Sales May Not Be Only Reason to Pitch Retail Grocery Accounts

Category Formats Are Losing Share as Consumer Tastes Shift to Fresh Foods

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COLUMBUS, Ohio (AdAge.com) -- Ad executives looking to pitch two plum retail accounts now up for grabs may want to pay close attention to the new Future of Food Retailing study by grocery-industry research firm Willard Bishop. Agencies debating whether to shoot for Safeway's $200 million account or Wal-Mart's $578 million account also should keep in mind that a big chunk of market share is up for grabs in food retailing, with major shifts in share on the way.
For agencies looking for a lucrative retail account, the No. 1 fastest-growing format -- summed up by Whole Foods -- is one that busts conventional wisdom by hardly advertising at all.
For agencies looking for a lucrative retail account, the No. 1 fastest-growing format -- summed up by Whole Foods -- is one that busts conventional wisdom by hardly advertising at all.

For example, although the Wal-Mart account might look too big to pass up, agencies should consider that the chain's supercenter format is not the fastest-growing in retail. And the only format expected to lose share by 2010 is conventional grocers, such as Albertson's and Kroger -- and Safeway.

Major sales, minimal ad spending
For agencies looking for a lucrative retail account, the No. 1 fastest-growing format is one that busts conventional wisdom by hardly advertising at all. The so-called fresh format -- expected to rise 15.9% by 2010 -- is best summed up by Whole Foods, which saw sales jump 22% to $4.7 billion despite spending less than $20 million on advertising last year.

Other retailers in the fresh category, such as Trader Joe's and Fresh Market, also shun mass-market advertising -- and still are growing at astonishing rates.

The second-fastest-growing format is limited-assortment retailers, such as Aldi and Sav-A-Lot, expected to be up 15.8% by 2010.

Rounding out the top three is the supercenter format (the one in which Wal-Mart operates), expected to advance sales by 13.3% by 2010. Next is dollar stores, at 9.9%, followed by wholesale club stores -- such as Costco Wholesale Corp., also known for its nonadvertising approach -- that operate in a category anticipated to improve sales by 4.8% by 2010.

Change for the traditionalists
Meanwhile, the space occupied by Safeway is anticipated to decline 2.1% by 2010. That's not to say the traditional grocery brands, including Safeway, aren't trying to adapt to changing consumer preferences for supercenter formats. In fact, in 2005, Safeway opened 25 new "lifestyle" stores that closely resemble the supercenter format; it has remodeled hundreds of stores as well. Minneapolis-based Supervalu, which recently acquired traditional grocer Albertson's, is also planning to spend $1 billion on remodeling and new construction.

So if you're an agency head preparing a pitch for Safeway, what should you keep in mind? What's the winning formula for beating Wal-Mart and competing against the likes of Whole Foods at the same time?

"Survival is still possible if they change quick enough," said Jon Hauptman, of Willard Bishop Consulting. "To help a chain like Safeway, it's going to be about change and not sticking to the status quo. The alternative is to stay the same, and that's not where the growth is."

Low prices vs. value
And to counteract share loss and match Wal-Mart's growth, traditional chains like Safeway have to start winning the perception game on perishables because "retailers with larger, more abundant fresh-food offerings are better positioned," Mr. Hauptman said. Secondly, traditional grocers must fight head-to-head with Wal-Mart on price -- though "not necessarily on low prices" but on "value," he added.

Wal-Mart's efficient distribution system also hinders its merchandising capabilities. There may not be a butcher at Wal-Mart, but Safeway has them in spades. A chain like Safeway can shout value by going "local with ads," said Mr. Hauptman, a strategy Wal-Mart has said it's trying to implement.

In fact, Mr. Hauptman expects the ad battle among all retail formats to shift from national umbrella campaigns to market-by-market battles that go as local as neighborhood-by-neighborhood pricing wars. It will come down to balancing whether price or value is important to the neighborhood demographics.

"You need to have special in-store offers above and beyond what's advertised in the chainwide advertising," Mr. Hauptman said. "This creates a difficult advertising challenge, but the alternative is to be in trouble if you don't."
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