Dunn, Edward S., Jr.

English

Research Papers in Economics

Meeting New  Challenges  in the Retail Food Business
Edward S. Dunn, Jr.
Thank  you very much for the kind introduc-  Competitors
tion, Dr. Adrian.  It's a pleasure to be with you all
this morning.  I  borrowed  Figure  1 from  a  fellow  named
Are any of you  familiar  with  Harris  Teeter?  Norm  McMillan,  who's been working  with  us  to
I'm glad  a few are.  Let me tell you a few things  develop  our strategy  for the  next  10  years  or  so
about us:  (based on what we've paid him,  I hope that strat-
egy lasts  10 years!).
1.  139  stores,  standard  supermarkets,  serving
the two Carolinas and parts of Virginia,  Ten-  Figure 1.
nessee and  Georgia.  Our primary concentra-
tion  is  in the  Piedmont  area of North  Caro-  Types of Retail Grocery Competitors
lina,  along  an  arc  from  Raleigh  through  Cheapest
Greensboro to Charlotte.  (Price)
(Convenience/Destination)
2.  Our  stores  range  from  15,000  to  60,000  Hottest  - Biggest
square  feet  in size and  the markets  we  serve  (Destination)
are  as  small  as  Taylorsville,  NC  (anybody  Easiest  (PriceNalue)
know where Taylorsville  is?) to  greater  At-  (Vlunienc)
lanta.
3.  Store  volumes  can  be  as  low  as  The theory is there are four primary ways to
$100,000/week or as high as $700,000/week.  dfferentate yourself as a retailer:
So,  Harris Teeter is a typical regional  chain,  1.  Cheapest  - Guarantee  the  lowest  prices,  be So,  Harris  Teeter is a typical regional charmthe  low price  leader.  From  a location  stand-
with plenty of variety in  customer types, geogra-  location stand-
phy served, store size and store volume.  The one  point, you may be convenient to where your customers  live,  or you might be in a location common thread  among our customers  - we serve  customers live, or you might be in a location
well  over a million  per week - is they  like food.  customers make a  special trip to shop.
They  enjoy learning about  it, preparing  it, eating  These  are  destination  locations,  where  the
it.  So, our job is to make sure they enjoy buying  new  ercenterse  eappearing much as they
it as well.  did before they added food to their offerings. it as well.
This brings us to my topic today:  First, how
o  g  roery  reailers  u  to ma  y  top  today:  Ft,  how  2.  Biggest - These tend to be very large stores - do grocery retailers  go to market?  How do they  over  100,000  square  feet in  size.  Invariably
position  themselves  to  compete?  Second,  how  te  are  in  a  einatio  loatio  an  ill
are  customer  expectations  evolving  and  chang-  tend  t  fer  a  destation  location  and wil
ing?  And,  finally, how are grocery retailers likelye  of the  "value"  eqati.  Hwever,
to change to take advantage  of what the competi-  soe  could offer lo  pice  an  le  However, some could offer low prices and less variety. tive situation offers?
3.  Easiest - These stores tend to be located in or
near the neighborhoods they serve.  In an ur-
ban setting, these stores rarely  pull  custom-
ers from more than two miles away, whereas
The author is the President of Harris  Teeter  Super Markets,  stores in destination  spots often pull from 20
Matthews,  NC.Dunn, Jr., Edward  S.  Meeting New Challenges in the Retail Food Business  23
miles or more.  Part of being easiest  is offer-  Another  interesting and  obvious fact  is there
ing  full  variety,  and  the  one  stop  shopping  is  no  lack  of  competition.  The  Carolinas  are
trip, both key factors in the value equation.  blessed  with  the  highest  square  feet  of  grocery
store  space  per  capita  in  the  U.S.  That's  not
Value  is  defined  as the  combination  of:  lo-  stopping  the  spread  of  the  supercenters  or  an
cation,  facility,  variety,  service,  and quality --  all  outfit  like  Hannaford  coming  in  from  northern
at  a fair  price.  So,  if you're  easiest, you're  not  New England to set up shop in Virginia and North
likely to be cheapest,  too.  Carolina.
So one thing  is  for sure - there  are  and will
4.  Finally, hottest.  These  are trendy  stores that  continue to be plenty of competitors  using at least
are  on  the  leading  edge  of  food  fashion.  four different approaches  to attracting customers.
These  tend to  be  small  niche  marketers  like
Fresh  Market,  Fresh  Fields,  Mrs.  Gooch's,  Consumers
Wellspring and Harry's and the like.
That's a  quick  look  at  the  competitive  pic-
In the middle of this diagram is a black hole.  ture.  But, what are  consumers  looking for?  It's
The theory  is:  as  a retailer,  to  avoid  the black  pretty  clear  that  consumers  want  to  spend  less
hole,  you must be perceived  as a leader  in one of  time  shopping  for  and  preparing  food.  This  is
the four  attributes.  It's  OK to have attributes  in  evidenced by several phenomena:
another segment - for example, Harris Teeter is  in
