Winning the battle but losing the war?
Yet, despite greatly improved economic conditions in general and moderated food prices in particular, retailers continue to use cutthroat forms of price promotion as the primary inducement to draw shoppers. This apparent reluctance on the part of retailers to change their merchandising tactics raises a much more provocative question: Is it the grocer, rather than the consumer, who has become conditioned to accept only rock-bottom prices at the supermarket?
We hope not. Our industry, more than any other, faces the arduous task of rebuilding consumer loyalty, a fundamental necessity for sustained growth. In keeping food prices as low as possible, we have succeeded not only in supressing profits, but in diluting the merchandising and promotional approaches that make the supermarket an exciting place to shop. In the long run, selling up, not down, is wha creates an environment that stimulates sales and strengthens customer ties.
Consider, for example, the case of King Kullen. After five decades of steady growth, this New York-based food chain suddenly found itself in the middle of a deadly battle for a diminishing customer base back in the late 1970s. The scenario was not unlike those being played out in markets all across the country--with everything from price-slashing to generics to double coupons used as props. At first King Kullen staunchly refused to alter its historical no-gimmick image. Not until the threat of red ink became reality did the company drop its conservative posture and begin to emulate its rivals.
But a funny thing happened when the economy changed course. Instead of calling a truce and getting on with the business of making a profit, the battle raged. Supermarkets continued to promote price, even though it was no longer necessary. What King Kullen and its Long Island market competitors received for their efforts was an average after-tax margin last year of just a shade over half a percent.
This incongruity is what prompted the chain's top management to call on its strategies to design a new superstone format, called the Super Place, where creative merchandising--not slashed prices--would serve as the stimulus for increasing sales. King Kullen, which banked on presentation and service as a customer draw for half a century, is once again ready to stake its future on the same strategy that made it successful in the first place.
Of course, it will be a few good months, before the fate of King Kullen's bold new direction can be determined. Changes can be expected too, since this is the chain's first entry into heavy service and non-foods. In our opinion, it will fly. After all, imaginative in-store merchandising is unbeatable as a means of positioning the supermarket as a pleasant place to shop.
One could probably conjure up a strong defense for using prices as the dominant strategy during inflationary periods. But when the economy is healthy and food prices are relatively stable, it's downright ludicrous. The plain truth is that supermarket operators who discard those merchandising practices that make the shopping experience exciting, while continually engaging in vicious discounting forays, ultimately learn what it means to win the battle but lose the war.
Don't get us wrong--we're not proposing a halt to competitive pricing. What we are suggesting is that all too often price promotion is used as a crutch to compensate for a lack of creative merchandising. Hopefully, King Kullen will serve as an example of a development that will be repeated all across the country. Fortunately, it doesn't require an army to start a revolution.
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|Title Annotation:||food chains|
|Date:||Feb 1, 1984|
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