The Sizzling Perimeter

The stuff that slides by your eyes and consciousness is often the stuff that drives business decisions and separates success from failure. Marketing folks determine where on a shelf a product needs to sit to maximize shopper focus (slightly below eye level, if you want to know) or plant luring attractive displays at the end of aisle to lure buyers down that path. With food prices soaring in the middle of a powerful and sustained economic downturn, and the effect of the global drought on crop yields likely to inflict even higher costs in the future, grocery stores have noticed that shoppers are cutting back their traditional purchases.

Those “center-of-the-store” products are feeling the pinch, and while these numbers may not look like much to you, in a business of 2% gross margins, they are significant. “Analysts have been surprised by the volume of sales declines over the last two quarters. Heinz reported a drop of 2.4 percent in its second quarter. Kraft unit sales were down 2.8 percent in its first quarter, and Kellogg said its North American volumes fell 1.7 percent in its second quarter.” New York Times, August 10^th. So grocery chains are trying to figure out how to pull additional dollars from consumers in non-traditional ways, not the easiest challenge in an era with high unemployment and a collapsed housing market.

There is a countervailing trend that occurs, however, during periods of longer-term economic difficulty. People can’t afford the real “luxuries” they once enjoyed, but without “something good” every now and again – “little luxuries” as I call them – life can become depressingly intolerable. So that phenomenon seems to be driving a new trend among grocery chains: carefully positioning their high-profit specialty sections – usually salad/juice bars, delis, bakeries, high-end fresh produce, sushi bars and fresh seafood – into high visibility sections of the store that move consumers into that “little luxuries” mindset. Can you smell those fresh baked donuts?

“‘You can pretty much be in Anywhere, U.S.A., in center store, but the perimeter is the fashion side of the grocery business,’ said Sharon A. Lessard, chief designer at Supervalu, which operates Cub Foods stores as well as chains like Jewel-Osco, Shaw’s and Albertsons in some markets. ‘The perimeter is where we can best distinguish ourselves from everyone else.’… By center store, Ms. Lessard meant those long, soldier-straight rows of shelves that have long been the heart of the American grocery store but are now showing signs of the grocery equivalent of atherosclerosis. Shopping and eating patterns are changing, and those changes have threatening implications for the food companies whose shelf-stable products have long filled the center store...

“With center store sales down, the most forward-looking supermarkets are rethinking the allocation of space — shrinking the staid center and expanding the sexy perimeter. In the Eagan Cub Foods, for example, the produce, bakery, deli, meat, seafood and other perimeter areas occupy roughly 40 percent of the store, Ms. Lessard said, compared with 20 to 25 percent of Supervalu stores that have yet to be remodeled.” NY Times. Younger shoppers are also attracted to visually appealing fresh seasonal produce in “farm-fresh” displays, followed by available salad and juice bars nearby.

But additional trends have changed consumer habits as well. In a price conscious time, those center-of-the-store products just might be considerably cheaper at the local Wal*Mart, a factor that not only lures customers but places a downward pressure on those prices everywhere. People often buy their stored goods at such outlets but still rely on their nearby local grocery for fresh items and specialty products.

They shop more frequently but buy less per trip than they used to, a seeming paean to freshness. “Shoppers also are shopping differently, retailers and consumer experts say. ‘Generally, for grocery and food products, people are shopping much more frequently today than just a few years ago,’ said Michael R. Minasi, president of marketing at Safeway. ‘They’re coming in for a fresh produce transaction, for tonight’s dinner transaction. I think the bigger shift has to do with how people are using grocery stores than with specific categories of food that are on the perimeter or in the center.’” NY Times. Aisle second that, because I’ve been there and done that a whole lot more than I used to.

I’m Peter Dekom, and change seems to seep into every nook and cranny of our lives.