From the Publisher: The good times ahead

An improving economy could actually spell trouble for the grocery industry. How can retailers position themselves to benefit from an economic recovery?

By Seth Mendelson

Could the end of the recession actually be bad news for the supermarket industry? To a degree, it may be. Some economists say that once the current economic upheaval does come to a conclusion—and there is no guarantee that is anytime soon—grocery store sales could be negatively impacted.

Their logic is pretty simple. During tough economic times many consumers do all they can to pinch pennies and make their dollars go further. That means eating home-made meals, usually with products that are purchased from supermarkets. When they do splurge, it is often by purchasing products at the prepared foods counter, which, to some degree, has become today’s gourmet restaurant, only at half the cost.

Conversely, during the better times, these same shoppers are much more likely to put away the pots and pans, grab the kids, and head out for a nice dinner, or at least, a quick meal at a fast food outlet or the neighborhood Chili’s or T.G.I. Friday’s.

So while the grocery industry joins the rest of the world in hoping that this nasty recession comes to a conclusive end and the coming good times last awhile, many in the industry do so with the hope that consumers will not abandon their penny-pinching shopping patterns of the past few years.

Of course,retailers can help convince and entice consumers that they should use their stores just as much—if not more often—during good economic times as they did during the tough times. The good news is that keeping shopper loyalty will not really involve pricing. Instead, retailers will have to pay a lot more attention to the needs and desires of their customers and determine what exactly they want to keep them coming into the store. In particular, quality, which may have taken a back seat over the last few years to pricing, will again become a much larger factor in consumers’ shopping decisions.

But, there is more. The increasingly intense battle between national brands and private label products will only increase in better times. Private label brands, for the most part, have crossed through the quality barrier and now must be considered a legitimate alternative to national brands across virtually every packaged goods segment.

National brand manufacturers should not take this lightly. As things improve, consumers may be willing to return to the national brand if the supplier makes it worth their efforts. That may mean reducing price points on national brands, or coming up with new varieties that are not being imitated by the private label industry.

Regardless, grocery retailers need to understand that any improvement in the economy may not trickle down to the supermarket. Instead, business may be as tough as ever. Be prepared for it and plan ahead.

Seth Mendelson can be reached at 646-274-3507, or at smendelson@groceryheadquarters.com.

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