Resetting the Shelf
With Albertson’s and American Stores merged, can Kroger and Safeway be far behind? Apparently, they can be.
Though rumors boomeranged about a merger between the former first- and second-largest grocers, by last month several analysts had gone on the record to suggest a marriage is not in the works. (Fueled by the gossip, however, Kroger shares rose 64 percent in 18 months.)
“I think it’s simply a rumor that has taken on a life of its own,” says Chuck Cerankosky, an analyst with McDonald & Co., Cleveland.
Whether the marriage takes place or not, the speculation was a sign of the times for supermarkets. A spate of mergers in the past two years have essentially re-programmed the face of the grocery industry.
In-store marketers confront a riskier and perhaps more costly environment as chains grow and amass bargaining power. Retailers will demand more store-level results from these marketers and merchandisers, from giant programmers like St. Petersburg-based Catalina Marketing Corp. to shelf-setters like New York City-based Spar Marketing.
“Supermarket consolidation will have a huge impact on in-store marketers,” says Tim Hawkes, managing partner Trade Zone, Westport, CT.
The more power a retailer accumulates along with market share, the harder it can negotiate. Mighty new companies commanding large chunks of ACV will leverage that with the in-store service vendors, as they have with manufacturers, says Hawkes.
Large chains raise the stakes for in-store providers.”All of a sudden, one point of decision is more important than it ever was before. Each ‘no’ is a much larger hole in your network,” says Hawkes.
And each “yes,” it follows, is a bigger victory.
Grocery Combos When Boise, ID-based Albertson’s, Inc., capped a year-long acquisition jag by buying American Stores for $11.8 billion in stock, it vaulted from the fifth-largest to the No. 1 U.S. supermarket chain, with 2,440 stores. Kroger operates 1,400 supermarkets, Safeway 1,378.
Many analysts and insiders see industry consolidation marching ahead as chains seek efficiencies to offer consumers better prices. Discount retailers such as Wal-Mart Stores and Kmart Corp. are pushing food consolidation ahead by expanding into grocery and the one-stop shopping solution.
Boasting strong local or regional chains the likes of Giant Eagle in Pennsylvania, Schnucks in St. Louis, Wegmans in Rochester, NY, and HEB in Texas, the food industry resembles the drug chain industry of 10 years ago, before rampant merger fever took over. Today, a few huge giants like CVS and Rite Aid stand astride a pharmacy landscape littered with dazed independents.
“The consolidation trend in supermarkets shows no sign of abating, ” says Jim Wisner, vp of Willard Bishop Consulting in Barrington, IL.
Regional chains, which over the last few years have refinanced their capital structures through IPOs or leveraged buyouts, are today among the attractive candidates, says Wisner.
Chicago’s Dominicks has retained the services of an investment banker exploring a sale, says another analyst.
“[Food store consolidation] means the balance of power continues to shift. It’s going to change the landscape relatively significantly for in-store marketing companies,” says Catalina Marketing’s executive vp of marketing and new applications David Diamond.
Retailer aggression Consolidation will catalyze retailers’ slow transition from distributors to marketers, vying to have the cleanest stores, the shortest lines, and the best services in order to hold big-ticket customers. In so doing, they will demand more from in-store marketers.
“The retailers will be just as aggressive with us as they are with the manufacturers, saying ‘I’ve seen targeted marketing work. Now how can it work for me?'” observes Diamond.
Catalina last year expanded services to retailers in its Catalina Marketing Loyalty program, offering loyalty card services and data management to support targeted incentives and messages to consumers. Of the 12,000 food stores with Catalina systems, 6,000 have the capability of gathering consumer data for targeting based on buying patterns. The program helps retailers promote their own products, departments, and services.
Massive consolidation-which some suggest may result in eight or nine large chains with a few strong regionals thrown in-doesn’t necessarily lead to homogeneity, such as in marketing and merchandising. Local grocery divisions will have decision-making scope to keep chains responsive to markets. Decisions on some in-store service providers might be made locally, say some analysts.
With the Albertson’s/American Stores merger, American Stores divisions may find themselves with more rather than less autonomy in marketing and merchandising decisions.
American Stores was in “a massive centralization mode”, and moved to centralized buying, notes Willard Bishop’s Wisner. Albertson’s may look at putting some of the localization back into the operating companies, giving them more autonomy on the marketing side, he says.
