April, 2012

Fruits of Thought

Confusion In The Marketplace

 All over America, indeed all over the Western world, there are conventional supermarket chains that, for decades, have carefully cultivated reputations as quality venues in their markets. They may have focused on meat, sometimes produce, great customer service or other attributes that staked the claim that this was the place where you wanted to buy your food.

For some time now, the positioning of these chains has been under attack. It is a truism that the middle is a difficult place to be, and on one side of the pricing spectrum we first had Wal-Mart, then dollar stores and deep discounters such as Aldi staking discount propositions below conventional chains. On the other side, Whole Foods, gourmet concepts such as Trader Joe’s, chain concepts such as HEB Central Market, delivery services such as Fresh Direct, repositioned independents, artisan direct-mail food outlets,  plus explosive increases in direct marketing and the Costco phenomenon redefined upscale to a healthful, environmental, fresh and foodie concept that knocked the conventional chains from the top.

Though these issues have been percolating a long time, the financial crisis of 2009 and the ensuing recession created an environment in which conventional chains felt a need to change their approach. The question was: Change into what? Even today, that question floats out there like a balloon not ready to land.

Owners and executives at these conventional chains that once staked their claims on offering very good products and service have increasingly found that their value proposition is inadequate to produce the profits they require or to grow the business as they would have hoped.

Some, savvy in management and fortuitous in geography, have decided to change the game. When Kings, a longtime conventional supermarket chain that pitched to upscale consumers, unveiled its newly remodeled Bedminster, NJ, store, it also became Kings Food Markets: Where Inspiration Strikes! — and began positioning its price points against not ShopRite. or Pathmark but against Whole Foods.

Not everyone, though, has the advantage of the dense and affluent Northeast market. For most, the situation is a quandary. Although retail executives will talk about the importance of the value proposition and will note that for most consumers value perceptions revolve around much more than price, the truth is that changing the value perception around a long-established retail brand can take a long time. Maybe more important, many retailers are in a morass where they know they want to change, but are not really sure what they want to become.

Some retailers will find they have a store with demographics that don’t really fit their generally upscale concept. They typically make halfhearted efforts to push price points down, but they don’t change the overall cost structure; they don’t change the banner; they don’t change the ad. The store winds up neither here nor there, not focused on economy sufficiently to woo the value shopper, but not upscale enough to keep the chain’s traditional clientele. The very presence of such a store creates confusion in the marketplace.

Yet even when the demographics are fine, the question remains how to build business. Some of the issue is a traditional tradeoff between short-term profitability and long-term brand-building. Quite possibly, the optimal long-term strategy to maximize profitability may be to do nothing. Sustain one’s upscale marketplace image and, in time, when the economy rebounds, one will be well positioned to ride that wave. Unfortunately, ownership — public or private — often has neither the capital nor the patience to wait out broad economic swings.

Yet there is more to it than that — especially an unwillingness to let go of customers when their circumstances change. It is not uncommon for retail executives at traditionally upscale operations to hear ownership or CEOs express the dilemma this way: “As a result of the financial crisis and subsequent recession, ‘our customers’ are hurting — and we need to show them that we care by offering better values.”

It is an admirable sentiment, but may not make very much sense. A Neiman Marcus customer who goes bankrupt is not a customer who is hurting, but now a former customer who has to shop at more economic venues.

Because consumption of food is common to all people, it is easy to think that everyone can be one’s customer. The reality is that it rarely works out that way. The ad, the merchandising display, the product assortment, etc., can rarely serve two masters. Indeed the clientele itself — distinguished by race, region, ethnicity, economic class and more — will often alienate certain groups of customers.

Value is a tricky proposition. To one customer, quality is worth paying for, whereas another can be satisfied with less august product. One consumer may appreciate a low price per pound, whereas another looks to the out-of-pocket expense. One shopper sees a lack of assortment as a tax on her time, whereas another is happy to cherry-pick multiple outlets.

What is certain, however, is that as Abraham Lincoln pointed out in another context, “A house divided against itself cannot stand.” There is surely room for upscale, downscale, ethnic and other concepts. There is probably no place for concepts that can’t clearly state what they are all about. Efforts to broaden appeal inevitably weaken appeal to the core customer; there is no value in that proposition — for consumers or retailers.                 pb