How grocery chains can beat Walmart

The bad news for grocery chains is that they have become a cauldron of consolidation. The past few years have seen major grocery chains buying smaller competitors to forestall the Walmart takeover of the industry.

Kroger’s buys Harris Teeter and Roundy’s. Albertson’s buys Safeway and Haggen. ACME Markets, a subsidiary of Albertson’s, buys a bankrupt A&P. On and on.

Grocery chainsThe consolidations hints at several trends for the grocery industry, even if the largest grocery chains (such as Kroger, Publix and Albertson’s) are seeing this as way to fight the retail behemoths of Walmart, Target, Costco and others. By increasing distribution, those chains are hoping to out-large those big boxes so they can overtake market leadership.

For the smaller and regional groceries, the consolidation spells doom. Soon, they will either be put out of business or forced to accept an offer from the large chains.

For all those groceries, this is not a good trend. Walmart isn’t going anywhere. It is already the market leader and some reports say more than half of its earnings come from grocery. It has even been able to win with its private label brand, Great Value, leading the way. If anything, Walmart will increase its emphasis on grocery.

So what are grocers to do?

Leveraging the trends

Before we answer that question, let’s take a step back. There are two trends flowing through the industry that are diametrically opposed to each other, if you think about it. On one hand, groceries have often captured market share through sales, low prices and couponing. The weekly newspaper circular still exists today even though newspapers themselves are not as relevant as they once were. (That’s why apps are becoming the couponing system of choice today.)

The problem is that, now that Walmart has entered the fray, that tactic is not as effective. Walmart’s brand, encapsulated in its theme of “Save Money. Live Better,” is so embedded in the minds of consumers that consumers who shop on price shop there.

Walmart beat grocers at the price game because low prices were never part of their brands. They were only marketing messages while Walmart means low prices.

In our corner of the world in North Carolina, a once-thriving Food Lion was doomed the instant the nearby Walmart added a grocery. It closed months later and has sat empty ever since.

Grocery chainsThen there are the shifting eating trends. Consumers want healthier options, which have led most groceries to increase their organic offerings. Whole Foods is the organic food leader, but it will never be the market leader because organic foods are expensive. It remains only part of the equation.

So how do you approach the changing food environment (with its higher prices) with a large segment of shoppers buying based on price?

Grocery chains scouting themselves

Grocery shoppers have preferences but a majority of them will buy groceries from more than one place. You can buy the basics at Walmart (where price supersedes quality), a prime choice of meat at Fresh Market and have the occasional trip to Harris Teeter or Kroger on the way home.

What grocers have struggled with is finding their positions in the market. Kroger has used a theme of “Fresh Food, Low Prices.” How is that different than Walmart? When consumers are faced with all things being equal, they will choose the market leader. (Therefore, Kroger’s theme only works if there’s not a Walmart nearby.)

Couple the Walmart copycatting with other unemotional messages, and preference ends up depending on location. Hence, the number of mergers and acquisitions.

The messages have become throwaways

Even more, those messages are just used as just that. Messages. They are not firmly affixed to the brand the way Walmart has affixed its theme to the brand. When that happens, even if the message is differentiating (and most are not), they are not believed because they just sound like marketing.

Albertson’s has used “You’re in for something fresh,” which sounds like it was written by an ad agency and does nothing to distinguish the chain from the competition.

Grocery chainsTo compete with Walmart, those chains and others must be truly different and better. Copying Walmart’s ownership of low prices is simply a loser’s game. Trying to build your brand (or advertising campaign) on fresh food just defines you as a grocery store.

Instead, grocery chains must define who their customers are when they use your brand. That’s how preference is created. If your brand is a true reflection of the target audience, then consumers will be incapable of choosing anyone else because it would be going against their own emotional natures.

Apple users Think Different. Nike users Just Do It. What do your customers do?

By Tom Dougherty

Stealing Share President and CEO

Originally published by Supermarket News.

Is Bass Pro Shops buying Cabela’s a good idea?

Earlier this week, Bass Pro Shops announced it is acquiring Cabela’s for about $5.5 billion. The acquisition will double its number of stores.

