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Supermarket NONFOODS Business: GM at the crossroads

Some things never change. Take into account a skittish economy and a nation in trauma, and general merchandise sales in supermarkets still went up 2.1 percent in the 12 months ended Feb. 23. Supermarket retailers might look at that number with a small bit of self-satisfaction. Then they could look over into the next column and see mass retailing monster Wal-Mart's sales grew at five times that rate, driving overall GM sales up 5.4 percent.

It's the same old story. Wal-Mart's too big, many retailers contend. The economy's too tough for general merchandise—just look at Kmart. And anyway, we don't really sell that kind of stuff. Bread and butter is our bread and butter.

Well, now Wal-Mart is selling bread and butter.

So on the cusp of what looks like an economic and spiritual recovery in America, it might well be time to take one more look at general merchandise as a viable driver of supermarket profit and foot traffic. It might be the last good chance for supermarkets to become a general merchandise retailer of choice before consumers make lasting choices in their shopping habits. And as industry figures clearly show, consumers are buying these products at both mass and supermarket retailers.

"We've got some opportunities here," says David McConnell, president and c.e.o. of the General Merchandise Distributors Council. "You look at Kroger and some of our larger members, and they're doing a good job. They're doing it by being aggressive, by letting customers know they are the source rather than a secondary source.

"And then you've got others sitting on the sidelines, who are not committed to GM and HBC," McConnell adds. "They have been losing share to other retailers."

But the opportunities abound, thanks to new technologies, new channels of distribution, and a rediscovery by some suppliers of the power of supermarket retailing. Large and small retailers have found success in a planned, dynamic general merchandise offering—one that introduces shoppers to the existence of such products in the store and cross-merchandises them with other departments.

One example is the GMDC Birthday/Celebration research report released last year by the GMDC Educational Foundation. The report stated that a coordinated merchandising plan for birthday parties—one that started with cakes and candles and extended into toys, cards, cameras, batteries, and even rug cleaners for the post-party cleanup—drove increased sales because of convenience and made shoppers more likely to consider the supermarket for similar products in the future.

The crux of the report was that supermarkets needed to be proactive in communicating such programs to consumers and back them up with competitive pricing and a floor staff that buys in.

"Themed events offer a real opportunity," McConnell says. "It allows you to mix general merchandise with the food product categories. It's a good category. GM will always be more profitable, and it offers some great themed opportunities."

So if general merchandise is such a winner, what's holding supermarkets back from asserting their share of the business? Some of it, McConnell says, is a lack of communication. "We have selling solutions for customers inside the store that we don't tell the customers enough about," he says. "Women's health is a good example. It's not just vitamins and supplements. It's rolled into the whole idea of healthy lifestyles. There are a lot of opportunities there. There are some major retailers who are not limiting themselves to the health and beauty products, but making it a lifestyle issue."

Home office is one of the newer battlegrounds where supermarkets have seen growth. With the emergence of new technologies such as rewritable CDs and a wider distribution of computer products such as cables and printer cartridges, retailers are finding double-digit growth in that category. One issue limiting that growth is that floor space remains stagnant and many supermarkets, eschewing the clutter featured in some mass retailers, have little space to expand their offerings.

"Not everyone has 24 feet of space for home office products," McConnell says. "They have to pick and choose where they're going to have an impact."

Still, the evidence for growth in home office is there. Data from ACNielsen shows that the office and school supply category grew a modest 1.7 percent in supermarkets and 4.8 percent overall. That growth is being driven by such products as ink jet and toner cartridges, which are up 29.1 percent in supermarkets and 28.7 percent overall. Data from Information Resources, Inc. suggests that supermarkets are getting a good share of the rewritable CD market, which in the past year grew into a $66 million business.

Nielsen data also shows that supermarkets and Wal-Mart are making comparable dollar sales in the rewritable CD category, although Wal-Mart grew faster last year—59 percent, against 23.4 percent for supermarkets.

Get in early

It is at this time, early in the development of the home office category, that supermarkets have a chance to have an impact, McConnell says. "With some of the newer GM areas, you've got to develop a department that lets customers know you have that product. Many retailers have not done that," he says. "You've got to establish a beachhead early on or you're never going to get it back. That has happened a lot."

One area where supermarkets had both the audience and the opportunity to capture a category is home video. With the emergence of DVDs, the emphasis on more family-friendly movies, and a renewed interest in cross-merchandising with food and beverage suppliers, home video continues to be a category of explosive growth, and it shows no sign of peaking.

Wal-Mart doubled its video business in the last year to almost $1.6 billion, according to ACNielsen. Supermarkets grew at a 31 percent clip to $1.7 billion in a year that saw one of the biggest video releases to date in Shrek. The coming year figures to be the biggest ever, with releases of Harry Potter, Lord of the Rings, and Monsters Inc. and the re-release of E.T., all before Christmas. Many supermarkets continue to stock limited quantities of home videos as mass retailers have taken over a market where supermarkets and their favorable, family-skewed demographics, should hold court.

Time of the season

Another area where McConnell believes there is room for growth, and where GMDC has studied the impact supermarkets can have, is in seasonal merchandise. Similar in scope to the birthday celebrations, seasonal merchandising allows retailers to capture incremental sales by creating a storewide approach to special events.

Those events can include planned opportunities, such as holidays and the arrival of new seasons, or the opportunities that emerge from events such as local sports teams making the playoffs. One such event was the rush of patriotic merchandise into retail stores following the Sept. 11 attacks.

"What's going to happen this year on July 4 or on Memorial Day?" McConnell asks. "Has the customer tired of patriotic products, or is there still a market out there?"

It was in this area where supermarkets suffered the most in comparison to Wal-Mart. In the ACNielsen data, seasonal general merchandise sales slipped 22.2 percent in supermarkets, while Wal-Mart seasonal sales inched up 1.5 percent. "Stores should have the products out there that will meet the needs of their customers," McConnell says. "You've got to make a committed effort to sustain seasonal products. There's a lot of incremental sales to help that food retailer."

Even with new and seasonal opportunities, McConnell believes it's crucial for major retailers who have overlooked the GM products they already have in stock to understand and promote the potential of general merchandise.

"A lot of them are not doing the job in the solid, long-established categories. They need to continue to build categories like film and batteries, for example. We should be doing a better job than we are in supermarkets. For example, more retailers need to grasp the potential of in-store photo finishing to their business.

"Pets are another area. I don't see a lot of food guys giving the pet category the attention that they could."

Wholesalers working with smaller independent retailers also have to develop and promote general merchandise programs to enhance sales, McConnell says, but he concedes that's not always the easiest sell to some retailers.

"The challenge to wholesalers is to help retailers grow, to help them let the customers know they're in the business of general merchandise," he says. "But they tend to run into a brick wall with some retailers."

The potential is there. Supermarkets have long been the most visited retail channel. After a long winter of discontent, consumers are ready to buy again. With Kmart's bankruptcy and store closings, many shoppers are looking for a new general merchandise outlet.

"It's a very small window of opportunity," McConnell says, "but the reward is there." Nonfoods editor Bob Vavra can be reached at [email protected]
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