Some say the center store has lost its luster. But it still remains the backbone of the grocery store industry, making it vital that retailers seek to rebuild the department.
By Seth Mendelson
Could supermarket executives be ignoring the category that brought them to the dance in the first place? While saying that the industry is completely moving away from the center store in favor of other segments such as fresh is a broad overstatement, there has definitely been a turn away from the center store and many of its categories.
Searching for more profits and pizzazz from other parts of the store, many grocery retailers have, over the last two decades, given less space to their center store categories and, in some dramatic cases, even moved the category away from being the main focal point of the shopping experience to a lesser role. In fact, one industry expert says that space devoted to the center store has dropped by at least 8% in the past 10 years and he feels it will continue to decline in coming years as well.
Is that such a good strategy? Clearly, grocery retailers are searching for the right formula to beat back the challenge from such competitors as Wal-Mart and Target. With one-stop shopping becoming a more important factor in where consumers shop, retailers understand that they have to include many other departments into their store footprint to satisfy as many shoppers as possible.
At the same time, the center store remains the only part of the store that is truly unique to the grocery store. Developing a strategy that does not include the center store as a key focal point of their merchandising strategy puts the average supermarket at risk
Of course, profits can play a role and center store has a leg up here, too. Despite all the talk about the additional profit-making opportunities of other categories in the store, the various center store segments still account for the lion’s share of sales and profits for grocery retailers. Paul Cooke, vice president of trade and industry development for St. Louis-based Nestlé Purina PetCare Co., cited a 2007 Willard Bishop study that found that the center store produced 72% of total store sales and nearly 88% of total store profits, during a session at the National Grocer’s Association (NGA) annual convention in Las Vegas in February.
“If you don’t make it in the center store, you don’t make it,” Cooke told Grocery Headquarters a few days before he gave the speech at NGA. “The bottom line is that with the importance of the center store, there is no better area of the store to invest in for the future.”
So what does the industry need to do to get the center store, well, back to the center in terms of retail focus? A number of factors come into play. “Retailers are doing a lot of things and you’ll see, especially, among the smaller and more regional players that some are developing solution centers,” says Jim Hertel, managing partner with Barrington, Ill.-based Willard Bishop, Inc. “They are looking for opportunities to go beyond a store simply being a distribution point for shoppers.”
SKU rationalization stands at the top of the list of things that need to be done with many retailers and suppliers. It seems that just about everyone involved with the center store realizes that retailers must pay more attention to having the right products on store shelves and not just carrying a hodgepodge of products in the department. Retailers want suppliers to cut back on SKUs, particularly in such categories as cereal, beverages and pet food, so that they can give other center store departments more room.
But some suppliers are not buying this theory. Quietly they worry that retailers will take space away from some center store departments and transfer it to the perimeter departments. One vendor said he was told recently that a chain was looking for room to increase the fresh fruit section and his contact at the company was told to cut the center store area by 10% through SKU rationalization.
Others stress that cutting back on SKUs in these categories will hurt sales and profits. “The cereal category, for example, thrives on diversity because consumers desire so many different types of cereals,” says one industry observer. “If retailers eliminate SKUs, they risk losing sales from the category. This could snowball out of control.”
Adds Cooke: “The retailers who have even more success in the center store are the ones who have invested in terms of variety, the environment they have created in-aisle and the value they offer the consumer. They key is to make the category comfortable, a bit unpredictable and interesting.”
Cooke says that the pet food category has prospered during the tough economic period because of a combination of unique products, good value and the decision by many retailers to offer a broad range of products. Cross merchandising has also helped the pet food category because of the visibility it offers. “The key is to let the consumer know the products are available in your store,” he says. “Get them to walk down the aisle and that’s most of the battle.”
Of course, the consumer trend toward private label products, which has increased as the recession has worsened, is causing more headaches for retailers in terms of product placement. Shoppers want greater choices, especially when price is involved, and private label items can offer savings of as much as 25% to 30% off equivalent national brands.
Positioning private label
Retailers want private label for two reasons. One is the fact that it offers more profit and the second is that private label, handled correctly, can establish a unique niche.
“Right now, private label allows retailers to do something different,” says Jim Wisner, president of Libertyville, Ill.-based Wisner Marketing Group. “National brands are carried by everyone, while private label can allow the retailers to establish their own products and own image. With private label you can define yourself anyway you want.”
Though they may not like it, most national brand suppliers agree that private label has a spot in the center store, but they caution that retailers could go too far with private label. One supplier said that a chain he worked with in the beverage aisle started pulling out SKUs from the leading brands in favor of private label products. The result, he said, was an overall decrease in volume in the beverage category.
Hertel tells the industry to embrace private label, especially since private label is here to stay. “In the past, the conventional wisdom was that during a recession store brands grow and, when the good times return, things go back to normal,” he says. “That is not the case anymore. From a product standpoint, things have improved tremendously in store brands and consumers now view them as a permanent part of the landscape.”
Creating a special area, as noted by Cooke, is also important. Hertel says that Supervalu is pushing the baby category as a solution center. Realizing the need to merge all the needs of a young baby-and his or her family-the chain is creating an area that can address every possible issue, from food to supplies to diapers.
Dave Jones, vice president of industry initiative for Battle Creek, Mich.-based Kellogg, agrees that consumers are looking for more solutions from the center store as opposed to simply having products available to them on the shelf. “In this economic environment, the center store is a bigger tool for retailers trying to draw consumers into their stores,” he says.
Cooke’s point that retailers must make the center store exciting and interesting needs to be addressed as well. Consumers, many say, want to be entertained during the shopping experience. That means retailers, working with their suppliers, have to develop endcaps and in-aisle displays that will get the consumer at least curious about walking down the aisle.
Specialty items can help, also. “They help bring the buzz back into the center store,” says Wisner. “There is interest at home in creating meals from scratch. That means they need more ingredients than they used to and I think retailers can leverage this, driving people in the higher profit areas of the store.”
Wisner and others are quick to target the ethnic foods area as another growth segment. “It can energize the entire center store because consumers are looking for these products and they are buying a lot of complementary items to go along with them,” he says. “Retailers can drive interest in these segments by providing more information. At Giant Eagle, they have built group displays or themed merchandising events around all the ingredients needed to build a dish. It works very well.”
The end result, many say, is that retailers cannot give up on the center store and suppliers need to provide as much assistance in terms of products, promotional support and value. “These categories have done a great job over the years for supermarkets,” says Jones. “They have provided retailers with great sales and the ability to make a nice profit, plus create an environment that draws shoppers in the door. The bottom line is that if we get the space, the center store departments will do the job.”