Bass Pro Shops
Does Bass Pro Shops really need to buy Cabela’s?

From an operational perspective, this completely makes sense. Bass Pro Shops has a great reputation in outdoors sports and recreation, particularly in fishing and boating. Cabela’s, on the other hand, has focused on hunting and fishing. While both brands offerings overlap, Cabela’s can help Bass Pro Shops fill in some gaps in product offerings and vice versa. (Assuming, of course, that Cabela’s is not swallowed up by Bass Pro Shops.)

The problems facing Bass Pro Shops.

However, there could be a problem. While on the surface, the two brands might seem to share a common customer interest and, with that, their customers may even share common values and purchase drivers.

But it may not be as simple as that. Does being owned by Bass Pro Shops reduce the focus that Cabela’s has on shooting sports, for example? I doubt that there is much difference in the type of customer. I can only hope that both brands leverage their strengths to the betterment of the other. But a merger of two rivals can often have some unintended consequences.

The most interesting and potentially problematic part of this acquisition is the tremendous amount of real estate that Bass Pro Shops is getting. It will get 85 more stores with about 19,000 employees. Geographically, there is some overlap, especially in the east. Some stores will have to be considered for closure.

And this is the root of the potential problem.

The retail segment is struggling. Sales are declining and more and more retailers are scaling back. It is a very risky business proposition to make a $5.5 billion investment in a business on the decline. While Bass Pro Shops would likely argue that its locations are destinations, the reality is that it is not immune to the changing buying habits of today’s consumer. We may be writing about how Bass Pro Shops is closing stores to maintain its profitability, if the downward trend continues for brick and mortar stores.

Bass Pro Shops is a privately held company and does not divulge its sales numbers. But Cabela’s does and, like many of the big box retailers, it has reported either declines in same store sales or, as in its most recent filing, a reduction in profits due to massive discounting. All is not rosy in outdoor sporting either.

Bigger is not always better, especially in the current retail environment. A year or so from now, this acquisition may a $5.5 billion mistake.

AB InBev as a parent brand for its beers

AB InBev, the global brewery that owns many of the world’s most famous beer brands, has decided that it will keep that name even after it purchases SABMiller.

Is that a good idea? My answer: It doesn’t matter.

AB InBev
AB InBev keeping its name is only important if it invests in the name.

Brand naming is an important process in gaining preference but, in this case, the name AB InBev is only as important to its beer brands as P&G is to its products. That is, consumers don’t even know the parent brand name and preference, if there is any, comes from the individual beer brands themselves.

AB InBev owns Budweiser, Corona, Stella Artois and many others, and you’d be hard pressed to find drinkers of those beers who know the name AB InBev. It’s the same thing with SABMiller. Consumers know all the Miller beers, plus Henry Weinhard and Fosters. But SABMiller? Not a chance.

The AB InBev brand structure is not for everybody.

It should be noted, however, that this is a very inefficient way to build a brand. For one thing, it’s extremely costly. Being a house of brands means you have to invest in each product like it is its own entity. There’s no relationship between, let’s say, Budweiser and Corona. They each have their own unique brands that have to create preference by themselves.

Most companies do not have the cash to do that. If you are a medical device company, for instance, giving each of your products its own unique brand name – instead of a descriptive one – means your parent brand does little to affect market share. Without the cash of a P&G, you don’t even create preference for those products.

Yet, it’s a parent brand that presents the easier path to preference. P&G has put some effort into highlighting the parent brand but it’s being half pregnant. The P&G brand, whatever it means, doesn’t really help Tide or Febreze.

It’s important for CEOs to remember that, if you have a powerful umbrella brand, then the success of one product lifts the preference of the rest.

So, is AB InBev keeping its name a good thing? It won’t matter until it invests in the parent brand.

Staples Workbar won’t fix the overall problem

Oh boy. As Staples (and its failed merger partner, Office Depot) tries to recover from disappointing sales, it has partnered with Workbar to set up office spaces for customers in a few stores around Boston.

Staples Workbar
The Staples Workbar space is nice, but who cares?

