A Delicate Balance

PG pinpoints stops on the route to grocery-selling success in 2014.

Myriad challenges and opportunities lie ahead for grocery retailers in the coming year. • Operations, technology, health, service and connecting with consumers all will be paramount to supermarket operators bent on success in the new year, regardless of any economic or regulatory obstacles. In many cases, these areas are intertwined, making a coordinated effort to address them even more important. • On the following pages, PG offers a guide to winning at grocery retailing in 2014 …

SHOPPER ENGAGEMENT

The Consumer Connection

By Jim Dudlicek

Are loyal customers worth more?

The folks at Schaumburg, Ill.-based Nielsen seem to think so. “There is a strong link between the way consumers describe their loyalty habits and the way they subsequently buy — so even comparatively small shifts in what consumers say can manifest in big changes in what they do,” says Julie Currie, Nielsen SVP for global loyalty, in a November report from the market researcher. “While there is some consistency around the world in loyalty sentiment within categories, across retailers and service providers, there are also notable differences — especially for consumable products and in the online retailing space, where the likelihood to switch is greater.”

In the grocery sector, respondents to Nielsen’s Global Survey of Loyalty Sentiment expressed more loyalty to the retailer (globally, 74 percent said they were loyal to a grocer) than they did to brands (an average 61 percent loyalty across the categories surveyed).

Nielsen also confirmed something that grocers like Kroger with successful loyalty programs already know, that loyalty program prevalence and patronage go hand in hand. Conducted between Feb. 18 and March 8, Nielsen’s survey polled more than 29,000 online consumers in 58 countries throughout Asia-Pacific, Europe, Latin America, the Middle East, Africa and North America.

So what do grocery retailers need to be doing to ensure loyalty — to boost their standing in their shoppers’ hearts and minds? What strategies should they be employing, both face-to-face and digitally, to make that crucial connection toward return trips and sustainable loyalty?

Grocers need to come out from behind the counter and back of house to establish the kinds of relationships with shoppers that will keep them coming back. Shoppers are looking for a fun experience, as PG’s Meg Major reported last month on the Retail Feedback Group’s 2013 U.S. Supermarket Experience Study. But while they’re having fun, experiencing the theater of food demonstrations, product sampling, and mood-enhancing aromas, music and lighting, they want to learn something: the story behind their food, where it comes from, how to prepare it. Sure, shoppers could probably find this information online, but getting it from their grocer puts a face and a voice to the story, as well as providing a knowledgeable ear to process shoppers’ questions.

That said, an increasingly important aspect of the grocer-shopper relationship is social media, which extends a grocer’s reach beyond the store into places and times that consumers often need their guidance most. It’s surprising that a few grocers responding to PG’s annual report survey still don’t recognize the value of reaching out via Facebook and Twitter, and resist spending time and resources on them. But most see these sites as valuable tools to extend the grocer’s touchpoints to the kitchen table at list-making time, or the drive home when many consumers are just starting to think about what the heck they’re going to make for dinner.

Last month, Seattle-based Blueocean Market Intelligence ranked the top 10 retailers on its 2013 Social Media Effectiveness Index (SEI), a global study assessing the business impact of top retailers’ social media efforts. It found retail brands with positive scores across multiple social media dimensions have the greatest potential for market leadership and influence over customer experiences (www.blueoceanseil00.com).

Mainstream grocers in the top 10: BJ’s Wholesale Club (No. 2), Walmart (3) and Kroger’s Ralphs division (9); grocery upstart Amazon.com came in at No. 8.

“SEI goes far beyond social media usage and engagement. It explores the real business impact of social media. We’ve identified who’s doing it right and who has room for improvement,” says Anees Merchant, Blueocean SVP. “Top SEI companies are using social media more strategically to disseminate the right mix and amount of information, build thought leadership, and develop a strong framework around the customer experience.”

Social media leaders employ virtual and traditional word-of-mouth marketing, offer digital discounts or interactive contests, promote an omni-channel presence (both online and offline), and integrate their social media efforts into their customer relationship management systems, Blueocean reports.

