The More We're Offered, The More We Buy

by Thom Forbes , January 31, 2011

CNBC has been running an hour-long special report on supermarkets -- the "$500 billion money machine" that only manages to eke out margins of about 2%, give or take.

Correspondent Tyler Mathisen and his producers do an excellent survey of the state of the "new town square where people want to come and spend time" -- at least that's the aspiration of behemoths such as the Giant Eagle outside Pittsburgh that has 65,000 products including 400 varieties of cheeses, 250 beer brands, rattlesnake meat and a full-time olive oil specialist among its 650 employees, two of whom perform a song-and-dance routine in the aisles.

My favorite segment is a look at a fisherman in Sitka, Alaska, who trolls for wild salmon with single lines and lures. Within 48 hours, his catch is displayed on the ice at a Whole Foods Market in Chicago at $14 a pound. So, you don't think a fish without bruises or net marks is worth $14 a pound?

Any devoted reader of MediaPost's cadre of newsletters will not be surprised by the segments on how supermarkets track their customers with everything from heat maps to Stop & Shop's handheld devices that buzz with deals when you pass by products you're prone to buy.

And Interbrand Design Forum CEO Bruce Dybvad is savvy about presentation and the allure of freshly baked bread and rotisserie chickens, but you've probably read about it, or even done it yourself, before. Innovations here are quickly duplicated there, after all -- it's the wily craft of "search and reapply," as one executive puts it.

But there's always something to learn. Stew Leonard's, for example, should heed the message about providing escape routes in their claustrophobic, maze-like aisles. And Costco could give the attention to detail that Henkel does when it's designing and prototyping its packaging. The detergent presumably flows a lot easier from Henkel's Purex containers, thanks to all that scalp-scratching and product testing, than the milk does from Costco's boxy plastic cartons. (There's a Facebook group for that, of course: Costco's Milk Jugs Suck.)

You can catch excerpts from the show here, or, if you don't want to miss the commercials for the likes of Pasta Boat, Pajama Jeans and Promises Treatment Center, watch it on CNBC at 8 p.m. ET tonight or at 8 p.m. ET on Thursday, Feb. 10.

"Supermarkets Inc." did get me thinking about some bigger-picture ideas. Literally.

The ubiquitous Martin Lindstrom tells the camera that despite all the information at consumers' disposal today, we're actually getting worse at what we do. We buy more than we need; spend more than we have to. He suggests that we leave the wheeled carts behind when we enter the supermarket and shop with a basket in our hands. Savvy retailers have bumped up the size of the carts even as studies show that shoppers will readily fill them with more stuff than they need.

Lindstrom also suggests shopping with freshly scented Benjamins rather than a credit card. You'll discover, he maintains, that breaking a $100 bill will "hurt like hell." Breaking a $200 bill, as I'd have to do if I followed his direction on my weekly jaunts to Costco, would presumably hurt like hell twice as much. But then I'd miss out on those American Express cash-back checks that seem to arrive willy-nilly in course of the year. Brilliant. On their part, not mine.

"The better we think we are [as shopper]," Lindstrom says, "the more we let our guards down, and the more vulnerable we are." That really hit home. Who among us has not returned from the grocery store triumphantly waving a cash register receipt that documents our sagacity and cunning to our spouses and partners?

"Congratulations!" it proclaims, as if you had just been awarded a Ph.D. in Epistemological Acquisition. "You saved $3.11, or 21%, on your order today!" And you've also got ten cans of off-brand black beans instead of one, and you know that they'll be staring at you for years from the shelving you've built in the basement to accommodate them and their brethren. Anybody need a bottle of ketchup?

I also pondered a paradox as I watch the report. As a boy growing up in metro New York, my family basically shopped at one store, once a week. Our allegiance to Food Fair or Daitch Shopwell or Waldbaum's or Bohacks may have changed from time to time for reasons that probably had something to do with current prices (or the sighting of a cockroach in the aisles), but there was none of this skittering around from grocer to grocer all the time. The stores were much smaller then -- probably not much bigger than the quaint 7,500-square-foot Kaune's in Sante Fe that Mathisen profiles -- but they seemed to contain everything we needed.

Obviously things have changed. Most of those chains have been gobbled up by larger fish, all of which are "second fiddles" to Walmart, which controls 25% of the market. (Gristedes remains in parts of New York City, but you think of them the way you think of the old couple in the rent-controlled apartment. Time is not on its side.)

Anyway, why is it that with all this abundance available at these huge emporiums, I find myself buying Goya Manjo Juice and America's Choice Seltzer at the A&P, Bounty paper towels and Earthbound Farm Organic Spring Mix at Costco, Italian parsley and fresh ginger at Hastings Prime Meats, whatever ice cream is on sale at Stop & Shop, organic maple syrup and butternut squash soup at Trader's Joes, wasabi nuts and a fresh quinoa salad at Mrs. Green's Natural Market and Kitchens of India Red Kindney Beans Curry from Amazon.com? And that's just in the last couple of weeks. I'm leaving out occasional excursions to Whole Foods, DeCicco Food Market and other establishments casually familiar with my credit card number. Do we all shop like this nowadays? Do we all carry more loyalty cards than keys on our key rings?

I don't have time this morning, but I'm sure there's a case to be made that things have not been the same in the grocery aisles since the demise of S&H Green Stamps.

retail, supermarket

8 comments about "The More We're Offered, The More We Buy".