Catalina has its systems in all of American Stores divisions but not in Albertson’s. “Albertson’s has indicated they do not intend to radically change Am erican Stores. We view it as an opportunity to show our stuff with Albertson’s,” says Bishop.[dave: this quote sounds like a catalina guy. who’s bishop? not willard? he’s a consultant, and anyway, you talked to wisner.]
Local responsiveness The need of supermarket chains to be responsive to consumers will be a plus for merchandising services companies, which have experienced growth of 20 to 25 percent a year as manufacturers outsource services and retailers focus on ECR-driven self-sets, says Gary Ebbens[you spelled this guy Ebbans in a quote i deleted. which is it?], executive director of the National Association of Retail Merchandising Services in Stevens Point, WI.
The in-store merchandising industry is growing primarily because retailers can’t find labor, says Ebbans.
“There will be national players providing national in-store services. But there are plenty of smaller companies that are very niche-focused by city or state or type of retailer or product. It’s amazing how much work is being done in stores by outside merchandisers,” says Ebbans.
“Local companies understand local markets,” he adds.
But even though supermarkets might want to retain local personality and responsiveness in merchandising, in-store services is an area-like back-office accounting and MIS-where efficiencies can stem from consolidating, some. analysts assert.”These types of programs from an administrative standpoint are easily centralized,” says Wisner.
Trade Zone’s Hawkes agrees: “These services don’t need to be different by division. You might customize the look on a coupon machine coupon, but it’s still a coupon machine” that could perhaps be purchased from one vendor rather than 15.
Why shouldn’t efficiencies of scale apply to in-store services? A chain could take several million dollars develop its own Internet-linked kiosk system, say, and spread the cost over its large base of stores.
Building a retail network to sell to manufacturers would certainly be easier, with a few monster chains comprising the industry.
“The most significant risk to in-store marketing is if chains get large enough to develop programs on their own,” says Wisner.
Squeeze play “Retailers would love to squeeze out the in-store providers. As they get larger they can more easily support dedicated resources for in-store marketing,” says Bob Hilarides, partner Cannondale Associates, Evanston IL.
Yet Hilarides sees industry consolidation potentially developing in favor of in-store providers. If companies strip down management in local markets, they’ll need third-party help for consistent plan executions.
Sheer size provides insulation against competition for in-store marketers with national or large networks like Catalina, News America Marketing, or kiosk provider Inter-Act.
Providers like Relationship Marketing Group, Fairfield, CT, are offering turn-key solutions that would be prohibitive for retailers to develop themselves, argues, RMG president Jon Robertson. RMG creates “shopping lists” for consumers based on stores’ frequent shopper data. (see sidebar, page XX).
“Retailers don’t need to have this expertise. Our product is far superior to anything they would be able to do in-house,” he claims.
Keeping an edge might make all the difference if the industry as predicted continues finding reasons to justify expansion by checkbook.
“Service providers need to adapt their tools to this new environment and stay ahead of what the retailer can do themselves,” says Hilarides, “or they will become private label suppliers.”
The Return of VideoCart? The corner grocer with an extra crate of cabbage to sell will collar the regulars and ask “try it.”
When Egglands Best applied the same tactic last year at Smith’s Food Stores, Salt Lake City, suggesting to shoppers “How about some eggs?,” it was a tried-and-true technique with a twist.
Customers received the offer via computer screens fixed to shopping carts, as they were strolling past the egg display.
Klever Marketing, Inc. used the Olson Farms’ brand along with 30 other products in a Beta test of its Klever-Kart, which targets consumers at “point of selection” with messages and electronic coupons.
The Salt Lake City marketer set up a control store in the three-month test enlisting Information Resources, Inc. for the research.
The egg brand posted incremental sales of 46 percent, without offering any cents-off value, says Peter Olson, chairman and ceo of Salt Lake City-based Olson Farms.
“The people seemed to think it was a very good deal because it was being featured,” says Olson. “If they put it in chain, I’ll be there.”
Brands including Pepsi, Land ‘O Lakes, and Corn Chex participated in the test, which posted average incremental product movement of 46 percent.
