What's your biggest challenge? Grocery retailers faced a constant barrage of problems in 2012, from managing recalls to increasing profit. Retail Leader selected four of the most common pain points and asked experts for their advice on how to solve them.
Food safety remained front and center as a concern throughout the supply chain in 2012, while increased competition from small-format stores and other alternative outlets pressured profits at conventional supermarkets. Despite the slow-growing economy, attracting top talent remained difficult, while demographic shifts required new ways of interacting with shoppers. While no single solution will be right for every retailer in every situation, Retail Leader found innovative ideas worthy of consideration.
1. The Problem
Costly, Frequent Recalls
Recalls of grocery items are an expensive hassle for retailers. New food safety laws might help the situation, but most experts expect recalls to always be part of the industry. The year 2012 will be remembered for the "pink slime" controversy that threw retailers in a crisis mode temporarily, while halting production at Beef Products Inc. Carbendazim, a fungicide used on oranges in Brazil, was found in orange juice sold in the United States, spurring the U.S. Food and Drug Administration to increase product testing and encouraging major juice companies to switch to domestically grown oranges.
The average cost of a recall to the involved companies is $10 million, according to a 2010 Deloitte study, "Recall Execution Effectiveness: Collaborative Approaches to Improving Consumer Safety and Confidence." But the collateral damage can be even worse. When a retailer has to tell shoppers an item is being recalled, its reputation can take a hit even if the recalled product was not produced by the retailer.
"The press release about these recalls names the stores, so even though they didn't actually prepare these foods it absolutely impacts the reputation and brand of that store," explains Jennifer McEntire, senior director, food and import safety, at Leavitt Partners.
Better Ways to Track Recalls and Notify Customers
When a product is recalled and has to be pulled from the shelves at Kings Food Markets, a chain of events is launched. First, officials in the affected department use a standardized form to communicate the recall information to store managers via email and all-store fax. Then store managers spread the word among staff and make sure the products are promptly removed.
"Store managers must contact Kings' home office within one hour, even if they have zero inventory," says Ellen Lazzaro, manager, quality assurance at Kings, based in Parsippany, N.J. "This information is then collected and kept on record for at least one year from the date of the recall."
The smooth procedures at Kings are just one example of how savvy retailers are dealing with recalls. The same technology that helps retailers track inventory for economic reasons can be used to quickly identify where recalled products are in the supply chain, making their prompt removal much easier. "This type of perpetual inventory aids in ensuring that all product is rapidly accounted for," McEntire says.
Supply chain recall procedures such as those are vital, but retailers also have developed many innovations in how they notify customers about recalls. For example, some stores use loyalty card data to identify who purchased products that were subsequently recalled, and notify those customers using old and new technology.
"Some of our members are doing some really clever things with recalls," says Hilary Thesmar, vice president of food safety programs at the Food Marketing Institute in Arlington, Va. "For example, some will put out a Tweet that a product is being recalled. Another way they do it is to use loyalty card data to see who purchased a recalled product and contact them about the recall."
In the best case, the recalled products are removed before they are sold, of course, and that's where efficient inventory tracking comes into play, Thesmar says. If the store knows where a recalled product is – in the warehouse, on a truck, in a store, etc. – it can be pulled quickly. As a last resort the recall information is loaded into the POS system, so clerks are immediately notified if somebody buys a recalled product.
"The best way for us to deal with recalls is to be really fast and efficient," Thesmar says.
2 The Problem
Finding Good Employees
Working in a grocery store is a first step into the world of labor for many teens, and the industry provides solid employment across a wide range of professions and levels, from bagger to executive. Despite the nation's high unemployment rate, many grocery retailers say they can't always find people to fill their open positions.
"The biggest problem my clients tell me they are faced with is finding good employees," says David J. Livingston, a grocery retail consultant in Wisconsin. "The lack of good people willing to work in the food industry leads to all kinds of problems with customer service, food safety, cleanliness and shrink."
Give Employees a Stake in the Game
What's the solution to this problem? Experts say letting employees have a financial stake in the success of the store, such as by offering some ownership share to employees, is one effective way to attract and retain good people.
"The solution is to make sure the employees share in the financial success of the company," Livingston says. Retailers should consider making performance-based pay "not just a token amount, but a significant part of their income. I know one manager who was paid minimum wage plus 20 percent of the store's profits."
