NOT LONG AGO, I sat down at my dining room table to make a list of all the places I go grocery shopping. It quickly turned unsettling.
Let me explain: When I was growing up, my mom would occasionally stop at a gas station for a gallon of milk, but she bought everything else at ShopRite and Better Valu, the two big supermarkets near us. Judging by the time she spent chatting with people in the aisles, everyone else in town did, too. But as my wife and I shop for our family 25 years later, we can’t imagine getting everything we need — everything we want — at just two places.
So we regularly visit seven. For stuff like boxes of pasta, cold cuts, and frozen food, we flip-flop between Stop & Shop (which is particularly close) and Market Basket (which is particularly cheap). Then we go to Costco for toilet paper and to a place in Lexington called Wilson Farm for fruit and vegetables. Setting a new low for laziness, we recently started getting heavy boxes of cat litter delivered from Amazon.com. When we need a gallon of milk, I drive to a nearby plaza that has a Trader Joe’s and a Walgreens, then choose whichever store is closer to my parking space.
Laying it out like that, it all seems excessive, even a little crazy — imagine the time I’d have for cooking if I spent less of it driving around. Who in the world shops this way?
Well, I’m happy to report, just about everyone. My family’s shopping style is “not unusual — in fact, it’s very normal,” John Rand assures me. He’s a senior vice president in the Cambridge office of Kantar Retail who has been working in and studying the industry for 45 years. “Consumers are splitting the ticket more than they ever did. They’re going to multiple outlets, not all of which are supermarkets, and sometimes even multiple supermarkets.”
Seventy-six percent of Americans now visit at least five “channels” for food — places like supermarkets, drug, and dollar stores — according to an August 2012 report from SymphonyIRI Group, a research firm in Chicago. Only 3 percent of us visit only one or two channels. Even my mom now shops at four.
On average, a Boston-area family spends $8,066 a year on food, according to government statistics, but nearly half of it goes to things like restaurants and takeout. That leaves everyone selling groceries to tussle over only $4,870 per family. And for some time now, the traditional supermarket has been losing ground in the fight.
Once the only game in town, supermarkets today only get about half of US grocery sales. Twenty-five percent goes to Walmart, which only introduced its Supercenters in 1988. Target is squeezing full food sections into many of its locations, including dozens in Massachusetts in recent years. Walgreens and CVS are now carving out more space for food on their shelves, and dollar stores across the country are adding freezers for items like pie crust and frozen vegetables.
Offered this smorgasbord of options, today’s shoppers have become incredibly picky. Our sole loyalty, Rand says, is to our ability to find the best food at the best deals, behavior that increased during the Great Recession and still continues.
This has had dire consequences for some local stores. Johnnie’s Foodmaster, a 65-year-old area chain of 10 stores, is reportedly in talks to have many of them taken over by the much larger Whole Foods. Supervalu, the struggling conglomerate that owns the Shaw’s/Star Market chain — the second largest in New England, after Stop & Shop — has been reportedly looking for ways to get rid of it for years, but can’t find any takers.
“I might argue that [supermarkets are] in the toughest times in recent years,” says Susan Viamari, a Southwick resident and the author of the SymphonyIRI report. “Traditional grocery stores now are really under fire by other channels looking to compete for share of stuff that has always been their bread and butter, no pun intended. You can get groceries in so many places that it’s intensely competitive right now.”
Supermarkets are responding to this new reality by retooling their selection, the layout of their stores, and their marketing efforts. Rather than trying to attract everyone, they’re tailoring themselves to people they’ve identified as their best customers. And if you happen to be one of them, the industry’s struggle can be pretty good news. Because, as a supermarket CEO said recently, “today’s customer has all the power.”
AT THE DAWN OF THE GREAT DEPRESSION, a 46-year-old manager of the Midwest’s Kroger chain had a revolutionary idea. Michael Cullen had worked in grocery stores since he was 18, but they hadn’t changed much over the years. Most were only a few hundred square feet and offered a few hundred items, almost all in cans and boxes a clerk had to retrieve from behind the counter. Customers who wanted bread or produce were usually out of luck; they had to make trips to the baker or greengrocer for that.
