Retailing's New Wave

During the '80s, changing consumer habits rocked the food retailing landscape, with superstores, warehouse formats and takeout coming out on top.

No one could ever accuse the 1980s of being a boring decade, especially not food retailers.

Immortalized by its flashy consumer marketing, unforgettable films and memorably iconic pop music, this period triggered landmark changes in food retailing that would forever influence the way Americans — and industry trading partners — view the role of traditional supermarkets.

With more women in the workforce and a new emphasis on outsourced services, conventional food retailers were forced to react or retreat during a decade that gave rise to a new breed of competitors vying for their slice of the food dollar. Value-rich warehouse stores and ultra-convenient superstores sprouted at the dawn of the decade, followed shortly by a rapid onslaught of fast-food formats and convenience stores, and, finally, Kmart and Walmart's infamous foray into the retail food game by the end of the decade.

With heated retail competition accompanied by consumers' relentless pursuit of bargain shopping, grocers found themselves engaged in price warfare. Double couponing made its first inroads on the grocery scene during this decade. Densely populated metropolitan areas, in particular, saw an increase in competition among the big chains of the day, while a robust number of independents were duking it out to maintain market share, often with the help of their primary wholesalers like Wetterau, Fleming, Supervalu, Scrivner and many others that have since been acquired or otherwise gone out of business.

Merger Mania

Not surprisingly, the cutthroat competitive market also helped drive a never-before-seen onset of mergers, acquisitions and leveraged buyouts in the industry. Since the government and Federal Trade Commission had a more hands-off attitude toward big business in that era, the reshuffling of grocery players was almost inevitable.

Consider the major changes that took place among some of the industry's biggest names in such a short period:

• In 1980, Supervalu purchased Cub Foods, a five-store warehouse store operator, for $10 million.
• In 1981, Kohlberg Kravis Roberts & Co. acquired Fred Meyer; A&P purchased 17 Stop & Shop supermarkets in New Jersey; and Dutch retailer Ahold acquired Giant Food Stores, a 29-store chain in Carlisle, Pa. (Ahold had purchased Bi-Lo in 1977).
• In 1983, the Kroger Co. bought Kansas-based Dillon Cos., the 11^th-largest U.S. grocery chain at the time.
• In 1984, American Stores acquired Jewel; Roundy's bought Scot Lad Foods; Scrivner bought S.M. Flickinger; and Fleming acquired United Grocers.
• In 1985, A&P acquired Dominion Stores; Dominick's bought Eagle Food Stores; and Supervalu acquired the West Coast Grocery Co.
• In 1986, A&P acquired Waldbaum's and Shopwell Inc., which included 26 upscale stores named The Food Emporium, and Kohlberg Kravis Roberts engineered leveraged buyouts of Safeway and Beatrice Foods.
• In 1988, Kohlberg Kravis Roberts acquired Stop & Shop, and Fleming became the nation's largest wholesaler with its purchase of Malone & Hyde.
• In 1989, A&P acquired Borman's Farmer Jack.

Supersonic Formats

Retailers of the '80s made great strides in developing what have become essential departments for today's supermarkets, particularly deli/foodservice, pharmacy, and health and wellness.

They also continued to grow supermarket sales to new levels (total sales topped $300 billion by 1986), while making the most of technology to help make operations smarter — and more profitable. (See sidebar below for specific achievements in technology.)

Equally important, supermarkets began using store design and marketing as competitive tools.

If one store format represented the 1980s, it would arguably be the superstore. Featuring general merchandise and groceries under one roof, this format promised not only convenience for shoppers, but also more profitability for retailers — a premise too good to turn down.

In July 1981, consultant Willard Bishop estimated there were 800 food/drug combo stores across the country. "Super stores/combo stores and warehouse stores have floated to the top of the first wave of early '80s storing trends," he wrote in Progressive Grocer, while simultaneously warning that both formats were vulnerable to the problem of overstoring. Bishop also predicted: "The market share losers will be those conventional supermarkets that have been unable to carve a strong, defined niche in the marketplace. They will be squeezed on both sides by the super/combo and warehouse stores."

In 1982,PG profiled Safeway's new superstore prototype. Located in the hotly competitive market of Arlington, Texas, the 60,949-square-foot store took a new approach to architecture, design and layout, featuring a high-tech exterior that resembled a modern airport terminal. Inside, it offered a bevy of general merchandise.

Another notable superstore of the time was Super Stop & Shop. The typical 47,000-square-foot store showcased a large greeting card section, as well as a Barnes & Noble branded book department.

PG's 1983 Annual Report of the Grocery Industry called superstores "star performers," as the format annually accounted for a larger share of total sales and was judged by industry leaders to have the best prospects for the future. At the time, there were 3,200 superstores in the country, which made up an estimated 16.5 percent of the share of market and 23 percent of supermarket sales.

