Opening Keynote at FMI LP – State of the Supermarket Industry

Instead of random tweets, I thought I would simply summarize the session.  The speakers and content were so engaging that I decided to pay full attention and summarize at the end.

So, the presenters were:  Anne-Marie Roernik, Director of Research for FMI and Michael Sansolo, President of Sansolo Solutions. 

Anne-Marie presented the content and Michael gave the commentary and it worked very well.

Bottom Line:  These are tough times but this is also an opportunity.  An opportunity to shatter the status quo and fix the things that need to be fixed.

Some tidbits:

• Issues that affect the economy and consumers, affect Loss Prevention (LP) immediately
• Shrink has grown in the supermarket space from 1.54% to 2.3% (as a percentage of sales) through 3Q2008 and it is most likely over 3.00% now
• Considering that average gross profit in supermarkets is 1.84%, the shrink numbers are staggering.

What does the economic downturn mean?  It means tat consumer spending is down in grocery and the number of trips to the store are down so retailers need to figure out how to increase the basket size.

Anne-Marie talked about the Triple Trade Down and its an important concept to remember.  Here are the 3 stages with an explanation.

1. Stage 1 – From restaurants to fast food and grocery stores.  This is what the upper middle class is doing today.  They stop all the dining out and have dinner at home.  If its a night out, its back to the fast food, which is why McDonalds is doing well.
2. Stage 2 – Shifting the Mix.  This is happening today in the middle income families.  They are transitioning from premium brands to private labels.  They are buying frozen instead of fresh.  They are doing planned shopping now, making lists and using coupons. 
3. Stage 3 – Shift to Super Centers and Limited Assortment Stores.  This is just starting to happen today and is not yet pervasive.  This is about leveraging the pantry.  Buying bulk and buying fewer items.

Following along this thread, Michael used Anne-Marie’s charts on economic data over the last 40 years to highlight the changing dynamics of the supermarket space.  In the 60s and 70s, the main retailers were Sears and A&P.  But, the recession in the early 70s led to the demise of A&P.  Now, there are hundreds of grocers. 

The 80s recession brought Walmart into the picture.  That changed grocery forever.  Now, almost 40% of the population does not go to a grocery store.

The 90s recession brought about the birth of clubs.

The recession in 2000/2001 saw the birth of the limited assortment super centers.  Again, this changed the face of grocery.

Now, as we are in the middle of another recession, what will grocery look like in 5 years?  No one knows.  But, Fresh & Easy may be the prototype.

Fresh & Easy is going back to the basics.  The stores are much smaller.  They have a smaller selection.  The prices are low and the entire store is self-service, including all check outs.  Walmart is catching on with their “Market Side” stores which are similar to Fresh & Easy.

By the way, Fresh & Easy is owned by Tesco.  Tesco is the largest grocer in the UK.