The evolving role of the retail dietitian will also be crucial to enriching the grocer’s relationship with consumers who, in ever-increasing numbers, want to know more about the origin, content and nutritional value of the foods they’re buying.

Nearly 40 percent of grocers surveyed by PG employ retail dietitians in some capacity, from marketing and merchandising to PR and pharmacy. Nearly three-quarters of retail dietitians collaborate with in-store pharmacists on the stores’ nutrition programs — a good sign that grocers understand the connection of good food to good health as part of sweeping wellness initiatives.

Less encouraging is that only about 7 percent of grocers that don’t already have a retail dietitian plan to hire one in the coming year. PG urges more aggressive movement in this direction as a way of further enhancing the customer relationship and the grocer’s standing as a food information resource.

SERVICE

Empowering the People

By Joan Driggs

“A great aspect of store-based retail is that regardless of new technology and tools to serve the customer, there’s no replacement for a positive service interaction with a person,” says Doug Madenberg, principal of Retail Feedback Group (RFG), a Lake Success, N.Y.-based firm that helps retail clients listen and respond to their internal and external customers.

While people have always been the bedrock of successful grocery stores, Madenberg says the scope has widened. “Years ago, we talked about customer and employee satisfaction. Then there was a shift to loyalty metrics,” he says. “Now the emphasis is on engagement with both internal and external customers, and the concept of engagement has broadened to include more of the things that are important to today’s shoppers and employees, such as community and self-fulfillment.”

Success still begins with hiring the right people. “We hire nice people to train; we don’t train people to be nice,” says Dave Skogen, chairman and “cheerleader” of Festival Foods, a Onalaska, Wis.-based grocery chain. “When you hire based on character, you’re hiring someone who came from good parents. … We see quality, humbleness and a certain amount of passion.”

Skogen says Festival’s team of human resources specialists look for body language and try to measure character in applicants. “They visualize the person’s character, what he/she is like when no one is looking,” he explains.

While all retailers have some customer service component to their training programs, “the best retailers place more emphasis on situational training and role playing,” says Madenberg. “The best employees are the ones who can think like an owner of the business. … Friendliness and attitude are part of the equation, but the real prerequisite is empathy or some measure of emotional intellect. The best employees understand the mind state of the customer, in addition to the customer’s need, and then address it in the most effective way.”

In his book “Boomerang! Leadership Principles That Bring the Customer Back” (9th Street Publishing, 2013), Skogen supports Madenberg’s assertion that employees need to be empowered to make their own decisions. “…[T]oo often some rules will limit what our associates can do to serve our guests,” Skogan writes.

Festival’s “Boomerang” theory is that “every business decision we make is based on this question: Will it bring the customer back?” It also includes the company’s care of employees, because customers will receive better service from associates who are satisfied with their work.

As part of its hiring process, Market Street, part of The United Family, in Lubbock, Texas, has audition interviews. Applicants receive basic training, but then are observed in a live customer situation as part of the interview. This allows hiring managers to assess not only a candidate’s technical grasp, but also her predisposition to be successful and if she’ll be happy in her role.

Ongoing employee support is also key — in both good times and bad. On the positive side, it’s important to boost associates’ self-worth by sharing customer feedback. In Festival’s world, this includes a “Nice Going” sticker presented by teammates. When times are tough and employees might need “recharging” to feel good about their work, Festival offers both candor and support. The company coaches managers to speak candidly with associates, not just at review time. It also partners with Wake Forest, N.C.-based Corporate Chaplains of America to support associates personally and professionally.

Perhaps the most obvious way companies can get employees to think and act like owners, says Madenberg, is to make them owners through employee stock option plans, or ESOPs. RFG research indicates employee-owners are most likely to represent today’s ideal: empowered, empathetic and connected to their company, their customers and their communities.

