Report: Specialized supermarkets take lead in industry - HEB, Wegman and more

There’s no denying that to many Americans, supermarkets are a bland and boring necessity. Sure, they’re convenient. But the way they’ve been bleeding market share for so long to other channels -- including drug, dollar, convenience, club, limited-assortment, discount and specialty stores, not to mention online retailers -- shows they just don’t generate loyalty.

A beefy new report from Hartman Strategy, a division of the Bellevue, Wash.-based Hartman Group, delves into how some supermarkets are becoming super again, while most are becoming increasingly irrelevant.

The best strategy, James F. Richardson, SVP of Hartman Strategy, which focuses solely on the food and beverage sector, tells Marketing Daily, is that supermarkets need to “focus on delivering great fresh food, which is driving the majority of shopping trips.”

Too many chains, he explains, act as if consumers are driven by the same pantry-stocking behaviors they were a decade ago. Hartman reports only 31% of dinners typically involve cooking from scratch. Instead, shoppers come to supermarkets to fuel their “what’s for dinner tonight?’ needs: Almost 31% of immediate-consumption eating occasions involved an item purchased at a grocery store.

And those so-called center-aisle products, the shelf-stable items that still account for 70% of sales, are less important. Sales are shrinking, not growing, and those slow-to-turn-over bottles of Worcester sauce, jars of pickles, and boxes of confectioners sugar cut into profits.

These consumer changes present plenty of risks for branded products as well. “The reality is that shifting volume out of grocery into discount channels presents a real long-term danger for established CPG suppliers,” the report says, “especially when discount channels are innovating in private-label emulations (and don’t require brand promotional spending to grab share).”

It’s also time for stores to abandon the pretense that they are all things for all people, he says. The fastest-growing leaders are those that are either offering specialization in a purely upmarket option, such as Whole Foods; one that is entirely downscale, like Winco; or an approach that varies its up-or-down strategy on a store-by-store play, a strategy used by HEB. 

Also critical: Making sure each store reflects local food culture. Tesco’s failure with Fresh & Easy provides a cautionary tale. 

“They ultimately designed an upmarket private label-heavy format that competes directly with Trader Joe’s,” the report notes, but then “placed 40% of its stores in zip codes skewing low income and/or low education, and 30% of its stores in Hispanic-heavy neighborhoods. The low-income, low-education consumer audience was not interested in their offering.”

By contrast, it points out how well Wegman localizes its stores, providing a high-end and differentiated experience to a broader audience.

Overall, the report says, it's time for stores to ditch the middle class. “The middle class consumer is more trained than ever to trade up or to trade down where appropriate in a multichannel food shopping context. They prefer to do this, however, at specialist retailers, whose commitment to editing the store against either of the market extremes is obvious, thorough, and well regarded in their social networks. Each supermarket ultimately needs to position itself at either extreme to outflank the local competition.”