No stopping these guys

Innovation plays a big role at Stop & Shop, a chain that never seems to slow down when it comes to experimenting with new products, procedures and programs. That’s why it has been named the 2010 Grocery Headquarters Retailer of the Year.

By John Karolefski

Yankee ingenuity. That is what they call it up in the six New England states when someone or something intelligently uses the available resources to get the job done.

Stop & Shop, the formidable supermarket retailer based in the heart of New England, is a textbook example of a merchant that uses a combination of innovation, common sense and good retailing to get the job done. “If you look back at history,” says Phil Lempert, a well-known consultant to the food industry based in Santa Monica, Calif., “Stop & Shop has always been one of the best innovators. They’re always trying things. Even though not everything has been successful, they’re really like pit bulls. They don’t give up, and they figure it out.”

Indeed, the Quincy, Mass.-based unit of Ahold USA most recently figured out how to compete more effectively in New England with a new pricing strategy that is now paying off after its debut a few years ago. Company officials have figured out the best way to serve their customers who want to shop for groceries on the Internet and have them delivered to their homes.

Perhaps most importantly, the chain has figured out how to differentiate itself with a unique self-scanner that also provides one-to-one communication with shoppers who get targeted discounts delivered to them while selecting groceries in the store. “I think the scanning unit gives them a real differentiating position in the marketplace,” says Jon Kramer, a former marketing consultant and now chief marketing officer at Norcross, Ga.-based RockTenn, a packaging and merchandising display company.

For its blend of innovative strategies and tactics that have made them a grocer to be reckoned with, Grocery Headquarters has selected The Stop & Shop Supermarket Co. as its 2010 Grocery Retailer of the Year. “They are excellent strategists and solid at execution. They’ve got a real good sense of where things are headed and the ability to get out in front,” says Jim Hertel, managing partner at Barrington, Ill.-based Willard Bishop Consulting.

“Stop & Shop operates in a really competitive market and holds its own for staples and selection with the rest of them,” says Scott Taylor, a retail and CPG consultant. The “rest of them” are largely Shaw’s Super­markets, Demoulas Market Basket, and Hannaford Bros, the three other major operations in New England. The Stop & Shop store that Taylor has frequented for 15 years faces more specialized competition: Stew Leonard’s, Trader Joe’s and Balducci’s. “It’s a pretty tough group they’ve got to go up against in Fairfield County, Connecticut,” he adds.

But the chain is well equipped to do battle for its share of the consumer’s grocery dollars. It operates some 370 Stop & Shop units in New England and into New York and New Jersey. Super Stop & Shop superstores offer a wider variety of food and nonfood items than the standard supermarkets, including many convenience and specialty departments such as gas stations, full-service pharmacies, office supplies, portrait studios, and photo shops. Through a partnership with Dunkin’ Donuts, 70 full-service Dunkin’ Donuts franchises operate inside select Stop & Shop stores throughout Massachusetts, Connecticut, and Rhode Island.

The chain is part of Ahold USA, which is owned by Royal Ahold, the Dutch food giant. Stop & Shop’s management team took over the operation of its sister company, Giant Food, in 2004. When the two companies were merged in a cost-saving measure, Stop & Shop chief executive officer Carl Schlicker became president and CEO. The parent company this year divided its two U.S. units—Stop & Shop/Giant-Landover and Giant-Carlisle—into four divisions: Stop & Shop New England, Stop & Shop Metro New York, Giant-Landover and Giant-Carlisle, each with its own support business.

Unique in-store experience

But how does Stop & Shop differentiate itself from its many competitors in the Northeast. According to an official at one of those chains, Stop & Shop has gone way beyond the normal in-store activities to make itself unique. “I have always been impressed with their in-store merchandising strategies,” he says. “Stop & Shop operates a clean store with a lot of extras. But now the chain is adding on in other ways that is making it a more attractive retailer and a more efficient one.”

For example, the chain rolled out a personal scanner called Scan It! last year. By swiping their loyalty card, shoppers activate the gadget which links to all of their past purchases. As they walk through the store scanning their groceries, the unit delivers customized offers on certain products. The hardware is from Motorola, based in Holtsville, N.Y., and the software is from Modiv Media, based in Quincy, Mass.

“This allows you to present highly relevant content and offers to customers at the point at which they are considering a purchase. That’s the golden future we’ve all been talking about for a long time,” said Stephen Vowles, the chain’s senior vice president of marketing, speaking at the Loyalty, Engagement, Analytics and Digital (LEAD) Marketing Conference last October in Chicago. “This is very real and it is delivering a lot of value,” he said, adding that shoppers using the device spend an average of up to $7 more per trip.

The Scan It! device is part of an in-store media network that also includes the Order It! kiosk for the deli. With the latter, also from Modiv, consumers can be notified when their deli order is ready either with an in-store announcement, or with a text message, so they can keep shopping instead of waiting. Vowles sees an eventual integration of the digital systems. For example, Scan It! users would get “order ready” alerts from the Order It! system.

The chain and Modiv are working with food and beverage suppliers to have them promote brands on the device. For example, shoppers exhibit certain purchase tendencies. By looking at their purchase history, the chain can put together a relevant offer via the personal scanner just when the shopper is deciding what to buy.