OPERATIONS

A Taste of Things to Come

By Meg Major

A variety of regulatory and societal forces in play that revolve around transparency and consumers’ right to know has made the present food world a vastly different place than it was just a few short years ago.

Among the priority issues retail trading partners will continue to confront in 2014 are the Food Safety Modernization Act (FSMA), GMO labeling, traceability, trans fat, humane husbandry practices and sustainable sourcing/harvesting practices.

Food Safety

Signed into law on Jan. 4, 2011, FSMA was the most sweeping food safety legislation to occur in the past 70 years. FSMA shifts the focus from responding to food safety issues to preventing them. But it wasn’t until January of this year that the U.S. Food and Drug Administration (FDA) — the federal agency charged with enforcing the new food safety law — proposed the first two of five rules, in accordance with the law, that will establish requirements for farmers, food companies and importers.

The first two rules covered Preventive Controls for Human Food, and Produce Safety, with the latter requiring that science-based standards be set for the production and harvesting of fruits and vegetables. In response to numerous requests, the public comment period on the more controversial aspects of the rules have been extended, the latest of which expired Nov. 22 as this issue went to press.

Yet while much of the industry supports the core goals of FSMA, the industry’s major trade groups, including United Fresh Produce Association, Produce Marketing Association, Organic Trade Association and the California Leafy Greens Marketing Agreement (LGMA), among many others, are working overtime to ensure the final rules aren’t rushed through without getting it right, particularly with on-farm regulations.

The federal government’s electronic system for collecting opinions on draft regulations received more than 11,500 comments on the produce rule and more than 5,240 on preventive controls for processing foods. While a provision in the Farm Bill will allow for a delay in FSMA implementation as conferees work out the sizable and complex differences, the 1,600 pages of regulations make it clear that rural America’s biggest issue will remain in the headlines for the foreseeable future.

Taking on Trans Fat

In addition to FDA’s full plate with FSMA, the agency recently caught the industry by surprise with a notice tentatively classifying partially hydrogenated oils (PHOs) as not generally recognized as safe (GRAS) for use in food. The agency opened a 60-day comment period to collect additional data and gain feedback on the time potentially needed for food manufacturers to reformulate products containing artificial trans fat if the preliminary determination is finalized. In that case, PHOs would be considered “food additives” and couldn’t be used in food unless authorized by regulation.

The Washington, D.C.-based Grocery Manufacturers Association (GMA), which represents more than 300 food, beverage and consumer product companies, responded by affirming that voluntary product reformulations and the development of suitable alternatives have lowered the amounts of trans fat in their products by more than 73 percent since 2005. GMA pledged to work with FDA “to better understand their concerns and how our industry can better serve consumers.”

Meanwhile, Americans are divided on whether the government should be involved in their food choices. A recent nationwide survey by the Pew Research Center found 44 percent in favor of prohibiting restaurants from using trans fat in foods, while 52 percent opposed the idea.

Pent-up Demands

Another retail hot button is sustainable farm-to-table food products traceable to local/regional farmers and producers. Whether it’s middle-class moms or information-seeking baby boomers, nearly every consumer subset has a desire, on some level, to know about how and where their food is raised/made/grown/harvested.

This groundswell is giving rise to an escalating base of food-conscious shoppers who are moving beyond nice-to-know ingredient examinations to full-scale verification of the sourcing and marketing claims increasingly present on food labels, including purely natural, non-GMO, Fair Trade and humanely raised. No longer pricey luxuries for a select few, sustainable meat, poultry and seafood have gained ever-steady traction with mainstream shoppers who focus more on quality over quantity for products bearing wild-caught seafood certifications, free-from assurances, sustainably harvested protocols and animal welfare guidelines.

Ahold USA — with nearly 770 supermarkets in 13 states and its Peapod e-commerce subsidiary — was at press time the latest in a recent series of big retailers leaning on pork suppliers to move from the daily use of gestation crates to open housing for pregnant sows. Similar announcements by the likes of Costco, Safeway, Kroger, Target, McDonald’s and Quizno’s, alongside nearly 60 other companies such as General Mills, Smithfield, Hormel and Cargill, underscore the mounting trend that when it comes to a kinder food supply, the times are indeed a-changing.