In the Club

At the other end of the spectrum was the more barebones warehouse store, although sometimes this format became a hybrid as grocers became more creative. PG's 1984 Annual Report noted that the growth rate of warehouse stores had once again outpaced other "new" formats in 1983.

Often cited as a "super warehouse store," Cub Foods was known as the "supermarket innovation of the '80s" by the end of the decade.

Other stores referred to as "third-generation warehouse stores," or hybrid stores, included Heartland Food Warehouse, a 65,000-square-foot unit in Seekonk, Mass., that averaged more than $1 million per week in sales and included large produce and seafood departments, and Edwards Food Warehouse in Hartford, Conn., which featured a large produce department, a service/self-service cheese and deli department, and décor developed by Loblaws. It was pulling in $800,000 per week during the '80s.

As traditional supermarkets continued to get squeezed by warehouse formats and superstores, the industry started looking at ways for traditional grocery stores to reposition themselves. One way to do that was to go upscale. Among the upscale markets lauded at the time were Byerly's in Minnesota and Randall's in Houston.

Out to Lunch

As if superstores and warehouse formats weren't enough for conventional operators to worry about, they also had hefty unconventional competition in the form of restaurants.

As more women were now working outside the home, takeout food carried new appeal. By 1984, the portion of disposable income Americans were spending on food at home had dropped to a new low of 11.4 percent.

However, as they've always done, grocers found ways to compete. To help inspire them,PG began featuring a regular foodservice section.

By 1988, 15 percent of supermarkets offered some type of sit-down eating, compared with only 4 percent in 1980. While admirable, this was seen as a slow development when contrasted with other new service departments such as videocassette rentals and salad bars. Yet operating restaurants was a highly expensive, and often challenging, business for retailers to sink their teeth into.

Even for grocers who decided not to go full force into foodservice, their service sections were significantly ramped up during the '80s.

Under Pressure

By the end of the decade, retailers were facing several new challenges. In 1989, concerns about labor shortages took precedence. Looking to the 1990s, retailers were expecting the smallest labor force since post-World War II baby boomers reached their teens.

Social issues of the day also cast a dark cloud over the country's outlook. In 1987,PG published a provocative article, "AIDS: A Problem for Supermarkets?"

On the retailing scene, the new kid in town was fast proving to be a formidable threat. In 1988, Wal-Mart Stores Inc. opened its first supercenter, offering general merchandise connected to a supermarket under one roof, in Washington, Mo. Just one year later, at least one independent operator — a store in Wagoner, Okla. — closed, which its owners blamed on a large drop in volume after the opening of a Walmart supercenter.

'8os Top Tech Trends

From site selection to in-store merchandising, retail operations were aided greatly by technology during the 1980s. Here are just a few examples taken from Progressive Grocer's archives:

• Scanning continued to evolve, with the number of scanning stores approaching 5,000 in the early part of the decade. As a result, more sophisticated merchandising strategies were developed to sell more products at checkout.
• The site selection process was aided as Claritas rebuilt PRIZM, a tool that breaks down the nation's ZIP codes into homogenous clusters, each with a distinct lifestyle description.
• In 1983, EFT (electronic funds transfer) was seen as a coming trend, but "farther away from implementation." During the same year,Time named the computer its "Man of the Year."
• Companies were now using hand-held micro computers in the aisle, minis in the office, and electronic ordering and invoicing in the warehouse. Computers provided a sophisticated analysis of item movement, assistance on promotional decisions and help with shelf space allocation.
• In January 1984, PG examined the new trend of grocery shopping by telephone. "The customer interest is there, but home delivery is a major problem," the article acknowledged. Two telephone grocery operations in existence included Grocery Express in San Francisco and Phone In - Drive Thru of Los Angeles.
• In 1987, Ukrop's Super Markets launched the first loyalty card program in the country.
• Also in 1987, Walmart completed a satellite network allowing its corporate office to track inventory and sales and instantly communicate with stores. Meanwhile, Deep's IGA in Danbury, Conn., was testing a computerized deli-ordering system, and NCR introduced the world's first weight-conscious scanner.
• In 1989, Certified Grocers of California was using a PC-based system designed for MIS work. The system could schedule multiple projects, monitor work progress, track staff use, create custom reports and determine project costs.

The Tylenol Scare

No retailer doing business in the 1980s could ever forget the 1982 Tylenol scare. In a frightening incident that changed product packaging forever, cyanide poisoning killed seven Chicago-area residents who had taken Extra-Strength Tylenol capsules.

Both the government and the OTC drug industry agreed that a national standard for tamper-resistant packaging needed to be issued as soon as possible to restore consumer confidence in nonprescription drugs. At the time, more than 30,000 OTC medications were being marketed in the United States. The case prompted the FDA to require tamper-proof packaging for OTC drugs, vitamins and supplements by the end of the year.