The subject of our August cover story details one of the most pervasive and profound developments impacting conventional food retailers today: the detonation of discount food retailers, and the resulting reverberations.
After a decade in the making, discounters’ fortunes have shifted from insignificant to insurgent, attributable in large part to Aldi, whose aggressive expansion engines began cranking as the Great Recession intensified. The economic downturn that spanned two and half years through June 2009 also ushered in a new era of retailers’ own-brand superiority. However, the sticky behavior consumers acquired during those years—when overall value for grocery expenditures became the operative words for many—is the jumping-off point for Executive Editor Jon Springer’s exploration of the discounters’ revolution.
As Jose Luis Gomes, president of data science firm Dunnhumby North America, shares in the story, “It’s not just the rise of the discounters we’re talking about. It’s really the rise of price as a consumer preference across all food retail.”
That point resonates potently with my August Endcap guest, IGA CEO John Ross, who recounts how the economic pressures of the recession “pushed shoppers to make all kinds of compromises—not just with their primary store but also with brands or, more specifically, to private labels. Their baskets changed and indulgences became more rare, including making the often unfortunate choice of higher-calorie but lower-cost meal solutions. All of these rationalizations were what people had to do in order to keep their families fed.”
But as the economy improved, Ross says, “the allure of heavy discounters” had become cemented as a regular part of consumers’ preferred shopping destinations, along with a sharp uptick of smarter and more informed shoppers, who can now pre-shop for the lowest prices “with a keystroke. So as retailers, we have to step back and say, ‘The internet has made shoppers smarter.’”
While some of the smart shoppers Ross describes are highly motivated solely on price, “most shoppers got smarter in a lot of other ways, too,” including with nutrition and sugar, carbohydrates and gluten, portion sizes and wasteful packaging. “Despite their motivation, consumers are now armed with information and are coming to our stores and are demanding that we be smarter in every way. It’s why retail is hard. The shopper’s smarter. They’re demanding more.”
Accordingly, while all grocers must now be able to play in a world influenced by discounters, it’s not imperative to be a discounter to participate in value retailing in light of their core vulnerabilities, including a lack of a sophisticated e-commerce offering; very little local differentiation with products and assortment; and an ability to provide a full shop. Those weaknesses “are a major saving grace for many retailers, who might otherwise suffer far greater pains,” Jon notes.
To that end, Ross is urging IGA’s indie members in particular—and all conventional food retailers in general—to own and “embrace the obligation to serve their neighborhood, which requires figuring out how to serve low-income customers, high-value customers and high-service customers.” While private label is obviously a big part of the equation, Ross maintains that the winning formula must be bundled tightly “with all of the other ways that we can serve that shopper much better,” such as assortment, personalized offers, fresh meals and stellar service. “That’s the way to pull those shoppers out of the discount and dollar channels and back as a regular shoppers.”
To be sure, defending your turf against the onslaught of discounters will take a new mindset and an even more aggressive stance, but it’s a cause well worth fighting for grocers committed to the cause of competing to win.