Cullen, who worked at a Kroger in Illinois, had a vision for an entirely new kind of store and, in 1929, sat down to outline it in a letter to the company’s CEO. It would be “monstrous in size,” he wrote, offering well over a thousand products, and be located on the outskirts of town, where rents were cheaper and the company could afford a big parking lot. At a time when families spent nearly one-quarter of their disposable income on food, Cullen promised he would “lead the public out of the high-priced houses of bondage into the low prices of the house of the promised land.”
He didn’t plan to be an entirely magnanimous Moses, of course. To lure customers in, he’d advertise the items he was selling at little or no profit — such as Campbell’s Soup for 4 cents when it usually cost 7 — but then stock many more goods marked up as much as 25 percent. Customers would be so giddy about buying incredibly cheap cans of soup, they wouldn’t notice buying incredibly expensive cans of peas.
Kroger’s CEO never responded, so Cullen quit and moved his family east, where he leased a vacant warehouse in Queens, New York. There, on August 4, 1930, he opened the doors of King Kullen, which his ads called “The World’s Greatest Price Wrecker.” Everyone else later called it the world’s first supermarket. Cullen had boasted that his store would sell 10 times more than a regular Kroger, or about $600,000 a year. He ended up topping $1 million.
It didn’t take long for copycat supermarkets to sprout around the country. The first in New England arrived in 1935, when the Rabinovitz family, owners of the Economy Grocery Stores chain (later renamed Stop & Shop), took over an old factory on Memorial Drive in Cambridge. The family’s R.H. White Food Mart sold $2 million worth of groceries its first year, 45 times its regular stores.
Today, there are more than 36,000 supermarkets nationwide, and, thanks in part to their relentless price-slashing, we now spend about 12 percent of our income on food.
These days, it’s become commonplace to blame Walmart for killing off America’s small, local businesses. But that was really the supermarkets’ fault. The past century saw supermarkets “consolidating all the independent businesses — the independent butcher, the independent greengrocer — into a single shop,” says Rand. “Walmart didn’t invent the idea of creating a superstore, they just took it to another level.”
Walmart, however, is largely to blame for the crisis facing the conventional supermarket. The company now has 3,000 Supercenters, each with about a third of its average 182,000 square feet devoted to food, and Americans spend more with it than any other chain.
A few years ago, researchers affiliated with Northwestern University’s business school analyzed the sales data of a supermarket in an unidentified East Coast suburb. After a Supercenter opened nearby, the supermarket ended up losing 17 percent of its business, or about a quarter of a million dollars a month.
Walmart’s success leaves competitors with two choices, says Jundong Song, a partner at 89 Degrees, a data-driven marketing firm in Burlington. First, you can be like Market Basket and find ways to compete on low prices. Or you can create a store that is so different, so unique that customers don’t even think of Walmart when they walk in its doors.
PULLING INTO THE NORTHBOROUGH CROSSING shopping plaza, 45 minutes from Boston, it’s easy to see which route Wegmans has chosen. At 135,000 square feet, it isn’t much smaller than the average Supercenter. Yet Walmarts loom as enormous gray boxes, and this Wegmans, clad in fieldstone and topped by a shingled clock tower, comes across as a friendly (albeit super-sized) country store.
I’d arranged to meet Bill Congdon, the manager of the upstate New York-based company’s New England division. A gregarious 57-year-old, Congdon had for years overseen the 81-store chain’s highest-volume location, which was also where it tested its new products. Congdon was the natural choice to lead the company’s risky expansion into this area, which it had been eyeing for 15 years.
Before the Northborough store opened last October, “we were really worried,” Congdon says. “Nobody out here really knew what Wegmans was all about.” Yet 2,000 people were waiting in line that first morning, among them a group of Boston doctors who had gone to school in Wegmans territory and had spent the night in an RV in the parking lot. It was the highest-grossing opening in the chain’s 96-year history. (A second Massachusetts store is slated to open in Chestnut Hill in the fall of 2013, followed by more in Burlington and Westwood in 2014.)
Over the next two hours, Congdon walks me around, pointing out all the things that make it, as he says again and again, “unique and different.” There are 70,000 products here, nearly twice as many as in most supermarkets. The store employs some 600 people, two to three times more than other places. So Congdon’s sushi bar can be staffed by not one chef whipping up made-to-order lunches, but by three — and this on a Monday morning, one of the slowest times of the week.