Renowned animal welfare scientist and meat industry advisor Temple Grandin is clear on her stance: “Confining an animal for most of its life in a box in which it is not able to turn around does not provide a decent life. We’ve got to treat animals right, and the gestation stalls have got to go.”

Sheer Happenings

Although Washington state residents were the latest to reject a legislative measure to require genetically modified foods to be labeled accordingly on their store shelves, the anti-GMO movement is tracking ever stronger as a top consumer issue. While there’s no research that shows GMOs are harmful, the issue is as clear-cut as it gets for many, who believe they have the basic right to know what their food products are made of.

In the increasingly transparent world in which we live, however, many brands are heeding the drumbeat by voluntarily adopting non-GMO stances, similar to the movement a few years back when dairy brands began rejecting milk containing artificial bovine growth hormone, or rBST.

Within the context of the transformative shifts, food retailers still have extensive opportunities to build strong, lasting relationships with shoppers. But it will require a move away from a utilitarian approach to showcasing deeper engagement with products across the store that offer authenticity, distinction, specialization and, yes, transparency.

HEALTH & WELLNESS

Partners in Health

By Bridget Goldschmidt

“Although shoppers will increasingly become concerned about preserving the world, they will also spend significant and increased amounts on preserving themselves,” asserts “Retailing 2020: Winning in a Polarized World,” a report by PricewaterhouseCoopers (PwC) and Kantar Retail. “Health and wellness will continue to be a priority for shoppers and an increasingly lucrative business platform for retailers.”

As most people’s main source of food, grocers are in a unique position to foster this continuing consumer focus on health. Over the past few years, supermarkets have increasingly addressed the health concerns of consumers, as well as their own associates, through such programs as personalized counseling from in-store nutritionists or dietitians, cooking demos, informational signage, online information, in-store publications containing recipes and nutrition tips, store tours for schoolchildren and other groups, and initiatives to encourage weight loss, physical exercise and quitting smoking, among other positive changes, along with stocking the newest better-for-you food products. But going forward, what will grocers need to provide for health-conscious shoppers and employees to retain their trust and patronage?

To find out, Progressive Grocer spoke to Mike Paglia and Jessica Campbell, principal analyst-grocery and dollar, and drug analyst, respectively, at Kantar Retail in Boston. Paglia classifies current efforts at retail as health services and education such as in-store clinics and wellness experts, food-oriented programs like the “Guiding Stars” and NuVal nutritional navigation systems, and initiatives emphasizing exercise and fitness. He notes that some combination of these three basic approaches is currently in place across food retailers of all sizes, from large national chains to regional and even single-store operators. The trick, according to Paglia, is to make shoppers more aware that these programs exist.

Opportunities Abound

One advantage food retailers with pharmacies may have over drug stores, Campbell says, is the ability to form more one-on-one relationships with customers, since drug stores fill a higher volume of prescriptions and so have less time for patient interaction. (Of course, low-volume supermarket pharmacies can also lead to closures, as Dr. David Rogers discusses in his Progressive Views column on page 20.)

Campbell also points out the opportunity retailers have to develop initiatives to help consumers manage diabetes, because of the health condition’s increasing prevalence. One strategy she suggests supermarkets could adopt from the drug channel is to feature signage throughout the store calling out which products are best for a variety of need or disease states, including diabetes. Additionally, Campbell views health care reform as a huge opening for retailers with pharmacies to position themselves as experts able to guide consumers through a potentially bewildering process.

The main issue, as Paglia sees it, is that grocers with pharmacies don’t combine their food and drug businesses in comprehensive health-and-wellness programs as much as they should — something that he thinks will change in the near future as consumers’ health consciousness grows ever more firmly entrenched. Before those types of all-inclusive efforts can happen at more companies, though, there are “internal silos that need to come down a little,” he observes.

