Retail

Why Regional Supermarkets Need To Change Their Strategy

Why Regional Supermarkets Need To Change Their Strategy

Toilet paper and bleach may be flying off the shelves right now, but regional grocers are fighting to stay alive. As evidenced by several recent bankruptcies, they are caught in a crunch between big chains like Walmart and hard discounters, such as Aldi and Lidl.

Thriving in spite of a mounting scale disadvantage will require examining strategic models. Some ideas for those have been published in a study by Bain & Company, The Future of Retail: A Survival Guide for Regional Grocers.

Over the next decade, the report forecasts, grocery will be hit with disruptive trends, with an increased emphasis on virtual reality and autonomous delivery. Government bans on various forms of packaging, such as single-use plastic, are likely to boost private-label items sold in bulk. Scale is almost certain to shape the industry.

On one hand, notes the report, the regional grocer’s local scale is losing the muscle to compete with the enhanced scale of the monster chains. The result is a lack of capital to fund the substantial investments required by innovations, especially online. At the same time, regionals must deal with the hard discounters opening stores at a rapid rate.

To succeed, says the report, a regional must sharpen the focus and uniqueness of its value proposition while outhustling bigger competition. Economy of scale to improve investment is cited as another important tool.

The report surveyed more than 14,000 U.S. grocery shoppers, pinpointing the qualities of a winning model for regionals.

“Using new customer advocacy data, we’ve identified what it takes to be a regional gem that can thrive in retail’s challenging future,” says Bain. The facets of a “regional gem” include a strong bond with customers, which helps convert them into advocates for the brand. Cost control should be tight enough to keep operation margins within the 4 percent to 6 percent range. Strong private labels are key, and must generate 30 percent or more of sales. And private-label pricing must be no more than 15 percent more costly than the lowest-priced competitor.

“What’s more, our analysis shows that regional grocery gems prioritize three actions to maintain their momentum and survive the transition to a more digital and concentrated industry,” says the report. The regional must be defined by its own special value proposition, while battling bigger players with finesse. A regional can  “turn its smaller size into an advantage” by its ability to move more nimbly, rolling out a concept much more quickly than heavily layered, larger competitors.

The ability to move and change course quickly can make up for a regional’s inability to get the same good pricing deals from its suppliers as its larger competitors. Regional gems are increasingly skilled at taking an idea from concept to pilot to roll out at a speed that outhustles larger players.

Sharpening the knives to cut costs is essential for regional players, says the report. Doing so will help provide resources for investment, which is essential to adapting to changes. Midsize grocers can cut costs by negotiating with suppliers more often, the report suggests.

The report recommends that regional grocers ask themselves three questions: “Do we really stand out on any dimension of our value proposition? Are we punching above our weight, thanks to our agility and skill at innovating and partnering? Is cost management a core strength?”

Affirmative responses to those questions, says the report, are keys to success.

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