from the category and, when replaced by something cheaper, total salad dressing sales and profits might rise. But other than the salad dressing category manager, who cares about that? The problem is that if that swap causes even a small numerical loss of high margin buyers – say big buyers of specialty fresh products – to switch their business to a local Whole Foods Market, the store loses far more in profits than it could possibly gain by selling a bit more salad dressing.

It goes beyond mathematics though to the heart of a retailer’s competency – food expertise. Produce, deli and similar departments have been blessed by necessity. The nature of their product is so obviously distinct from grocery items that the departments are left thankfully alone. They have their own buyers and often an independent warehouse or distribution scheme.

As a result, supermarkets have a well of expertise in each of these areas. Part of it comes from day-to-day training immersed in the field, part of it by the fact that the executives who work in these specialty departments identify themselves as part of a field, as being part of larger community.

It is fair to say that most produce directors see their reputation in the produce industry as more important to their personal career prospects than their reputation within their own chain. After all, how many chains have executive personnel with enough experience in produce to really evaluate a produce director? And in any case, it is one’s reputation in the field and one’s own networking that is likely to lead to other job opportunities.

But the dynamic is very different in most chains. Category managers buy specialty foods, and the bulk of what these folks are responsible for is non-specialty. Not only does this mean that there is less expertise, but there is just less interest. The cookie category manager just doesn’t identify his own career as being tied up with the specialty cookie business as the produce buyer perceives his personal interests being tied up with the produce trade.

The solution is obvious but difficult to implement. We need to disassociate the issue of procurement and merchandising with the question of where items get displayed in the store.

Although there are many who fight for store-within-a-store concepts for specialty food, fundamentally the decision to segregate specialty items or to integrate them has much to do with the image a store wishes to project, the demographic the store wishes to capture and other related issues.

The key thing to remember is that specialty food is like produce or deli or meat or bakery or seafood in the role it plays in the store – it serves as a point of differentiation. Just as a store can get a reputation as always having the most delicious prepared foods or the freshest produce or the finest meat, so a store can get a reputation for always having the widest array of specialty foods, or the most well-selected choice of specialty foods or a particular depth in distinct sub-categories such as kosher or organic or Mexican specialty foods.

What this means is that specialty foods need the same kind of expertise and autonomy that we give other reputable departments. We need VPs of specialty foods, specialty food buyers and merchandising staff and distribution systems – in-house or through distributors – that are at the disposal of this specialized staff.

The skills and talents required to buy and merchandise the highest volume national brands have little to do with the skills and talents required to select and promote high value enticements to high margin shoppers. The sooner supermarkets face that fact; the sooner supermarkets will begin boosting specialty food sales – and overall profitability.  FDM