The face of the American consumer is changing. Can supermarket retailers, and their suppliers, change with it? Their overall business model may depend on it.
For the supermarket retailer, the challenges never end.
Drugstore chains, club stores and even convenience stores are now players in the grocery game. Grocers must devise a strategy to counter them.
There are discount stores that sell non-perishables for less than the average food store. Internet retailers will deliver everything from dish detergent to apples to the customer’s door. Grocers must find a way to cope.
Then there is the whole digital shopping phenomenon, which seems to grow new tentacles and take on a different shape every day. Thus, the grocer must embrace social media, react to every technological change and know their customers better than they know themselves. All while creating a marketing plan that attracts shoppers to their store and not send them somewhere else.
Grocers have a lot on their plate, but there is more—lots more. The face of America is changing and the supermarket must change with it. Welcome to the world of demographics, which is amid one of its biggest upheavals ever.
Baby boomers, that huge chunk of the buying public born from the mid-1940s to the mid-1960s, are fading away. Millennials, those born from the early 1980s to the early 2000s, and who are so dependent on their iPads and smartphones, are an emerging consumer market. So, too, are minority groups, with Hispanics and Asians leading the way. Then there is the widening gulf between America’s wealthy and its less fortunate. The recession that started in late 2008 has hit the country hard and many families need their supermarket’s help in making fewer dollars stretch farther.
Somehow, grocers must adapt to all these changes, but the good news there is time. The changes are ongoing and gradual. Demographers say that half of the population will be non-White or Hispanic by 2038. Hispanics themselves will comprise more than 30% of the U.S. population by 2050.
“Demographics are about customers,” says Dr. Richard George, a professor of food marketing at Saint Joseph’s University, based in Philadelphia. “The biggest change is that retailers have to start focusing on their front door rather than their back door.
“Most retailers still make their money on the buy—they get the great deals from the manufacturers. The only reason they want you and me to come in is to empty the shelves so they can make more money on the buy. Now, I think they’re recognizing that the people coming through the doors may be different in terms of their needs, their backgrounds and their incomes.”
For the retailer, that means change is necessary as we approach 2020 and continue beyond it. Today’s typical supermarket has a little bit for everybody but not a lot for anybody. Industry observers say that must change. There are so many economic, cultural and age variances that no one store can be all things to all people.
“I can’t document this, but my feeling is that there are probably greater shifts occurring demographically in the zip code level than there used to be,” says Dr. Bill Bishop, founder and chief architect of the Brick Meets Click website, which delivers strategic insights to retailers, suppliers and technology providers, especially in the supermarket industry. “As a consequence, individual store markets are changing more quickly. What we have here is a faster shift in the makeup of the local demand—the people living in the trade area of the store.”
Keeping pace with change
That can be an issue for the retailer whose store assortment is determined primarily at a corporate headquarters hundreds of miles away. Bishop says coping with changing demographics locally would be more manageable if assortment planning could be done at the store level.
“The problem is less that the demographics are changing faster; it’s more where they are changing and the fact that our management of assortment isn’t built to keep up with increasing change and diversity in the demographics around each store,” Bishop says.
With that in mind, the wise retailer lets neighborhood demographics play a significant role in what type of supermarket to place where. George cites Lakeland, Fla.-based Publix Super Markets as being a leader in that type of planning with its Sabor markets, which cater to areas with large Hispanic populations.
As an alternative to Whole Foods and other stores of that genre, Publix also has a line of GreenWise stores, which stress fresh produce and nutrition for those who are particularly health conscious.
“Here’s the deal,” George says. “Supermarkets like to build a market that they hope everybody comes to, but to do that you have to compromise. What Publix did was develop a supermarket for Hispanics. A few years ago H-E-B developed Mi Tienda, which is another market for Hispanics. So a couple of very good food retailers have done this, and it’s a model which, if I were the Safeways, the Krogers, the Albertsons of the world, I’d be looking at these things and asking myself, ‘How are they doing?’ I think the future is multiple banners.”
H-E-B, the San Antonio, Texas-based supermarket group, did not stop the specialty trend when it opened Mi Tienda stores for the Hispanic community. Its H-E-B plus! stores have a more department-store feel because they offer the same grocery items a standard H-E-B store has as well as nonfood items ranging from electronics to lawn goods.
The chain’s Central Market stores cater to the foodie with its gourmet offerings. For those who need meal-preparation help, Central Market stores offer cooking lessons. Its Joe V’s Smart Shop stores are primarily in the Houston area and offer customers groceries at discount prices.
“When you look at all the markets that are doing well in this country right now, it’s the specialty markets,” George says. “I always say, ‘There’s riches in niches.’”
One of George’s favorite examples of that comes from the hotel industry. He is the author of Success Leaves Clues, a book about sales and marketing techniques. Its title urges readers to study why others succeed and borrow what works.
