SUPERMARKETS SIMPLE SURVIVAL GUIDE

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Bay Harbor Capital Advisors

Channeling Johnny Cash’s Folsom Prison Blues: “I hear the train a comin’ rollin’ round the bend…..” That train of course is e commerce and change. By my estimate, the train is about five miles down the track. So, here’s a 10 point simple survival guide:

  1. Differentiated Strategy: With so much confusion and blurring of the lines among the channels, the key is to sharpen the focus. Main-stream chains are under severe assault from both ends of the spectrum. mass discounters, the internet, the dug channels, and the “high end” chains. The Wegman’s and the Publix’s of the world have defined and staked out a space, their clients, their supply chains, and their merchandising
  2. Razor-Sharp Supply Chain: Going back and revisiting the supply chain by sharpening each and every component, within and without, is axiomatic to squeezing out cost. For too long, supermarkets have seen the “middle of the store” contribution shrink, despite skinny margins and an expansive SKU selection. Now, it’s time for a surgical examination of all components, particularly with price deflation at the top line
  3. Data, Data, Data: Did I say data? If supermarkets are not capturing customer purchasing patterns data, their “train” is less than five miles away. Predictive Analytics and data mining are critical for a variety of reasons; not the least important of which is the reduction of waste/shrink, and maximization of SKU count and merchandising mix
  4. Hybrid Delivery: Customers have exhibited the preference for both e commerce and “brick and mortar”. To the customer, they complement each other; to the providers one could be leveraged for the benefit of the other. Having said that, supermarkets need to offer the full complement/menu of options: mobile; online ordering; home delivery, and curbside pick-up. The whole “magillah”
  5. Private Label: One way to recapture margins and become more price competitive, is private label. Amazon and others has proven that. This strategy is applicable to the “middle of the store” space
  6. Customer Service: Store associates and customer “facing” personnel’s engagement is critical. QuickServ restaurants and Publix have proven that this formula works time and time over. It builds customer loyalty, particularly when they are operating a high traffic, high frequency establishments. Sounds too simple? Yes, it is that simple
  7. Maximize Store Periphery: In golf there’s a saying “drive for the show, and putt for the dough”. This is applicable to the middle and the store’s periphery, where heavy margin opportunity is present. Bakeries, deli, fresh produce, quality protein, pharmacy, dry cleaning, flower sales, etc.. are all “putting”, ergo high margin opportunities
  8. Provide an “Experience”: Research indicates that consumers are looking for an experience in retail. Millennials are actually requiring it. Experiences include in-store cooking classes; wine and cheese tasting demos, etc. Just picking up weekly groceries during the average of 1-1/2 weekly trips to the supermarket is passe. Shoppers are looking for excitement
  9. Remodel, Refresh: QuickServ restaurants have proven time and time again that a simple unit remodel and refresh boosts sales by between 6 – 15%. The Food Fair debacle of years past has proven that point. Dis-Investments or depriving assets of maintenance and refresh CAPEX, costs in the long run; particularly with so much choice, and alternate delivery. “People eat with their Eyes” I was once told by a Wendy’s Area Director
  1. Size Matters:In view of all the recent M&A and disappointing announcements, to include earnings and bankruptcies, mid-sized, undifferentiated chains are at the “Fork in the Road”. They might be better off monetizing their assets and “exiting stage left” while valuations are high. Unless a chain has size, ergo presence and buying power; and is way down the path with technology and e commerce, it’s time.

What is becoming vividly clear is that we are about to see a wave of consolidation and major disruption. Transformation of this space is definitely upon us. Actually, it’s been in motion way before the Amazon-Whole Foods announcement. That announcement has just accelerated the tempo.

Michael Zahaby

michael@bayharborcap.net

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