That's the consensus of industry executives and observers girding for a retail food merger boom that could cause a seismic power shift among retailers and manufacturers.
NEW NO. 1
The trend was accelerated with the announcement last week of a merger between Albertson's and American Stores Co. to create the nation's largest grocery chain, with 2,470 stores and $36 billion in sales.
Retailers, already extracting slotting fees from marketers for shelf space, will have even more power as they grow and consolidate, said one ad agency executive who works closely with food stores.
"They can clobber manufacturers," he said.
The only recourse: build brands through advertising and consumer promotions.
"The clock is ticking. Now is the time to invest in brand equity," said Ken Harris, partner at Cannondale Associates. "Yesterday is not too soon."
KROGER, SAFEWAY MAY BE NEXT
Already, there is speculation the No. 2 and No. 4 retailers -- Kroger Co., with $26.5 billion in sales, and Safeway, with $22.4 billion -- will merge, a combination that would instantly knock Albertson's/American Stores from the top slot. With other retail consolidations on the way, Mr. Harris said as few as 10 retailers could control half the ACV, or all-commodity volume, during the next few years, up from about one-third today.
SMALL BRANDS IMPERILED
The consolidation threatens not only smaller grocery chains, but smaller brands as well.
"Retailers will be looking for brands that can cut across 80% of their shopping base," said Mr. Harris. "They will be working with bigger companies and bigger brands."
In a sense, mass consolidation will change how marketers view their constituencies, said Jon Kramer, president at J. Brown/
LMC, Stamford, a co-marketing agency: "In effect, your [retailer] is your consumer."
Many package-goods companies already recognize this; Procter & Gamble Co. is devoting $100 million toward local, brand-building promotions with retailers, a program also being followed by General Mills, Nestle USA, Kraft Foods and Campbell Soup Co., which have customer-specific marketing teams working directly with retail chains.
Consolidation of the century-old supermarket system results from shifts in American culture.
With more mothers working, "there's as much as $500 million up for grabs at 4 p.m. every afternoon" as dinner starts to be prepared, said another advertising executive.
At the same time, discounters such as Wal-Mart Stores are trying to get shoppers to stop by more often; food is a product category that brings customers in more frequently. Ten years ago, Wal-Mart was not on the list of America's top grocery retailers. Today it's No. 3.
To fuel more domestic growth, Wal-Mart this fall plans to penetrate America's high-density urban areas by developing grocery and general merchandise stores, about half the size of its giant discount stores, that include drive-through pharmacies. Its huge mass, buying and operating efficiencies are credited with forcing supermarkets to leverage scale through mergers to compete.
Reach Marketing consultant Burt Flickinger said growing power on the supermarket side can help restore balance: "It gives branded manufacturers a hedge because too much of their volume base is at Wal-Mart."
KMART, COSTCO MOVE UP
Other mass merchandisers are moving up the food chain. Kmart Corp. has pinned hopes for a rebound on the addition of commodity and consumable products in its Big Kmart stores. And warehouse clubs such as Costco continue to gnaw at grocery store sales.
"Even customers who shop at Neiman's get toilet paper at Wal-Mart," said Lauren Freedman, president, E-tailing Group.
And while Web-based grocery channels are a long way from tackling logistical problems, their emergence has changed the marketing landscape. "It's becoming a direct marketing science rather than a shelf management system," Ms. Freedman said.
Large chains are not the only ones needing to focus on branding. For smaller chains, such as New York's Waldbaum's Supermarkets, survival centers on local brand image. A Long Island store may require a seafood section; a Manhattan shop, a gourmet deli.
Albertson's is expected to keep its everyday-low-price strategy after the merger and may bring that philosophy to American Stores' Jewel Food Stores and Acme Markets chains.
American Stores has called off its $35 million ad review for Lucky Stores; Albertson's is handled by Duncan & Associates, Santa Monica, Calif. Lois/EJL, Chicago, has Jewel and Reimel Carter, Malvern, Pa., has creative for Acme.