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    Independents Report: Battling the Bentonville behemoth

    To avoid being drowned by Wal-Mart's ever-rising tide, independents should heed the advice of industry expert Paul Adams.

    When it comes to competing against Wal-Mart, perhaps Sam Walton said it best in his 1992 autobiography: "Swim upstream. Go the other way. Ignore conventional wisdom."

    Granted, it's tough to ignore the world's largest retailer, which in the coming year plans to open as many as 335 new stores in the United States, including 210 supercenters, 55 discount stores, 45 Sam's Clubs, and 25 Neighborhood Markets. But, according to industry experts, supermarket operators who adopt a best practices approach to battling Bentonville, vs. those banking on the government to invoke antitrust restraints and on labor unions to organize Wal-Mart's 1.4 million workers, are most likely to succeed.

    One of those experts is Paul Adams, president of Olathe, Kan.-based Paul Adams & Associates. While he acknowledges that the battle against Bentonville is, to say the least, a tough one, the food industry veteran feels it can be won when independents learn to focus on two areas: customers and differentiation.

    Points of difference

    "In order for an independent to survive, profit, and grow, they must have a clear understanding of who their customer really is," Adams says. "In today's market we've identified three general types of customers: economizers, time-challenged, and the carefree spenders. While to some degree Wal-Mart attracts the economizer, for the most part they appeal to the time-challenged customer, which represents approximately 28 percent of consumers. These larger-household families are made up of people in their thirties with young children; they frequent fast-food restaurants; and their average income is approximately $39,000 per year. Most shop for price and will travel a distance to save money. Rarely do they compare retails in weekly ad circulars. They count on Wal-Mart to offer the lowest price always.

    "The real growth opportunities for independents, in my opinion, lie with the carefree spenders," Adams continues. "This is a demanding group of consumers, which today represents approximately 39 percent of the total market. On average, these 45- to 55-year-old homeowners are at the peak of their careers, have traveled extensively, and spend over $100 per week at the supermarket. They expect high-quality perishables, professional and knowledgeable store employees, and product variety." He cautions, however, "This group expects to pay fair prices, but they refuse to be gouged."

    While most supermarket owners battling Wal-Mart have learned the hard way not to compete on price, Adams suggests that independents should prey on the retail giant's weaknesses, which he says include slow service at the front end, lesser-quality perishables, price integrity issues, out-of-stocks, and—perhaps the company's greatest shortcoming—employee turnover. "These are all areas that independents can use to develop and enhance their points of difference," he says. "Certainly one of the greatest advantages an independent can have over Wal-Mart is well-trained, attentive associates."

    One of Wal-Mart's ongoing challenges is staffing. According to a recent article in BusinessWeek, approximately 44 percent of the company's work force, or 616,000 people, will leave this year. In addition, Wal-Mart expects to add 800,000 positions to staff new stores, including 47,000 management jobs. "That's what causes me the most sleepless nights," says Wal-Mart vice chairman Thomas Coughlin.

    The value equation

    Adams, who delivers his comprehensive "Competing With Supercenters" education program to retailers nationwide, feels that the best advice for independents comes directly from Wal-Mart itself. He reminds clients of words spoken by former Wal-Mart e.v.p. Don Soderquist: "Most independents are best off, I think, doing what I prided myself on doing for so many years as a storekeeper—getting out on the floor and meeting every one of the customers. Let them know how much you appreciate them. That personal touch is so important for an independent merchant, because no matter how hard Wal-Mart tries to duplicate it, we really can't do it."

    Adams also stresses that store owners and employees must understand the value equation as it applies to customer loyalty: Quality + Service + Fair Prices + Relationships = Value. He advises: "As a retailer, you must determine how your customers weigh each component of the equation. While Wal-Mart customers place greater emphasis on price and relationships, your consumers may feel quality and service are more important. The formula for each individual store and, for that matter, each store format, is different. For example, in a limited-assortment store such as Save-A-Lot, price far outweighs service and relationships."

    In helping clients to identify their customers, promote points of difference, and understand how Wal-Mart operates, Adams outlines several tactics, some or all of which may be used to battle Wal-Mart and other larger chains:

    •Develop and sustain a high-caliber store team; bench strength is important for future growth.

    •Reinforce ties with your best customers.

    •Increase in-store activities and excitement.

    •Sharpen pricing strategies.

    •Create a point of difference with perishables.

    •Consider expanding freshly prepared and takeout foods.

    •Develop a strategy for promoting your store brand, including a shelf management program, taste tests, etc.

    •Determine how to use GM/HBC categories.

    •Use promotional dollars to the advantage of the consumer.

    •Invest in the "right" inventory.

    •Invest in the "shopability" and convenience of your store, and pay particular attention to the front end, which can be used as a secret weapon.

    •Know your customers and use consumer research.

    •Redouble efforts to support community ties, and determine where you can make a difference in the area of community relations.

    •Determine what you can do best, and execute at retail.

    "There is no easy fix," Adams says. "The journey for survival, profitability, and growth begins with planning and having potent strategies and tactics in place that make customers feel emotionally attached to your store."

    In the end, how does the independent best compete with Wal-Mart? The answer is, it doesn't.

    Independent Retailing editor Jane Olszeski Tortola can be reached at [email protected].

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