The space is far back from the retail area where customers can work without having their own real office. Said Evin Charles Anderson, whose video production company has been using the space, “On the weekends when we’re here, we see people peering in through the windows.”

Yeah. They’re wondering what the hell Staples is doing. The office supplies stores are in a free fall with Office Depot closing stores and regulators ending the proposed merger between Staples and Office Depot.

Staples Workbar is a tactic, not a strategy

Both supply stores, in fact, are looking for new CEOs to lead the retailers into a new era where all retailers are becoming more and more irrelevant. The Workbar additions, just in beta stage at this point, won’t hurt but it won’t fix the problem either.

For one thing, who wants to work in the back of a Staples store? FedEx, off its successful merger with Kinko’s, has something similar that has now existed for nearly a decade.

More importantly, however, the working world is no longer dependent on having a traditional office or even one that resembles one, such as the Staples Workbar situation.

As many employees at very large companies will tell you, working from home is the new normal. (The sheer number of them doesn’t even consider freelancers.) You may go to FedEx Office for shipping but you can buy just about anything off the internet. There’s no need to go to a Staples store to work.

That is, unless Staples had a brand that compelled you to seek it out.

But there’s no emotional reason to go to Staples or even the Staples Workbar space, which is the only reason to create preference. As Napoleon said, “You must speak to the soul to electrify men.”

That’s what the office supplies stores are missing. They believe they can out-tactic their way out of their dilemmas, rather than looking at a complete overhaul of what they provide and what they mean.

I’ve been thinking recently that the entire brick and mortar retail market is in serious trouble. Malls are becoming a thing of the past and the industry as a whole is losing their shirts to Amazon.

So, there’s now Staples Workbar. OK. So what?

Will LeEco kill the Vizio brand? You bet.

Chinese content provider LeEco announced that it will purchase US television brand Vizio for $2 billion. Until recently, few consumers in the US had even heard of LeEco. In China, it is a pretty big deal. Called the “Netflix of China,” LeEco’s services runs the gambit from Amazon-like shopping, driverless cars, online content, smart phones to TVs. And that’s not even the full list.

LeEco has been trying to break into the US market for some time now and that task has finally been accomplished. But what does that mean for the Vizio brand?

Say goodbye to the Vizio brand

In 2015, Vizio accounted for one out of every five TVs sold in the US. By and large, Vizio TVs are generally well reviewed and, with a 20% market share, there are a lot of US consumers that would agree.

But don’t be surprised if LeEco kills the Vizio brand.

If true to form, LeEco will first change Vizio’s name to be in sync with the rest of its products. It will join the family of LeTV (everything in LeEco’s stable begins with Le) and LeEco will incorporate its acquired brand into what it refers to as its “premium ecosystem user interface.” That will allow consumers to have access to LeEco’s online content with 100,000 TV episodes and 500 films. Compare that to Netflix (4,300 movies) and Hulu (5,300).

Why Vizio will become something else.

But LeEco is not really buying Vizio to get into the TV business in the US. It is buying Vizio to get all of its businesses in the US, particularly its mobile phones and driverless cars. That is further proof that Vizio is doomed.

Chinese companies have traditionally had a difficult time in the US. American’s won’t buy Chinese car brands (though we buy US brands made in China). We shy away from Chinese TV brands – TCL, Hisense, and ZTE – as well as Chinese phone brands like Xiaomi, Huawei and Meizu. Again, we have no problem buying Chinese-made products owned by western companies. But, considering the current economic and political climates, there is something about Chinese companies that leads Americans to reject them.

The once strong rallying cry of “Made in the USA” has switched to “I don’t really care where it’s made as long as it’s not a Chinese company.” What’s odd is that we have little problem when a Chinese company buys a US company such Starwood Hotels, Smithfield Foods and GE’s appliances division. When a Chinese company enters the US market as its own Chinese brand, however, we dig in our heels.

This is the problem that LeEco will face if it really wants to be successful in the US market. It will be much easier for it to succeed if it kept the Vizio brand intact instead of bringing it into the LeEco ecosystem of brands.

If Vizio becomes LeTV, the acquisition will fail.