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Denise Anderman from TagTeamSF, January 31, 2011 at 8:43 a.m.
There are six local grocery stores (in southern CA) that I frequent driven equally by purchasing unique products and getting the best price (that list now includes Target). I love Whole Foods home made Tortilla chips and salsa, Targets really low priced Lactose reduced milk and it's the only place locally that I can get "Bubba Burgers". I go to Trader Joes for their frozen chocolate covered bananas and frozen ready to bake croissants and Fresh and Easy for their great tasting and really well priced fresh squeezed OJ and their branded refrigerated salad dressings. I do also end up at Costco every weekend to purchase things like coffee, olive oil, bottled water, meats, their amazing and really low priced rotisserie chicken and other things that you just can't beat the pricing on anywhere else. Surprisingly, they also have excellent prepared foods that are very inexpensive. Then I also have Bristol Farms for gourmet goodies that I can't buy anywhere else. There is also the local Ralphs and Vons that I go to when I need something in a hurry or if they are having a sale. It's an exhausting experience but I'm addicted. I don't know if there is enough traffic to keep all of them going but they seem to have done a great job differentiating their inventory and leveraging strategic pricing of certain staple items that make me feel like I have to get to them all. Oh, and then there are the local farmers markets!!
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Thom Forbes from T.H. Forbes Co., January 31, 2011 at 8:57 a.m.

You're right! I forgot entirely about the farmer's market (s). Must be all this snow I'm looking at in New York, which cancelled the monthly indoor market in a nearby town last week. But they are growing by leaps and bounds around here, and with good cause.

Paula Lynn from Who Else Unlimited, January 31, 2011 at 11:04 a.m.

Where I live, in less than a 5 mile radius, there are at least 7 supermarkets plus Target plus farmer markets, all with an abundance of food and with some decent and liveable pricing (well, considering). I think they have added smells in some isles, like cookies baking. Plus, a huge assortment of all kinds of eateries and smaller food businesses, but very limited fast food that nobody misses. Yet, not 10 miles from the feasting gorge - plenty of other areas than here, too - there are only corner stores with junk at high prices.

Doug Garnett from Protonik, LLC, January 31, 2011 at 12:49 p.m.

What deserves more thought is the 2% margins problem. That's an industry at risk - and at some point the accumulation into large chains will finally become unable to keep working on those profits.

So I'm struck by the Salmon example. Yes, $14 a pound for bruise-free, fresh salmon isn't very much to pay (especially since the Fisherman gets very little of that).

But in the absence of other information, consumers buy based on price. (rough Sergio Zyman quote I think). And so I accuse my own industry (advertising) of having let down the retail chain. Because so little advertising tells us something that matters - something that will raise willingness to pay.

Of all retail outlets, the market is the one most in need of advertisers to learn how to increase margins (which benefits both supplier and market) with communication. Mere brand advertising isn't enough. Consumers want to love the brand AND to buy based on some valid reason the goods should demand the price.

Doug Garnett from Protonik, LLC, January 31, 2011 at 1:49 p.m.

Sorry to run on, but thinking about the $14 salmon.

Seems that part of Grocery's problem these days is that foods like this with high cost structures have little differentiation. So it's hard to charge a lot for them. In other words, the added taste is lost on the vast majority of palate's. And the "green-li-ness" of fresh, wild Salmon is also only significant to a minority of shoppers.

Which makes me ponder: why are supermarkets working so hard to bring out products when consumers won't pay market value for them?

Anne Peterson from Idaho Public Televsion, January 31, 2011 at 5:22 p.m.

I shop four stores for different reasons -- one because it is the only one in my town, owned by SuperValue and the most expensive, whether here in the larger city over the hill. I work over the hill so I shop Winco, an employee-owned store with good produce, bulk food sections, some organic items and the best prices. At Fred Myers, I can get more organics, bulk foods, quality produce and it is close to my work. About once a month, I try to stock up at the food co-op that's a bit out of my way but I can grab lunch at the deli. Since I am highly allergic, I make many of my buying decisions based on reading labels to see what is actually in what I am buying. And, in the summer, I buy from my favorite grower, whom I call "veggie man" or local farmers market and freeze some for winter. I know I'm not typical, but there are many different reasons for our different decisions.

Joanne Alter from JBA Media Group, February 3, 2011 at 11:20 a.m.

My experiences are very similar to Thom's. However, the one factor I was surprised not to see mentioned by the author or others who commented was Costco's lack of aisle signs. For decades, I've bought stock-up quantities of everything from Tide Liquid to Vanity Fair napkins and oil-packed sundried tomatoes at Costco.

Wheeling a cart up and down all the aisles every month or so is actually a fun activity for me. (Yes, I need a life.) But I still find it enormously frustrating that if I need something like Grey Poupon mustard, I have no idea if it's in aisle 308, 312 or 316, or some other number.

Christopher Jones from GEICO, February 9, 2011 at 11:18 a.m.

@ JoAnne Alter

I can only take a guess at the design of Costco warehouses, but I assume it's similar in theory to how casinos are designed. They are like mazes where people get sucked in, but have a hard time finding their way out. This causes them to spend more money on gambling...or in the case of Costco, if a person is looking for an item and it takes 15 minutes of scouring the aisles to find it, odds are that person has suddenly seen numrous other items that will now be added to their shopping cart.