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At Retail Price Isn't Everything.

One of the fascinating and meaningful differences between supermarket operators in the United States and their counterparts throughout much of the world is this: The typical U.S. supermarket operator usually goes to market with one basic store format, though often in several sizes, expanding and contracting the mix to fit the available space. Supermarketers outside the U.S., on the other hand, frequently offer several different formats, which can range from convenience stores to superstores and hypermarkets, with demographics, local market realities and requirements, and available space usually dictating the format assigned a particular location.

This flexibility of format has sometimes proven invaluable in tailoring the store and the merchandise mix to the community. At other times it has only succeeded in getting in the way.

Two years ago Ian Cornell was one of Australia's rising supermarket executives. A senior manager at Woolworths, the country's leading supermarket operator, Cornell was poised to take over as Woolworths' chief executive. At the last minute the job went instead to Roger Corbett, the man who had brilliantly revived Woolworths' Big W discount chain.

Disillusioned, Cornell left to head up the 280-store Franklins chain, Australia's No. 3 supermarket retailer (behind Woolworths and Coles Myer), one that had built its business and reputation on one ingredient: price. Indeed, though Franklins' prices were undeniably the lowest in the country, its no-frills stores offered little in the way of assortment, service, even a marginally acceptable shopping environment. By contrast, Woolworths and Coles had effectively broadened their supermarket offerings to encompass a wide variety of "fresh" departments and prepared foods in a service environment. It was a formula against which price-focused Franklins had trouble competing.

To counter, Cornell, though retaining the price focus, expanded the mix of Franklins formats. Today the retailer offers four different stores, all rooted in price: Franklins No Frills, Franklins Fresh, Big Fresh and, most recently, Cheaper Choice. Each store brand relies on Franklins' low-price, value-for-money philosophy, though the mix expands from basic grocery staples only (No Frills and, more recently, Cheaper Choice) to one that includes fresh meat and produce (Franklins Fresh and, more recently, No Frills) and, sometimes, a service deli and bakery (Big Fresh). In each case the grocery mix is anchored by store brands.

Against this array Woolworths and Coles have been opening some of the most exciting supermarkets in Australia, 24-hour food-based emporiums relying on extensive assortments of brand names, emphasizing ready-to-eat food items and accompanied by a strong commitment to service. Moreover, they've begun supplementing these stores with High Street-located convenience stores. Australians have made it abundantly clear that they prefer those offerings to the price emphasis of Franklins, and regularly bypass the former in droves. This month Franklins announced its first half results. Sales were off, despite increased spending on groceries by Australian consumers. The retailer announced a loss of something around $50 million (U.S.). And its market share, 15.1% in December 1996, has dropped by almost two full percentage points, to 13.2%.

Clearly Ian Cornell, as have many retailing executives before him, overestimated the importance of price in today's shopping equation. Australian consumers, as is true of consumers the world over, are willing to pay for branded merchandise, broad assortments, infallible service and a pleasant shopping environment.

Cornell is scrambling to salvage the situation. He is halting expansion of the No Frills format, one designed as a competitive weapon against Woolworths and Coles by adding fresh meat and produce to the No Frills staples grocery mix. However, to find the space for the new departments, Cornell was forced to reduce the staple groceries assortment, the basic shopper draw at No Frills. As a result, many customers have shunned the revamped stores.

In another competitive initiative Cornell has begun emphasizing Big Fresh, larger supermarkets offering--along with staple groceries--meat, produce, service delis and bakeries. Franklins' CEO plans to open 10 Big Fresh stores this year, many with liquor stores alongside.

At the same time, Cornell has added a new bottom rung to the price ladder: Cheaper Choice, stores that sell groceries directly from shipping cartons or pallets, much as did U.S. warehouse retailers of a generation ago.

The result is four price-based store names and formats, which have combined to effectively confuse the consumer and, often, send her elsewhere. To bring her back, Franklins plans to embark on an extensive advertising campaign to explain the differences--and advantages--of each format.

Meanwhile, Cornell is doing all the things that struggling U.S. supermarket executives do: asking supplier help, installing new computer systems, closing stores that "do not fit" Franklins' strategy. Now, as he prepares for the Australian entry of Aldi, the German no frills grocery retailer, Cornell, despite his reputation and past accomplishments, is clearly under pressure.

Perhaps he's learned, as his Australian rivals and many U.S. supermarketers already have, that what retailing is all about is giving the customer what she wants.
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Author:Pinto, David
Geographic Code:8AUST
Date:Aug 21, 2000
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