Keys to the Future

Presentations at the recent GMDC General Merchandise Conference demonstrate how supermarkets can gain a competitive advantage going forward.

Forget competing for a larger share of the consumer’s dollar — the fight at retail will be for share of consumers themselves.

The low U.S. population growth rate (0.7 percent in 2012), coupled with increased store capacity, has caused retailers to rethink their marketing strategies, with an emphasis on shopper retention versus shopper acquisition.

Transforming competitive strategy based on current demographic, economic, technological and societal realities in the marketplace was among the key drivers of change that the attendees of the 2013 Global Market Development Center (GMDC) General Merchandise Conference learned about. The September conference, held in Phoenix, featured two presentations that gave retailers and general merchandise (GM) marketers insights into what will be critical for success during the next three to seven years, both for the store as a whole and for the general merchandise categories.

“Today, you will see a more intelligent approach [to marketing and merchandising]; not every type of product will do well in every store,” says Dave McConnell Jr., president and CEO of Colorado Springs, Colo.-based GMDC. “The smart retailers make sure that they will be well positioned” in those categories in which they can succeed.

In a presentation called “Retail 2017 - The External Drivers of Change,” Keith Anderson, VP and senior analyst at Waltham Mass.-based RetailNet Group, gave attendees insights on “tomorrow’s winning store formats, the evolution of pricing strategies, next-generation loyalty and retention models, and a playbook for competing in a digital world.” The ambitious conference session looked at what aspects of society had significant impacts on consumer purchasing, and how retailers could embrace those critical factors in their own strategic planning.

Todd Hale, SVP consumer and shopper insights at Schaumburg, Ill.-based Nielsen, reported on the development and initial implementation of a new GM hierarchy. This tool for the tracking of GM product movement through scanning data is a joint project of GMDC, Nielsen and Minneapolis-based Radian Group. Hale not only explored the new hierarchy, but also produced results outlining the sales of GM categories through various outlet types, as well as factors underlying category performance.

Seeking Change Drivers

“We think it’s essential to pay attention to consumer liquidity,” which is currently constrained, “because at the end of the day, there’s a handful of things that drive retail growth,” Anderson said, naming such important ones as “how many shoppers there are, how much money they have, and how often they visit us.”

Retailers need to shift their emphasis to retaining the customers that they have, rather than trying to acquire new shoppers in this era of low population growth. For operators, this means paying close attention to individual store assortment and pricing that can attract and hold customers.

“From a retail perspective, the emphasis on getting the assortment right and the significance of a sophisticated pricing strategy have become paramount,” Anderson told conference attendees. “Of all the capability areas, we see retailers investing in intelligent pricing at the local level and the store cluster level, which has become a huge need, because we have to optimize our profit in an environment where the margin for error is getting slimmer and slimmer.”

RetailNet breaks down shoppers into three age groups: Group 1 — under 25; Group 2 — 25 to 65; and Group 3 — over 65. Traditional marketing philosophy says to target Group 2 because these are consumers who have larger households and are investing in setting up their homes.

However, Anderson thinks those shoppers in Group 3 shouldn’t be ignored by retailers: “We believe there are significant opportunities to fundamentally change the way retailers target those [shoppers] in the third act of life.” More shoppers are aging than are moving into the prime shopping group [Group 2].”

RetailNet is coaching its retail clients to focus on ways to unlock the spending potential in targeting boomers, because liquidity, which boomers have more of, has huge implications on eventual spending.

In a period of accelerated change, such as the one we’re currently in, Anderson told attendees that retailers can either be “low-cost providers” that excel at value and efficiency, or “differentiators” where service as a destination spot is elevated to an exceptional experience. These two types of operations represent either end of the retail spectrum and can thrive at attracting customers. Retailers that are in the middle of the spectrum and don’t have a clear retailing message and niche will have much more trouble attracting and retaining shoppers.

Power of GM

Retailers and marketers alike have long believed that GM is a vital and profitable retail category that’s important to the supermarket. The only problem was that up until now, nobody actually knew for sure. A supermarket operator knew how well his own stores were doing with GM products, but there was no industry data available to compare his operations with, as there was in food and center store items. No syndicated data showed actual GM category sales.

The new GM hierarchy puts general merchandise on the path toward data equality with other areas of the store. The hierarchy, at its first level, allows UPC scanning data to be analyzed back into 18 GM categories; subsequent levels of the hierarchy will analyze down to 200, and then eventually down to around 300, subcategories of GM products.

“We just completed the data template, and all 20 million SKUs have been coded and sorted,” says Mark Deuschle, GMDC’s VP of business development and chief marketing officer. The association is building a website that will allow its members access to this data and generate reports; the site is expected to be ready on Dec. 1, 2013.

According to the Nielsen data presented at the 2013 GMDC General Merchandise Conference, sales of GM products through all outlets reached $201 billion during the 52 weeks ending June 8. Sales through the food channel were $29 billion, or about 14 percent of total GM sales.

The good news is that supermarkets are becoming a more important part of the GM sales engine. GM sales through the food channel increased 0.9 percent during this period, while sales of GM through all outlets grew by only 0.4 percent and sales through the drug channel declined by 2.7 percent. Even the value channel saw GM sales increasing by only 0.5 percent. What makes this data interesting is that the popular misconception has largely been that supermarkets lagged behind mass and drug when it came to GM sales. Thanks to the data being developed through the GM hierarchy, the industry can see exactly how important GM categories are to each channel.

“The food channel is winning at GM, and GM is growing in all outlets and food. Until GMDC [and its partners] initiated this hierarchy plan, nobody knew that for sure,” McConnell says.

With this data from the hierarchy, however, “we’re in the middle of something that will allow GM to reestablish itself and give GM directors the data they need,” notes McConnell. “There’s enough data there that now they can develop smart assortments. They no longer have to carry a full category of products in GM; they can instead look at micromarkets and demographics to plan individual store assortments.”

Among those GM categories that are the strongest in the food channel are pet ($6.5 billion), candy ($5.4 billion), baby products ($4.3 billion) and household products ($1.9 billion). The fastest-growing GM categories, according to the new Nielsen data, include seasonal up 16.2 percent), sporting goods (up 10.2 percent), electronics and personal entertainment (up 8.3 percent), apparel (up 3.3 percent), and hardware (up 3.3 percent).

GMDC also initiated its new online service, GMDC Connect, at the conference. GMDC Connect contains an educational component enabling members to watch videos of conferences and other presentations, receiving insights as well as basic data. The service also offers a video and audio conferencing component that helps connect retailers and suppliers.

“Data is important, but we think insights are more important,” says Deuschle. “We will use insights around the data to drive a particular topic and/or category. Members can use it as an extension of the traditional GMDC conferences.”

“From a retail perspective, the emphasis on getting the assortment right and the significance of a sophisticated pricing strategy have become paramount.”
—Keith Anderson, RetailNet Group

“The food channel is winning at GM, and GM is growing in all outlets and food.”
—Dave McConnell Jr., GMDC