Kroger’s Prospects Hinge on Price Leadership

It’s been as predictable as fall following summer.

Kroger’s long run of financial success in recent years, especially its record string of quarters with positive identical-sales growth, is a phenomenon that many observers have come to count on.

Each year, when financial analysts gather in SN’s New York offices for our annual roundtable, they remark on Kroger’s strong positioning. This year was no different.

 
“There’s no question Kroger has found the holy grail — that delicate balance between sales and margins,” said Gary Giblen, managing director of GMG Capital.

You can read the latest roundtable discussion here.

There were plenty more good things said about Kroger by the analysts, including about its strong ability to adjust selection to demand in each market.

However, the roundtable participants also pointed to some potential clouds on the horizon, and it’s worth taking a closer look. In particular, they noted Kroger’s strong price position could be vulnerable if competitors show continued seriousness about investing more in price.

Here’s an excerpt from that part of the conversation:

• Giblen: “What if Safeway were to take the money it got from Canada and put it into some real pricing? That could alter the environment for Kroger.”

• Andrew Wolf (managing director, BB&T Capital Markets): “That is the risk because that’s what’s happening at Delhaize and Ahold.”

• Scott Mushkin (managing director, Wolfe Research): “But Supervalu is doing it too. … We have everybody investing in price.”

• Wolf: “[Kroger’s] big point of differentiation has been that it’s only 10% above Wal-Mart while the next guy is 20% higher. However, if that next guy is only 12% higher and he’s right down the street from you, Kroger could have a problem."

Worrying about price differentials may not be keeping Kroger executives up at night. One analyst pointed out that Kroger probably spends the majority of its time thinking about privately held competitors, like Hy-Vee, H-E-B and Wegmans, over Wal-Mart.

But no company, not even Kroger, is assured its leadership position indefinitely.

Here’s what Giblen told me after the roundtable: “Kroger has to make sure it isn’t complacent. If they see Safeway or Supervalu closing a gap, they’ll need to reopen it.”

Price leadership is crucial to what produced Kroger’s success over the past few years. This bears close watching because the scenarios discussed here are possible.


Read More: http://supermarketnews.com/blog/kroger-s-prospects-hinge-price-leadership#ixzz2f9ez0BAc

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.”

Whataburger Taking Its Condiments to Retail

Whataburger Taking Its Condiments to Retail

(Original article posted Burgerbusiness.com and can be located here)

Whataburger is venturing into retail sales for the first time, announcing that its signature condiments—Fancy Ketchup, Spicy Ketchup and Original Mustard—will be sold exclusively at H-E-B stores in Texas and Mexico this summer.

The San Antonio-based chain’s Original Mustard, which dates to its founding in 1950, will be sold in 16-oz. containers with a label reading, “The True Taste of a Whataburger.” The Fancy Ketchup and Spicy Ketchup will be in 20-oz. containers, labeled “Bottled by Popular Demand” and  “Wake Up You Taste Buds” respectively. The Spicy Ketchup, introduced as an LTO in January 2012, was recently brought back and now will be a permanent part of the Whataburger menu.

Additionally, H-E-B will offer a newly created product called Whatafries, billed as “a potato chip version of the french fry,” made from real potatoes and packaged in a 7.4-ounce bag.

Whataburger is the latest of several burger operations that have moved signature products to retail. Midvale, Utah-based Arctic Circle has sold its bottled Fry Sauce for decades. Cincinnati-based Frisch’s Big Boy sells its Tartar Sauce; White Castle hamburgers are available in retail freezers. Umami sells its bottled house ketchup, “Master Sauce” and other condiments, McDonald’s even licensed a retail mayonnaise brand briefly in Europe.