If you’re interested in Supermarkets, and the hows and whys of their business, there is an absolute must read in this month’s Gourmet magazine that talks about Wal-Mart and their influence within the Food industry via their supermarket division.
It’d be easy for me to slam Wal-Mart and their practices, but I’ll save that for another day. However, I do want to touch upon a hypothesis I developed that the article helped fueled.
In reading the article, it became clear to me that the supermarkets we grew up with in the 70′s and 80′s are dying a slow death. The article agrees by quoting food-marketing consultant Gary G. Kyle, who stated “I think in that in the next five years you’re going to see the elimination of one or two of the major supermarket chains”, referring to Krogers, Safeway, Albertsons and Ahold.
The reason for this is clear in my opinion. Consumers consider two variables when it comes to purchasing foods: Price and Quality. The old-school supermarkets (best represented by Safeway and Krogers) provide little in ensuring that their consumers receives either. Every product on their shelves are determined, not by consumer preference nor market analysis, but by bribery in the form of “slotting fees”. For those of you unfamiliar with the term, “Slotting fees” are fees that companies pay in order to ensure that their product is not only displayed, but displayed in the best possible way, often at eye level. Take a look at the soup section or the cereal section, and you’ll see this practice in all of it’s glory. Those products you see at eye level? Chances are good that they were put their because companies paid to have them their.
The end result of this is that many products of cheaper value or of better quality are often regulated to the lower or higher shelves. The mega-corporations are often the only folks who have enough money to enure that their product is seen at the same level throughout the country.
There are two supermarket chains at the moment who do not practice slotting fees…Wal-Mart and Whole Foods. I do not think it’s coincidental that these two companies are increasing their market share while the old-school supermarkets are losing. What else do these two new-school supermarkets provide consumers?
Wal-Mart: Low prices
Whole Foods: Quality Products
Each of these companies recognized a segment of the marketplace that had not been realized to its fullest potential and they are both now reaping the benefits of these different approaches.
I’m of the belief that unless the old-school supermarkets adapt, they will continue to lose market share in the retail food industry. Other lesser supermarkets have taken notice of these new-school approaches and are adapting. Larry’s Market, based here in the Seattle area combines both and old-school approach with a Whole Foods approach in many aspects of their product choices. Larry’s the only supermarket in the area that actually sells imported British food products as well as selling higher quality pastas, meats, cheeses and fruits and vegetables. They too have increased their market share, at the expense of QFC and Albertsons.
Slotting fees aren’t the only issue with old-school supermarkets, nor are the new-school supermarkets perfect (Seriously…Wal-Mart has issues that I cannot even begin to list here). But if the old-schoolers wish to maintain their presence in the market place, they will need to adapt to some of the practices of either Wal-Mart or Whole Foods. What better place to start than removing the slotting fees and letting the marketplace decide which products deserve to be on the shelves. Isn’t that what a free-market system is all about?