“Stop & Shop is doing that with its ability to talk to shoppers on a one-on-one basis,” says Kramer at RockTenn. “Nobody has been able to do that anywhere in the industry. It essentially is a conversation platform with shoppers that is driven by their frequent shopper card. That provides them with a real differentiating position in the marketplace. It’s a fascinating analytics tool, and there’s really nothing like it in the industry.”

And there is really nothing like Stop & Shop when it comes to working with them on promotions, according to Michael Schiff, managing director of Partners in Loyalty Markeing (PILM), a Chicago-based consultancy.

“CPG manufacturers like working with Stop & Shop,” he notes. “There exists any number of manufacturer-run programs that CPGs can execute with their retail partners. These programs run the gamut from instant coupon machines that sit on the shelf to direct mail advertisements that consumers receive at their home.”

Fueling loyalty

In addition, the Gas Rewards program encourages shoppers to swipe their loyalty card when they purchase groceries. For every dollar spent in store or online at Peapod by Stop & Shop, shoppers earn one point. For every 100 points earned, they save 10¢ per gallon of gas at any of the 50 Shop & Shop gas stations.

“Why do manufacturers have a preference for programs at Stop & Shop?” asks Schiff? “The answer is simply that these programs tend to perform better there relative to comparable retail accounts,” he says. “It is not unusual for manufacturers to see a 5% to 10% greater sales lift at Stop & Shop than other chains running the same program. Stop & Shop customers tend to be more responsive to these programs than customers of other retail chains.”

Schiff is quick to say that result has nothing to do with the demographic or psychographic makeup of the shoppers. It has more to do with their loyalty to the supermarket.

“Stop & Shop has simply created a loyal and excited customer base through a variety of in-store tactics,” he says, singling out the Gas Rewards, Scan It! and Order It! programs. “These offerings have created a loyalty trifecta by targeting customers based on their shopping behavior, creating general excitement among their best customers, and delivering rewards that are perceived as having real value.

“This carries over directly to the manufacturer-run programs,” he adds. “They are seen as being run by Stop & Shop or—at the very least—having the store’s stamp of approval.  Research has shown that when the customer is excited about a program that they are enrolled in, they are much more open to additional stimuli that may come from that program. In other words, shoppers very much approve of the Stop & Shop programs and technologies they encounter. This makes them much more receptive to receiving manufacturer-run tactics that are co-branded with Stop & Shop.  The more consumers are receptive to an offer, the greater chance they will respond to it. Thus, the greater sales lift CPGs see at Stop & Shop versus other retail accounts.”

One stimulus that all shoppers respond to is lower prices, and that is another way Stop & Shop has distinguished itself recently. A few years ago, analysts report that the chain went to an EDLP-style format by moving to a hybrid model of pricing. In addition, they say Stop & Shop honed its ability to tailor its pricing by stores. By most accounts, store-specific pricing has been a success.

“They made a big commitment to changing their pricing strategy,” says Hertel of Willard Bishop Consulting. “They had the foresight to really get out in front of price image issues. They developed a cohesive pricing strategy and stuck with it. They started to reap the benefits of it in 2009.”

Cool gadgets and hot deals

Attractive pricing, promotional programs, and cool digital gadgets combine to lure shoppers to the grocery store and hopefully prevent them from “leaking” to the competition. But the main event is the store itself.

“Stop & Shop provides an inviting shopping experience,” says Barbara Harrington, president of Bran­design, a consultancy. “Shoppers take the time to actually stop and shop in the wide aisles with colorful displays. The soft lighting creates a relaxed, almost calm, atmosphere. Person­nel seem engaged, and there is obvious care in shelf and display upkeep as well as cleanliness. The sightlines are well planned; the shelves are managed and organized, easy to shop, while carrying a large assortment.

“The in-store signage is beautifully executed with regard to location, color and copy,” she continues. “On the perimeter, extended billboards define the bakery, produce, seafood, deli areas; below these, a horizontal band circles the perimeter, and changes color by section, with the name of the section backlit. Close to the consumer are beautifully designed signage message centers with differentiated and branded messaging. For example, apples and oranges are referred to as ‘orchard perfect,’ and ‘from the world’s best growers,’ while specific callout of ‘imported navel oranges’ and ‘nature’s sweetest red delicious apples’ are included with the price per pound. All the ‘stores-within-the-store’ carry the same branded message: unhurried, open, clean and colorful.”

Such a glowing eyewitness report by a branding expert provides evidence that a “facelift” of the décor in 2008 endures. It included an updated look for the supermarkets, new logo, new menu of prepared foods, and expanded private label products.

Those changes took place when Ahold USA moved Schlicker and William (Bill) Holmes from Giant-Carlisle to Stop & Shop to become CEO and executive vice president of sales and operations respectively.

“I’m always interested when senior leadership changes and the business continues to progress,” says Hertel of Willard Bishop Consulting, discussing the strength of Stop & Shop’s management. “The principles extend beyond any personality. That is evidence of a really well-run outfit.”

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