Super experiments Featured

7:00pm EDT November 3, 2003
Lee Armbuster has been in the supermarket trade long enough to remember the din generated by a bank of mechanical cash registers and how much quieter things got when they were replaced by barcode-scanning terminals and their softer electronic tones.

"The front end on a Saturday morning was almost deafening from the pounding of the mechanical registers," says Armbuster, president of Supervalu Corp.'s Shop 'n Save division since April. "You could hardly hear yourself think."

The most notable distraction at a Shop 'n Save store checkout today might be the television screen that faces the customer in line, flashing news headlines, lifestyle information and advertising.

While the cacophony of the old front ends might have served to blunt the thinking process, the information age terminals are capable of collecting data that can be crunched and collated to help skilled marketers make smarter, more informed decisions.

Arguably one of the most profound changes that Armbuster and his colleagues have witnessed in their industry is the emergence of technologies and tools unimagined when he first tied on a clerk's apron in 1970. Retailers had relatively crude methods to measure sales data three decades ago, but barcode scanning and IT advances have revolutionized the quality of information available to buyers and merchandisers.

"The data can be segmented into what you sell in an hour on any given Tuesday," says Armbuster.

Technology provides the tools but not the techniques for success, however. The successful retailers will be the ones that can tie together bytes and business sense. And Armbuster is in a position to have a critical impact on the changes the chain implements as its 19 company-owned and 60 independently owned stores -- with a combined 8,300 employees -- battle to compete with myriad competitors, traditional and nontraditional, local and global, that are vying for the consumer's retail dollar.

Armbuster minimizes his own role in the process of keeping Shop 'n Save competitive in the marketplace.

"Shop 'n Save has never been about who is president," says Armbuster.

Although he plays down his importance, it seems no accident that Armbuster's career with SuperValu -- a wholesale and retail operation that supplies more than 1,400 stores under an assortment of regional banners that will approach $20 billion in sales this year -- is steeped in the skills that retail experts expect will be most crucial in the future.

Armbuster moved up the ladder and around the company -- six cities during one 11-year span -- through various merchandising positions, including vice president of sales and marketing with the St. Louis division of Shop 'n Save, and as vice president of general merchandise and health and beauty products for SuperValu.

His touch is already noticeable in one of Shop 'n Save's showcase corporate stores in Wilkins Township. The departments and product categories on which supermarkets are betting their futures are in evidence here. New is a section with $1 items, designed to appeal to the value shopper attracted to the proliferation of dollar retailers, and an expanded health and beauty products section with a third more items than previously stocked, located and configured so that shoppers will find it nearly impossible to miss.

And there is a heavier emphasis on perishables, particularly the massive and diverse produce department, the bakery and delicatessen. The prepared foods department, the one that supermarket operators have used to retrieve a portion of the food dollars that restaurants have taken away, has gotten a facelift and more space.

Everyone's a competitor

Not only has technology had a dramatic impact on the industry, but the competitive landscape for supermarket retailers has changed substantially since Armbuster entered the business.

Supermarkets have always dominated the grocery and perishable foods marketplace, but the times, they are a-changing. Once the hunters, taking chunks of business from hardware retailers, pharmacies, bakeries and virtually every specialty retailer on the block, they now find themselves on the defensive, facing competition at every turn. The Food Marketing Institute lists 14 distinct categories of grocery retailers.

One statistic that is perhaps the most telling of the supermarket industry's plight is that, of the top 10 food retailers in the United States, three of them -- Wal-Mart, Costco and Sam's Club -- are not traditional supermarket chains. Even Sears, Roebuck & Co., better known for appliances and power tools, is testing a new supercenter-type format, Sears Grand, and plans to sell convenience groceries, such as milk, bread and pet food, on its shelves.

Limited assortment stores, such as ALDI, lure customers that used to be attracted by "loss leader" merchandising strategies. A Japanese convenience store operator, FamilyMart, plans to open as many as 400 stores in cities on both U.S. coasts. Traditional drug stores like Walgreen's, and Eckerd have expanded their offerings and adopted aggressive pricing and marketing tactics to lure customers and recapture the prescription business they lost to other retailers, including supermarkets.

