Grocery formats battle for true differentiation

With competition in the grocery sector becoming more and more intense, and customers try out and adopt different grocery formats, traditional grocery stores and supermarkets are losing market share to supercentres such as Wal-Mart and Target, warehouse clubs like Costco and Sam's, and dollar stores like Dollar General and Family Dollar, according to retail consultants, Kurt Salmon Associates (KSA).

According to KSA's report, Blood in the Aisles: Surviving the Grocery Shakeout, the new formats are simply doing a better job of providing a more unique experience and targeted value offerings.

The report reveals that consumers love the newer supercentre, warehouse club and dollar store formats, and the traditional supermarket share of the grocery market has shrunk significantly to 63%.

Differentiation tactics
It seems that it is no longer sufficient for a traditional grocery store to have good products and good prices. Instead, supermarkets need to broadcast a clear reason why shoppers should frequent their stores.

"There are plenty of other formats selling the same products, that are cheaper, or more convenient," explained KSA's principal, Rob Culin. "The challenge is to define a unique and compelling proposition to a very targeted consumer group, and then to effectively communicate that through all of your stores."

Opportunities for change
There are a number of opportunities for grocery retailers to move beyond traditional cost-cutting tactics and take a more proactive approach to growing their businesses. The report outlines some key steps they can take, including:

1. Identifying target consumer segments and defining a core consumer.
2. Assessing internal capabilities.
3. Identifying key competitors, their core consumers, and their unique strengths.
4. Defining a targeted and tailored differentiation strategy.
5. Translating that positioning into what the consumer sees in-store (i.e. wide product ranges, pricing, merchandising, and store services).

"There are a few companies that do this well already," added Culin, highlighting the case of Whole Foods, which targets up-scale, health oriented consumers with organic foods and strong merchandising, and the case of H-E-B which has successfully segmented a diverse demographic profile by supplying each store with products and services specific to the neighbourhood.