Supermarket NONFOODS Business: Write this down

It is an argument filled with logic, buttressed by the economic realities of the day. You can see the results on a simple calculator that you can purchase at any retail outlet. You can write the results with a pen or a pencil purchased at any retail outlet, or print them out on computer paper from any retail outlet.

It's a simple question for the supermarket industry: How much of $86 billion in revenue are you willing to ignore in the next three years? That's the projected growth of the school and office products market over the period, according to the School, Home, & Office Products Association's annual State of the Industry report. Even in a distressed economy, increases in back-to-school spending and home offices will fuel growth of about 6 percent in the school and home office industry for the next three years. That will grow the current $312 billion industry to $398 billion by 2005, according to SHOPA.

The smart supermarket executive will see those figures, grab that calculator, pick up that pencil, and get to work figuring out the market share his store can get from that growth curve. Then he'll need to stop in mid-calculation and ask one more crucial question:

Where did he buy the calculator, the pencil, and the computer paper?

The economic crisis of the last 18 months has forced workers out of the central office and into the home office, creating a new world for American business and a new chance for American supermarkets to become destinations for those homespun workers' supplies.

"There are a lot more people working at home, and they are more sophisticated shoppers, too," says Mike Salerno, director of mass market sales for ACCO Brands in Lincolnshire, Ill. "These are the sons and daughters of business people. They've seen how their parents organize, and they're in that channel."

The SHOPA report cites three trends to come out of the home office boom:

•Product development has shifted to reflect the comforts of traditional offices in the home setting.

•More new houses are being designed with home offices, making it more likely that home buyers will outfit and supply those spaces.

•The greater number of home offices means more office supplies will be needed at both the home and the traditional office.

The growth in home offices has been steady, bordering on spectacular. SHOPA projections have their number increasing almost 9 percent to 41.1 million this year, on the way to nearly 50 million in 2005. That's a growth rate of almost 44 percent from SHOPA's 1999 baseline figure of 34.3 million.

"Along with the growth in home offices, the small office market is also growing," the report adds. "Businesses with fewer than 500 employees grew at 1.22 percent from 1994 to 1999. More than 99 percent of the estimated 5.81 million employers in the U.S. have fewer than 500 employees. The increase in the number of small firms will add to the dollars spent on office products."

While no one expects supermarkets to supplant office supply giants like Office Max or Staples in the hearts and minds of office managers, the channel has a few unique benefits that can make it appeal to others in the market for supplies. Primary among them is convenience.

"They've traditionally been thought of as more expensive, but that's been changing," Salerno says. "While office products haven't been huge turns for supermarkets, customers are always looking for items. Those are add-on sales."

When school supply shoppers are polled on their reasons for shopping in a given channel, supermarkets do well on the issue of convenience, and they are recognized as competitive on price. In fact, supermarkets are seen as the most convenient channel for school supplies, with 57 percent of shoppers citing that attribute, compared to 37 percent for discount stores, 25 percent for office supply stores, and 23 percent for drug stores.

In the area of price, 73 percent of discount store shoppers cite that as the reason for shopping in that channel, and 59 percent choose drug stores for that reason. Supermarkets do well here, with 57 percent citing price as a factor.

But when it comes to selection, supermarkets fall short. The choices available in office supply stores are cited by 63 percent of shoppers in that channel as a primary draw, followed by 29 percent in discount stores, 27 percent in drug stores, and just 14 percent in supermarkets.

Yet ACCO sees potential in the supermarket channel and is making a commitment with its product line, which includes the Swingline and Wilson-Jones brands. "We're developing a whole new set of products geared toward this category," Salerno says. "We believe the traditional office supply customer may not visit the supermarket, but the grocery category is 75 percent women. They want something snappy, that reflects their style—and they want it at the right price."

That has been reflected in ACCO's approach to products—updated displays, bright colors, new styles, and a sense of fun in the office products areas. "I think we've done a really good job focusing on creating products that say 'I want it' rather than 'I need it,'" says Salerno.

Home schooling

One home-based activity that has grown in recent years is schooling, which creates yet another opportunity for supermarkets to trumpet their convenience. The number of home-school students grew to 1.8 million in 2001, double what it was just five years earlier. Parent-educators in this environment place a high emphasis on convenience because they play dual roles, and supermarkets that are seen as convenient and price-conscious on school supplies and classroom needs can save the home-school teacher a trip.

Education has several interesting trends that can affect how and where school supplies are purchased. Charter schools and year-round schools are both on the increase, according to the SHOPA report, and overall school enrollment continues to inch up. But the report is clear that the peak for school enrollment has arrived.

"The enrollments in the U.S. will not be growing at all levels of education over the next three to five years," it states. "At the elementary and secondary level, growth will be flat." Still, that leaves more than 53 million kids in the classroom.

For those students, ACCO is recognizing the need for new, lightweight, and multi-functional products that relieve some of the backpack strain and provide a little style as well. "We've put together a lot of value packs, such as school essentials and locker essentials," says Salerno. "Instead of a $2.99 ring, now it's $4.99, but they've gotten what they need in one package."

Areas for optimism

The SHOPA report sees several potential areas for optimism in the coming year as well as several challenges. School product growth is at the top of that list. "The schools in small districts and remote places have not been targeted effectively by the big players," the report states. "The focus of the school products segment is changing from traditional basic school supplies to more technology-driven products such as computers, networking products, educational software, etc."

The home office supply area is another strong growth market, as a weak economy has people seeking new jobs or more control over their careers. "People who are looking for jobs will start entrepreneurial businesses in their homes as well as conduct business searches out of their homes," the report notes. "They transform what hitherto would have been just a household-management-type area into a home office."

Besides the flattening of school enrollment growth, the Internet and the halting emergence of e-commerce as an economic force are seen as factors affecting traditional retail growth for the school and home office market.

Companies such as ACCO that offer a wide range of products can cut down on clutter both in the shopping aisle and in the back office, Salerno says. "We feel like we can do a job for them," he says. "We're putting in wing displays, clip strips, shelf packs, making it easier to merchandise. We have packaging and products focused on the channel."
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