business news in context, analysis with attitude

Excellent piece in Business Week about how supermarkets’ ability to take advantage of the recession – offering eat-at-home meals cheaper than those being sold in restaurants, and selling higher-margin private label products instead of national brands – has turned out to be somewhat short-lived.

Because consumers continue to feel financial pressures from various angles, supermarket chains are employing various strategies to keep them coming into the store. “Mid-tier chains that had thrived in recent years by expanding their product lines and spiffing up their interiors to compete with upscale rivals like Whole Foods,” the story writes, now are “hawking low-cost meals to compete with restaurants and ramping up gas discounts.”

Business Week writes that “SuperValu has adopted some tactics of its discount unit, Save-A-Lot, which offers a reduced selection, such as one house brand of strawberry jam instead of the usual half-dozen mix of brands. SuperValu is beefing up profitable house labels at stores such as SuperValu, Albertsons, and Shaw's. The company may also extend a new Save-A-Lot initiative, called ‘Fuel your Family,’ that suggests food combinations to feed a family of four for less than the cost of a gallon of gas.”

Kroger, the story says, has the added advantage of its contract with Dunnhumby, Tesco’s data-mining company, which allows it to target shoppers with relevant advertising and to send appropriate offers to shoppers’ cell phones.

Tom Schoewe, Walmart’s CFO, tells Reuters in a separate interview that the retailer “is determined to maintain its low prices and its margins despite growing pressure from suppliers seeking price increases.” Schoewe says that the company is getting a high number of requests for price increases from suppliers, and that ultimately what matters "is the gap in price between us and our competitors.”

KC's View:
I continue to believe that to be competitive in this environment, retailers have to be innovative on two fronts. One, of course, is price. But they also have to figure out how to be compelling to shoppers who, despite some financial adversity, have not lost their aspirations when it comes to feeding their families and themselves.