Marketplace Overview and the ‘New Normal’

Marketplace Overview and the ‘New Normal’

  |  January 13, 2016

Produce Dept_CC_2015For the first time since chain natural food stores rose to prominence in the 1990s, natural food grocery stores have lost market share to conventional competition.  The golden era of runaway growth for natural food grocers may become a thing of the past as a variety of competitors have figured out how to effectively sell and merchandise “natural.”  This puts enormous pressure on both the natural chains and food co-op grocers to manager their price image, streamline operations, and keep unnecessary costs in check.  It’s more important than ever to be a great operator.

Debbie Suassuna, market location and consumer research analyst, said that it’s not necessarily the case that conventional grocers are selling more natural foods per store, but that they are selling it in more locations.  In one east coast city she noted there’s a food co-op selling three times as much natural foods than their strongest conventional competition, but the competitor has 12 stores to their one co-op.  The co-op is being outpaced based on the competitor’s widespread availability to more consumers.

debbieS-pullout-tall-L“It’s easy for that kind of competition to chip away at sales,” Suassuna said.  This is because many midlevel or mainstream grocery consumers are more likely to eat natural and organic when it’s convenient for them.  “Otherwise they don’t purchase natural and organic food as often,” she said.  Convenience for that group of consumers is defined as good price points, perceived healthfulness of the food, and ready availability (not something they have to change shopping patterns to acquire).

It can be much harder for small operators to deliver that level of convenience, she said, but food co-ops still have some inherent advantages.  She stressed the need to think strategically about increasing customer visits to the store as well as increasing the average basket size.  This can include store location as well as what the store offers.

From Suassuna’s perspective, it’s all about being service-oriented.  “A really good deli, produce and meat department can make a store more attractive,” she said.  “You can improve sales throughout your entire store with good prepared foods and a contemporary full-service format.  Good customer service combined with strong destination departments, such as deli, produce and meat, can increase shopper frequency.”

She also said that the educational component of food co-ops is a differentiator, but could also be greatly expanded.  “Do more than classes.  In general I’d like to see more information about the value of shopping at the co-op.  Show me how shopping at the co-op does good things for me and the community.”

Suassuna said that the competition is very good at making customers believe they have the cheapest prices or they are widely sourcing local or organic foods (when they really aren’t) through insistent marketing and signage.  “Co-op prices are often lower than their competitors for natural or organic food, so co-ops need to aggressively alter people’s perceptions to actively change their high price image.”

jeanieW-pullout-tall-RJeanie Wells, operations consultant, concurred that some conventional stores “have successfully used upscale merchandising to promote low-quality products,” but people generally do want what’s fresh and good, and they also want convenience above all.  Wells and Suassuna think the opportunity is in creating a destination for high-quality.  Although a lot of conventional competition has gone upscale in its merchandising, Wells said there’s still a lot of commercially-prepared entrees in their delis, and preservative-laden meat products being passed off as healthy.  “It’s important to look at how we design and lead prepared foods programs in our stores,” she said to meet the demand for clean, fresh, tasty and convenient food.

Price and product image is a big external factor related to competition today.  Productivity is just as important internally.  Wells said that in the past many food co-ops were building departments for growth, but it may be important now to redouble an operational focus on meeting margin goals and monitoring overhead costs.  There’s a lot of pressure on wages in this environment, and for co-ops with living wage goals, it is even tougher.  “There’s a big need to increase productivity to cover the intersection of these two powerful forces,” she said.

She also sees a lot of connection to the need for external price image strategy and a co-op’s internal ability to manage costs and labor effectively.  “You have to price strategically,” Wells said, but food co-ops can still do it in ways that further the mission.  It means working smarter.  For example, she said, “Involve your marketing departments.  You need that marketing megaphone.  If you’ve lowered prices and nobody notices, it won’t matter.”  It’s important to run aggressive promotions and sales, and Wells noted “there are a lot of tools and tactics” to help food co-ops with this.  Lastly, engaging with partners like NCG, brokers and vendors will all drive price image and promotions further.

“The pressure on retailers also means that leadership needs to be very skilled,” Wells said.  “We need managers who can compete in a fast-paced market.”  That’s one of the reasons the CDS Consulting Co-op developed a coaching program to help managers effectively set strategic goals and build systems to meet these challenges.

Ultimately, Suassuna thinks that food co-ops need to think strategically about how to maximize store sales performance and reduce the risk of competition by being accessible to more customers in all the ways possible.  “Sometimes I think there’s a bias about what’s ‘appropriate’ for a co-op.  What you want is for people to have great access.  Become a destination.”


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