Klever Marketing claims its Klever-Kart takes electronic POS messaging and couponing to the next level, improving on a radio-frequency technology-based system that was offered by VideoCart, which Schnucks Markets, St. Louis, had tested for five years. Klever Marketing bought VideoCart last year.
Klever-Kart’s RF system handles more shelf triggers so shoppers get screen messages when they are within a 10-foot radius of the shelf site. VideoCart triggered multiple products as shoppers entered an aisle, says Klever-Kart president and chief operating officer Gerard Coelsch.
The Klever-Kart display unit goes into scrolling mode when not near a “decision zone,” providing more brand messaging options, and has an electronic store directory, says Coelsch.
Merchandisers replace system batteries every two weeks providing a logistics plus over VideoCart’s batteries which charged for 10 hours, Coelsch adds.
The cart display emits a chime when the shopper gets in range of the trigger unit, which features a flashing red light and shelf sign.
“You are effectively placing an employee there to deliver the message,” says Coelsch.
Coelsch says Klever-Kart will launch a first-quarter 1999 rollout into 115 unnamed groceries. The system will debut a paperless couponing feature where shoppers activate coupon offers by pressing a button on the cart at checkout. The POS system registers the value and credits the savings.
The brand, or retailer, can control the length of time of an offer and the number of coupons dispensed with this system for paperphobes.
“It outdates the paper coupon. You don’t have coupons dribbling in for the next year, and you don’t have misredemptions,” says Olson.
Only time will tell if the Klever folk can right the many wrongs of IRI and IBM’s VideoCart, which violated the two key rules of in-store marketing devices: Don’t be too complicated, and don’t cost the retailer anything.
Grocery industry swings into merger mode Major acquisitions since 1997.
1998 Albertson’s, Inc., Boise, ID, buys American Stores Co., Salt Lake City, ID, for $8.4 billion. American Stores has 1,558 stores in 26 states under the names Acme Markets, Jewel Food Stores, and Lucky Stores. Albertson’s has 882 stores.
Albertson’s buys Buttrey Food & Drug Stores, Great Falls, MT, gaining its 43 stores, and buys 15 stores from Bruno’s, Inc., Birmingham, AL.
Safeway, Inc., Pleasanton, CA, buys Anchorage, AL-based Carr Gottstein, the state’s largest retailer with 49 stores.
Albertson’s buys the 10 stores of Springfield, MO-based Smitty’s Super Markets.
Fred Meyer, Portland, OR, owned by Yucaipa Cos., Los Angeles, buys Ralph’s Supermarkets, Compton, CA, gaining 409 stores. The chain acquires 89-store Quality Food Centers, Belluvue, WA.
1997 Raleys Supermarkets and Drug Centers, West Sacramento, CA, buys Nob Hill Foods, a 27-unit Gilroy, CA, chain.
Fred Meyer buys Smith’s Food & Drug, Salt Lake City, with 152 stores.
Safeway buys the Arcadia, CA-based Vons Cos., with 320 supermarkets.
In-store marketing migrates in-house with Relationship Marketing Group’s “shopping list” program, which bags retailers’ scan data for home consumption.
Marsh Supermarkets, Indianapolis, and Furrs, New Mexico, are among chains testing DataVantage by Fairfield, CT-based RMG. The program pins down the purchase cycle rate for products for selected households and sends customized shopping lists with cents-off coupons based on the shoppers’ buying patterns.
The values in the mailings are arranged according to the store’s layout. Shoppers are offered “instant electronic savings” with $10 to $15 worth of discounts in each mailer. Once in store, the consumer’s loyalty card or the shopping list bar code are scanned at checkout to claim the savings.
Last month, RMG decided to offer the program to manufacturers on a pay-for-performance basis. Product vendors will be offered a fixed cost rate for each unit sold.
Robertson says DataVantage is in 400 food stores today, but needs to enlist more participating brands. “We have 110 categories participating. We need about 100 more to have a meaningful list,” he says.
“Manufacturers can begin to give different incentives to people (grouped by buying patterns) based on the return they expect to get,” says Barry Kotek, principal at Naples, FL-based Retail Systems Consulting.
Since the direct mail piece comes not from a third party but from the local supermarket, it is more likely to be read. Consumers get the targeted values before their shopping trip, not during or after, an added plus of the program, Kotek says.
