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Beware the infidels: a more diverse, gender-neutral, format-agnostic world where the little players are more effective than the giants: is this heresy, or the future of retail?

It's not every day that you hear an economist burst into metaphor to get a point across. But Carl Steidtmann, chief economist for Deloitte Research, did just that at the FMI Midwinter Executive Conference, held in Boca Raton, Fla. last month.

Steidtmann is a nationally recognized expert on the economic forecasting of retail sales activity on consumers, technology, and general economic trends--and also a regular columnist for PROGRESSIVE GROCER and other VNU Retail Group publications. But at FMI's gathering of grocery's power brokers, Steidtmann was dishing out social history along with bar graphs and numbers. He likened the conventional, big-chain-centric supermarket industry to the Roman Catholic church in its medieval heyday: rigidly hierarchical, ruling society from on high, but at the cusp of the decline of its power as a new force was emerging, that of a modern, more fluid, commerce-driven society.

His choice of metaphor might be startling to some, but taken in a purely historical context, it seems to work.

Here's the message: Conventional supermarkets are cathedrals, monuments to an industry stuck in an increasingly irrelevant pattern, and falling prey to a more nimble, organic, and effective social power, the souks.

The souks? Those were the vibrant bazaars in the major cities of the Middle East and North Africa, chaotic yet, in their way, efficient feasts of colors, sounds, and goods. These bazaars represented the future of a society based more on commerce than doctrine--and offered consumers a more sensual and fun experience, to boot.

We all know what happened to the Roman Catholic church's empire. Well, the retail cathedral's been under siege, too. As Steidtmann explained, traditional grocery store market share has been eroding for a dozen years at a rate of not quite 1 percent annually.

A lot of that share has been going to the great usurper--Wal-Mart, of course--which in 1996 surpassed $100 billion in sales. The irony, of course, is that Wal-Mart is the ultimate cathedral, its bulldozing success for years both driven by and driving the process of consolidation in the grocery business, and throughout the retail world. But Steidtmann sees cracks in that mighty cathedral's walls. Wal-Mart's growth is slowing, to the point where the chain is being faced with questions about its own core strategy of EDLP. The litigators are clamoring at the gates, their torts held high, while local communities in California and metro Chicago are trying to shut the giant out.

Steidtmann told the retail barons at FMI's event that deconsolidation is on the horizon, thanks to a dynamic of polarization transforming mass consumer culture. The consumer base for supermarketers now is becoming individualized for real: by age, by location, by ethnicity, by economic standing--you name it. The bottom line will be a diversity of food preferences and tastes that will challenge the rigidity of the cathedrals, but energize the souks--namely those operators that stay loose enough to respond to local market conditions and needs, and are more willing and able to innovate and experiment than many of the largest chains.

Wagging the dog

Some might construe this as mere consultant-speak, but I think Steidtmann's on to something. His forecast: As the power of the mass market wanes, growth will increasingly take place within smaller businesses. Deconsolidation, he explained, is changing the face of many information-driven businesses, of which food retailing is one. His vision of industry sales, rendered in graph form, is of a high-volume, low-margin peak on the vertical axis, but a very long tail on the horizontal, representing the many diverse operators with lower individual volumes but higher margins; that tail, he predicts, will be wagging this dog before long.

"The store of the future," according to Steidtmann, will be smaller, and closer to the customer physically and psychically. As big operators stay locked in stores that seem ever more massive and unapproachable to a fragmented consumer base, the souks will thrive to the extent they can address the diversity in the microcultures in which they operate.

A final point: smaller operators will also have an edge in a tighter labor market, as long as they are smart enough not only to offer competitive wages and benefits, but also to give workers the sense of ownership that drives them to function like an army of store-brand ambassadors rather than of disaffected draftees.

Editor-in-Chief Stephen Dowdell can be reached at
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Comment:Beware the infidels: a more diverse, gender-neutral, format-agnostic world where the little players are more effective than the giants: is this heresy, or the future of retail?
Author:Dowdell, Stephen
Publication:Progressive Grocer
Article Type:Editorial
Geographic Code:1U5FL
Date:Feb 15, 2005
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