Both Paglia and Campbell believe that store-level health-and-wellness education needs to be clear and concise to demonstrate the benefits to shoppers, with cooperation across different categories; Campbell compares such an integrated approach to a grocery end cap offering all of the ingredients to bake a cake.

Paglia concedes that wellness programs aimed at associates may take a while to implement more widely, as companies must first develop a business case for such initiatives and undergo a “mindset shift.” He thinks that eventually, however, such programs will become more common, until they reach “critical mass.” He also envisions that partnerships between grocers and community entities such as hospitals “should pick up in the coming years.”

According to Paglia: “You can make the argument that health and wellness has been part of most food retailers since they started offering pharmacies. [Tese types of programs] will keep playing out and evolving as the culture focuses more on health and wellness.”

TECHNOLOGY

Back to the Future

By Joseph Tarnowski

The challenge with the future of technology in the grocery industry is that, when it comes to infrastructure, data and point-of-sale software, grocers may find that they’re too rooted in the past. Some are using legacy systems that are approaching a decade or more of service and, in a world of cloud computing, social media and Big Data, just can’t keep up.

This was one of the items discussed during Progressive Grocer’s Connected Consumer Summit, held this past October in Chicago and sponsored by Verizon Wireless, at which 11 retailers from nine grocers discussed consumer-facing technology.

“Grocery being around for decades and decades is built on an infrastructure of legacy systems that aren’t built for the connected world that we have today,” says David Palmer, VP of marketing for West Sacramento, Calif.-based Raley’s. “In part, at least I’ll say for us, but every other retailer, I bet, as well, struggles with where the data fits, how the data connects and how you get access, and also who controls it from a security standpoint. And as you look at grocery and the low margins we have, how can we move from where we are today into the future of where we need to be when we’re competing with startup companies that have seed money, venture capital, and they are building the infrastructure today for the future? And we have to go from where we are to the present and build for the future, while at the same time sustaining the business we have. That is a significant challenge.”

This is the exact reason that Rob Bonacci, VP of marketing for Abingdon, Va.-based K-VA-T/Food City, plans to overhaul his company’s systems, beginning in January. “We’re looking to see where those applications, both inside stores as well as digital, social and mobile, need to be in the future,” he explains. “Because, as we look at it, the younger generation comes up knowing the technology, and we have to be ready for them because they are our future shoppers.”

Another trend being driven by the digital age is the merging of IT and marketing functions, particularly as the media used in marketing becomes increasingly digital.

“By merging these functions together, we’re hopefully going to be able to provide technology for our retailers that will address the upcoming generations of shoppers,” says Glenn Krizcky, VP of IT for Associated Wholesalers Inc., a retailer-owned wholesaler in Robesonia, Pa. “Among those consumers my kids’ age and younger, who looks at an ad in the paper? Nobody. How are we going to get to those people? We keep ignoring the shoppers who are in their 20s, 30s and 40s. The only way to accomplish this is by reaching them in that world they all carry with them when they walk in the store. So we have got to figure a way to more effectively communicate via social and mobile.”

Mike Brown, executive director of retail marketing services and technology for Commerce, Calif.-based Unified Grocers Inc., another retailer-owned wholesaler, is implementing a similar initiative at his organization. “We’re taking a little bit more of an aggressive step there because we saw the convergence of technology and marketing together,” he says. “My background has been retail technology, not marketing, but I got put in a position of taking over advertising, marketing and a couple other areas within Unified. So we really see that coming together, and we moved that kind of retail technology and marketing into our CMO, who I now report to instead of our CIO. All of the infrastructure stuf still is under IT, including warehousing systems and finance. Anything to do with retail technology that involves retail stores is now under marketing.”

Most grocers see social media as a valuable tool to extend their touchpoints to the kitchen table at list-making time, or the drive home when many consumers are just starting to think about what to make for dinner.

Success still begins with hiring the right people.

One advantage food retailers with pharmacies have over drug stores is the ability to form more one-on-one relationships with customers.

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