the easiest  category, but has  a reputation for be-  1.  Over 75%  of women now  work  full  or part
ing "hottest"  in certain markets.  You  fall  in the  time  outside  the  home.  Two  wage-earner
black hole if consumers don't have a clear idea of  families are the norm.
what you stand for.  Or, if you try to be too many
things  to too many customers.  It's virtually  im-  2.  In  the  sixties,  45  minutes  were  allotted  to
possible  to  be  the  cheapest  and  the  easiest  and  preparing  dinner; now it's 15.
make money - ergo, if one tries that strategy, the
black hole awaits.  3.  Cooking  is becoming  a recreational  activity
Now, how  do the major competitors  line up  for weekends.
in our part of the world  ?  As you can see, com-
petitors tend to be cheapest or easiest.  (Table 1.)  4.  Success  of the home  meal replacement  con-
cept  --  Kenny  Rogers  Roasters  and  The
Table 1.  Selected  Southeast Grocery Chains  Boston Market are growing rapidly.
Cheapest  Easiest
Winn Dixie  Publix  5.  The  sale  of take  out  meals  is  on  the  rise
Food Lion  Bi-Lo  (Chinese, pizza, etc.).
Albertson's  Kroger
Bruno's (Food World, Food Max)  Ukrop's  Bruno's (Food World, Food Max)  J  kros  6.  McDonald's  is reputed to do more than half Hannaford (Shop  'n Save)  Harris Teeter
anK-Martd(hpS/Wal-Mart/Target)  HarrisTetof  its business at the drive-thru window. K-Mart/Wal-Mart/Target
The "hottest  I  mentioned  a  7.  Supermarkets  are  moving  into  the prepared The  "hottest"  segment,  as  I  mentioned  a foods  arena  with  full  meals  and  entrees moment ago, is comprised of smaller players.  t  g  as s  d  ,.ready  to go" as standard fare. We just  don't have  big  stores,  nothing  like
Wegman's  in Rochester,  for example.  The food
8.  Consumers  continue to say they don't like stores  within the  supercenters  tend  to  be  in  the 
60,000  square  foot range,  which  is  only slightly  the shopping process, the job of buying food.
larger  than  the  typical  supermarket  being  built
rtodgehany  9.  Lastly, there is a general impatience  - people
want what they want right now.24  February 1996  Journal  of Food  Distribution  Research
So,  clearly,  the  most  important  concern  of  Future
the consumer is time, or the lack of it.
There are also other consumer trends of note:  But, I don't think  so.  Regular grocers  have
been  in  a  state  of constant  change  for  60  years.
1.  The population  is aging  - that means  smaller  Fifteen years  ago there  were  30,000  or so  super-
households with different and more  demand-  markets in the U.S.  Today, there are still 30,000 -
ing eating requirements.  they've gotten  bigger and they've adapted to con-
sumer demands.
2.  The  baby  boomers  are  entering  a  new  life  Some  $400  billion  or  55%  of  the  money
stage.  I  don't know what that will mean ex-  spent on food  in the U.S.  goes  to grocery  stores.
cept  that  that  generation  is  comprised  of  That's down  from  a  peak  of 75%,  but  neverthe-
smart,  experienced  and  very  demanding  less  a  huge  figure.  Supermarket  sales have  kept
customers.  They  make  their  presence  up with inflation, but other segments  have  grown
known.  faster.
I  believe  regular  grocers  will  still  keep  up
3.  Over the  last  twenty  years, real  income  for  with inflation because:
the  bottom  90%  of  the  population  has  de-
clined.  So,  price  will  continue  to  play  a  1.  The  good  price  operators  will  be  hard  to
critical role in food purchasing.  dislodge.
4.  Meanwhile,  income  for the  top  10%  of the  2.  Those who excel  at easiest target a customer
population continues to grow, which presents  who, once hooked, is very loyal.
an entirely different set of opportunities.
3.  It  will  take  the  supercenters  some  time  to
5.  Finally, by 2000, 30% of the population  will  gain parity with regular  grocers,  particularly
be minorities as compared with  15%  in 1980.  in perishable products.
Of these facts,  three  are  critical:  time  pov-  To win, I believe one must know:
erty, the aging population, and  continued need for
low prices.  Couple this with the increasing num-  1.  What got sold...and
ber of new  competitors  for a share  of stomach  -
competitors  such  as  the supercenters,  the corer  2.  Who, demographically, bought it...then
gas  station,  the Boston Markets,  the small  niche
grocery  stores,  and  the  smaller  one  product  op-  3.  Put stores in that target customer's path.
erations  - bagels,  ice cream,  bread, and  so forth -
and  the  outlook  for  regular  grocers  could  be  Sure, the pie will continue to be split; and the
pretty bleak.  nimble  will  survive.  I  think  many  grocers  are
pretty nimble  and  will still be  around  for a  long
time.
Thanks for listening to me this morning.  I'll
be glad to take questions.

MEETING NEW CHALLENGES IN THE RETAIL FOOD BUSINESS

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