He tells the fictitious story of an accountant from the Marriott chain driving down an interstate and seeing a Fairfield Inn, a Courtyard and a Marriott hotel off the same exit. “The accountant goes, ‘Wait a minute, we could build just one of these,’ George says. “But if you build just one, you make all the groups compromise.”
The point is that different people want different types of accommodations at different price points. Marriott offers consumers 14 hotel options, from the luxurious Ritz Carlton to the budget-minded Fairfield Inn.
Bishop agrees that supermarkets need to have an identity, too, but he says that identity does not have to be rigid. “You’ve got to have a point of difference,” he says. “I don’t think the point of difference has to be as sharply defined as becoming a Wegmans or a Fresh Market or a Whole Foods or an Aldi. It can be defined by a blend of offers.
“In Chicago, we have this new Mariano’s chain that has a combination of really good prepared food at quite popular prices, and it’s very well presented. The store has very good grocery prices and pretty decent service. That bundle of advantages sets it apart from other stores in the market. As a consequence, it’s really grabbing market share.”
If store specialization is the wave of the future, is there still a place for the mainstream supermarket?
“The short answer is ‘yes,’ ” says Bob Hermanns, director of food industry programs at the University of Southern California’s Marshall School of Business. “You’re seeing stores that are downsizing—smaller formats, smaller footprints. All the smart retailers are looking at the impacts of these changes and how they protect their businesses. They’re adding services or assortments.
Hermanns uses the “buying local” trend as an example. “The whole local produce emphasis has been a phenomenon in the last three to five years,” he says. “Well, that’s something anybody in any area can do because it is local. It relates to your customer.”
As the former chief operating officer for Sunbury, Pa.-based Weis Markets Hermanns understands what today’s supermarket retailer is going through. “If I’m a supermarket operator today, I’ve got to be thinking about all these constituencies who are my customers,” he says.
Meeting different needs
The baby boomers are such a group. They represent a large percentage of the buying population, but they are aging and their needs are changing. In an attempt to accommodate them, Hermanns says larger print on shelf and packaged-goods labels is needed. He also says retailers would do well to ramp up the services available to aging baby boomers.
He adds that the supermarket executive must also be cognizant of all the different generations and how their traits translate to food shopping.
Members of Generation X (early 1960s to early 1980s), for example, tend to be well educated and a bit more adventurous with their food choices. The Millennials, or Generation Y, want to shop digitally and demand service because they know they have shopping options.
Another changing demographic is the emergence of the male shopper. Census statistics show men and women are waiting longer to get married and that the number of single-parent households is rising.
“We’ve done some research at USC on the growth of the male as the primary shopper, whether that’s a stay-at-home dad, a single-longer person or a divorcee,” Hermanns says. “Companies like H-E-B and Unilever have done some things specifically targeted at the male shopper, but the two-edged sword here is: As you recognize the differences in the male shopper (less impulsive; more on a mission, he says), you don’t want to lose sight of what brought you to the party, and that’s the female shopper—and she’s changing.”
Since the recession, income levels have also changed—and not for the better. Census statistics show that median household income has decreased 8.1% in the last six years. If there is an overriding demographic that is shaping the future of retail, Dr. David Rogers, president of Deerfield, Ill.-based DSR Marketing Systems, believes it is that.
“More and more Americans are getting poorer, and that’s not a pretty story,” says Rogers. “I don’t think it’s just a temporary blip. This is a permanent, long-term event.
“The increasing number of poorer people is encouraging the growth of limited assortment stores like Aldi and Save-A-Lot, and that’s why Lidl is coming to America—slowly but surely. I’m amazed how understored many areas of America are in terms of hard discount stores in the European mold.”
Lidl, a format spawned by Germany’s Schwarz group, is a global discount supermarket chain that Rogers believes will arrive in the U.S. in 2014 or 2015, probably on the East Coast. Rogers says Lidl has copied the Aldi format for 50 years and sees that its fellow German discounter is not rolling out stores in the U.S. quickly enough. Given the dearth of discounters here, Lidl is preparing to seize what it sees as an opportunity.
“This is a huge demographic shift in terms of income, but it’s not being adequately served by the American supermarket industry,” Rogers says.
If American supermarket retailers have been slow to fill what Rogers sees as a chasm in income disparity, have they been just as slow to respond to all the other demographic changes? “I think a fair number of them have been sluggish,” he says.
Bishop says the industry remains behind the curve in its attempts to relate to younger shoppers and their digital devices. However, he believes the industry has done well providing the wellness products and tending to the pharmaceutical needs of the baby boomers. He gives retailers a lower grade for the selection of ready-to-eat foods they offer.
“We’ve had sushi there for a long time in a large number of stores,” he says, “but there are other eating styles that have become prevalent—Thai, for example. What kind of Thai food do you find? I don’t think we’ve got the ready-to-eat, ready-to-heat thing nailed down, and that’s a vulnerability.”