So, unlike in the past, when supermarkets watched each other to fashion a competitive strategy, they now have to keep an eye on virtually every location that has a cash register.

"Everyone's a competitor," says Armbuster. "The consumer wins when that happens, and it causes everyone to be better than they might have been."

If industry analysts are clear in their view of what the future holds, supermarket operators and retailers in general that expect to survive and prevail will have to be substantially better than they might otherwise have been. Retail Forward Inc., an industry research and consulting organization, predicts that a "handful" of retailers will dominate the global market by the end of the decade.

And supermarkets will have to scramble for their share in an increasingly tough competitive landscape. Retail Forward forecasts soft sales growth for the supermarket industry in 2003, with real sales increasing less than 1 percent.

Enduring perishables

A key to survival for supermarkets may be in perishables, where they have the most experience and expertise. And Armbuster says Shop 'n Save has a lot of room to run when it comes to perishables.

"We believe there is no topside in produce, meat and deli," says Armbuster. "We believe that we will win by being one of the best purveyors of perishables."

That contention is demonstrated in the company-owned store in Wilkins, one of the chain's newest and an important testing ground for new merchandising concepts and strategies. The key to maximizing meat sales, Armbuster says, has been to offer the customer greater variety within the category. Shoppers who might be prone to pass up some beef products, for instance, might be persuaded to buy the same cut if it is sliced thinly, offering smaller portions to the diet- or cost-conscious consumer.

Produce departments account for about 10 percent to 12 percent of total sales in the typical supermarket, but their profit margins are high -- 40 percent or more -- and consumer research shows that customers rate produce quality high on the list of reasons for shopping at a particular store.

At the Wilkins store, the produce department offers items like prepackaged salad greens, exotic fresh and dried fruits, and an assortment of fresh herbs. It also features an expanded array of organic products, a category that researchers say will grow in importance in the future as the baby boom generation ages and seeks out healthier food choices.

While the Wilkins store is only a few years old, the delicatessen, in-store bakery and prepared foods departments already have been revamped and expanded; the deli now has about three times the linear footage of the previous department.

To stay competitive, Armbuster says, Shop 'n Save is using the data it collects from its corporate and franchise stores, all of it residing on a single database, to make decisions about merchandising its stores. The data can indicate where strengths or weaknesses lie, and suggest to the experienced merchandiser what action might be taken for improvements.

A store that is weak in a key category may require a repositioning of the merchandise in a more prominent location or demand more shelf space. The stores, particularly the corporate-owned locations, become laboratories where the company tests its merchandising concepts. Those that show promise are then rolled out to the other stores.

"If you went and visited the various corporate stores, you would see things that are different in each store, and you would see that in the independent ranks as well," Armbuster says. "We're constantly testing and then pulling together the successful tests, and then creating a better and better model."

Armbuster believes the data can help fine-tune individual stores' merchandising, taking advantage of varying buying habits and patterns in particular locations.

"We also believe that there's a tremendous upside to micromarketing each store site to the demographics around the store," says Armbuster. "In some markets, Italian foods sell better than in other markets, and all that's in the data."

A lot of the best ideas come from the independent owners, a group that Armbuster says is particularly sensitive to the demands of their customers.

"Having a group of stores that have individual owners really creates a whole level of commitment that you don't find in a group of stores that simply have store managers," says Armbuster.

Armbuster says learning to read the data and using it to make the right decisions are critical to meeting the demands of customers who have more choices and whose demands and tastes are changing. And reaching the right conclusions means experimenting with various techniques to find what gets the desired response from the consumer.

Says Armbuster: "The best way to leverage that data is to be sure that your assortments and your product presentation satisfy the needs of those customers on a Tuesday afternoon. It has become that kind of environment."

But meeting the customers' expectations is only part of the formula that it takes to win in his business, he says.

Says Armbuster: "Success is not just fulfilling customers' desires today, but anticipating what they'll be tomorrow."

HOW TO REACH: Shop 'n Save,; Food Marketing Institute,; Retail Forward,