The National Grocers Association (NGA), a trade group for independent grocers, is helping to solve the talent shortage by increasing the pool of well-trained candidates.
"We have a number of programs that train grocery leaders," says Peter Larkin, president and CEO of the National Grocers Association in Arlington, Va. "Our most notable is our executive leadership program that is operated in conjunction with Cornell University and USC." The association also offers a slate of online educational programs, and a series of workshops at their annual convention.
"Education is the key to retaining top talent," Larkin says. "You might be able to find and recruit good employees, but you have to train them to retain them."
3 The Challenge
Keeping Up with Changing Demographics
The modern supermarket was born after World War II, when new families and new suburbs burst onto the scene across the country. The snazzy new grocery stores catered to moms shopping weekly for large families. While that model worked for several decades, today's shoppers are different.
"Consumers' shopping behavior is changing quite dramatically and rapidly," says Bruce Axtman, president of Nielsen Perishables Group, a national consulting firm specializing in marketing strategies for perishable food items. "In the past, [shoppers] went to the grocery store once or twice a week, bought a lot of product, made meals throughout the week and did it over and over again in most cases at the same retailer. Now the consumer is shopping in many different ways and in many different places. And these consumers have a different set of needs."
Nielsen Perishables Group,
Meet the Needs of New Generations
Innovative grocery retailers are meeting this challenge by acknowledging that shoppers come with a great variety of desires these days, and the one-size-fits-all grocery experience doesn't suit everybody, Axtman says.
Stores that cater to more health-oriented shoppers–such as Whole Foods Market–have greatly increased their fresh, organic and locally grown options. Similarly, stores that want to reach shoppers who don't have time or energy to cook meals are offering larger prepared food sections.
"Retailers can migrate toward a new orientation," Axtman says. "They can change the layout, the assortment [and] their orientation from staples to meal solutions."
The new generation of shopper also is using mobile technology to interact with retailers. For example, many rely on apps to deliver coupon savings to their smartphones so they don't have to clip coupons any longer. "A number of our members are very aggressive in reaching consumers through loyalty programs, digital advertising, social media, mobile coupons and payments, and other technological solutions," Larkin says.
In turn, leading grocery retailers have discovered that reaching consumers through their ubiquitous screens–smartphones, tablets, laptops–is an effective way to connect. A growing number are relying on social media for marketing and customer service communication because that's how consumers want to interact.
4 The Challenge
Facing Competition from Unconventional Sources
Walk into nearly any drug, convenience or dollar store, and you'll find shelves of groceries waiting for time-pressed customers. Commuters who stop in a c-store for a can of soup and a loaf of bread likely won't shop at the supermarket that day.
NACS, the Association for Convenience and Fuel Retailing, reports the average convenience store rang up more than $23,000 in foodservice sales per month in 2011, representing an 11 percent annual increase at a time when few conventional supermarkets achieved double-digit sales gains. That c-store food revenue includes sales of prepared foods that increasingly go beyond roller grill items. Some c-stores offer chef-made entrees to busy shoppers, while drug chain Walgreen Co. introduced fresh foods, such as sushi, in some locations. Dollar stores and mass merchandisers also bulked up on food items after finding they boosted store traffic. The result was an onslaught of competition for traditional grocers.
Beat Convenience Outlets at Their Own Game
Smart retailers are offering some of the same convenience items that c-stores and other outlets offer, such as prepared entrees, while emphasizing the one-stop-shopping aspect of full-line stores.
"Grocery stores can combat the competition from dollar stores, drug stores and convenience stores by essentially focusing on three core strengths," says Michael Kantor, CEO of the Promotion Optimization Institute in Bardonia, N.Y.
Those strengths include greater assortment, meal planning ideas linked to relevant promotions, and the full-service shopping experience that allows shoppers to find everything they need at one place.
Promotion Optimization Institute,
"By promoting the 'one-stop-shopping' aspect of the grocery store, they solve the time constraint issues shoppers face. Additionally, other types of stores don't typically have the assortment they need to plan complete meals, thereby defeating the time/value equation of multiple trips" to convenience stores, Kantor says.
Through loyalty programs and more robust websites offering meal-planning tips, recipes and savings, supermarkets are playing to their core strengths while simplifying the grocery shopping experience for consumers.
Over time, the challenges retailers faced regularly in 2012 will give way to new problems and solutions. What's critical to success is the ability to create innovative options for addressing obstacles as they occur.