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According to "Food Retail: Sailing Through Turbulent Waters," a new report from Rabobank, a global food and agriculture industry bank, grocers must look to nontraditional differentiation strategies to make it in the present economy.
"Most retailers have been honing their differentiation strategies in recent years," noted Rabobank food & agribusiness research and advisory (FAR) v.p. Stephen Rannekleiv. "Those that have competed on price have outperformed many of their main competitors, but others with a clear differentiation strategy have also shown good growth. However, in light of food and fuel inflation and the soft economy, some traditional strategies may not be as effective as they once were."
The report identifies three key elements for effective positioning: customer and competition knowledge, the ability to communicate a value message, and cost controls.
Although shoppers continue to maintain various priorities when buying food, such as health, convenience, and price, they’re now focusing on one of these priorities to an extreme degree, nearly abandoning the others altogether. This leads to a trend of "barbelling," thereby creating a more challenging environment for food retailers in the middle. Grocers that have designated a specific consumer priority are more successful.
Those that had positioned themselves to compete by offering consumers healthy options may find that this is becoming less effective as a differentiation strategy, however, since healthy offerings are becoming ubiquitous. Successful competitors are combining healthy offerings with other differentiators such as price, gourmet items, and convenience. Retailers with healthy options, but no other strong differentiator, may be caught in the middle of the barbell. Achieving the correct balance depends on knowing what the competition is doing and what the customer wants.
Successful retailers consistently monitor consumer reactions to pricing, and react in kind. However, grocers have to balance their response to current consumer priorities without jeopardizing the long-term value of their brands' identity. To do this, retailers need to evaluate the balance of their overall brand portfolio, and focus resources on those that respond to consumer demand, instead of repositioning brand image in response to cyclical conditions.
Health care and distribution costs are at the top of operational costs grocers must seek to control. In the case of health care, large and small companies alike are finding a middle ground by raising the deductibles but also promoting wellness and giving incentives to employees for lowering their health risks.
For those retailers that manage their own distribution, technology investments can improve inventory forecasting, which can reduce the number of deliveries. Eliminating just one delivery per week can save over $10,000 per store.