Any grocery company today has to do a little bit of everything that the competition does. So at Wegmans there’s a pharmacy, a florist, and shelves of groceries with signs touting low prices. In a back corner, near the enormous beer and wine section, bulk products like paper towels are stacked on Costco-like steel shelves. The idea is to make people feel like they’re in a club store, says Congdon, then surprise them with even lower prices.
But Wegmans’ fresh food areas are its showstoppers. There’s charcuterie, some 300 types of cheese, people cutting up custom veggie blends for stir-frys, and a fish department on its way to buying the entire catch of its Boston supplier. And then there are prepared foods.
“Consumers have evolved,” Wegmans spokeswoman Jo Natale had told me before my visit. “They’re still asking what they can cook for dinner, but more and more ‘What can I pick up for dinner?’ ” The Market Cafe is designed to offer several hundred answers to that question.
It takes up about a quarter of the store’s floor space and requires the work of nearly a third of its employees. There are all the usual counters to get pizzas, subs, and coffee, but there’s also an island with dim sum, a stir-fry station, and row upon row of salad and hot-food bars (most of it for $8.49 a pound). It has a 200-person seating area with fireplaces and flat-screen TVs, and a handful of registers for people who want to get in and out quickly, rather than brave the store’s 30 regular checkout lanes.
Standing in the Market Cafe, Congdon gestures toward the meat and seafood sections, each with its own ready-to-cook meals. “The way the store was designed, the farther back you go, the more preparation is needed in your food,” he says. “So if you’re standing right here, you don’t have to do anything but eat it. The farther down we go, we’re going to start to see all the ingredients.” This is choose-your-own adventure grocery shopping, which is exactly the point.
The same kind of philosophy is evident in the Fall 2012 edition of Wegmans Menu, a 134-page glossy magazine of recipes, tips, and coupons. Congdon flips to the page with the chicken Parmesan he had for dinner last night. You can cook it from scratch, which would take 45 minutes, serve four, and include ingredients Wegmans makes sure to sell at competitive prices. But if you don’t have that kind of time, the magazine points out the dish is also available in the meat section, where it’s packaged in an oven-ready aluminum tray. Still too much work? Then buy it already cooked for $9.99 a pound at the Market Cafe.
Wegmans Menu, which comes out five times a year, represents one last big thing that’s unique and different about Wegmans: Unlike most stores, it doesn’t advertise with weekly circulars, only placing ads in newspapers about once a month around events like the Super Bowl. Instead, when it arrives in a new community, it mails coupon books and copies of the magazine to households within about 15 miles, then entices more people with periodic mailings. The chain’s best customers then get new copies mailed to their homes.
The company prefers to do things like periodically compile lists of products families buy most, then freeze bargain-basement prices on dozens of them for months at a time. “It could be any family’s shopping list,” Natale says of the most recent one, which includes foods like chicken breast and bananas. “It appeals to everyone.”
The system works for Wegmans, in part, because its stores tend to be in relatively affluent areas, and people are willing to travel farther than usual to visit one. Wegmans shoppers spend more per trip than customers of any other chain.
But Stop & Shop has more stores — 404 at last count — and a more income-diverse clientele. So to appeal to its entire spectrum of customers, the company has been doing something counterintuitive: Trying to figure out exactly who each one of them is.
BEFORE MICHAEL CULLEN CAME ALONG, it was easy for the clerk in a neighborhood grocery store to know who was the loyal customer and who was the occasional one. But that personal connection disappeared once supermarkets started serving super-sized populations. The loyalty card — which allows stores to connect each purchase to the person doing the buying — finally offered a way to get it back.
“There are more players that sell food than ever before, and that requires us to be constantly evolving and providing a better shopping experience for our customers,” says Erik Keptner, executive vice president for marketing at the US division of Royal Ahold, Stop & Shop’s Dutch owner. “A better shopping experience often means a more personalized shopping experience — and we have the means to do that.”
As the largest chain in New England, and one in which the vast majority of purchases are made using a card, Stop & Shop has a rich database of customer shopping information. That gives it a big advantage in the grocery store wars.
In September, I visited a Stop & Shop in Norwood for a firsthand look at what the card can do. Wegmans doesn’t make much of its loyalty card in the store, but Stop & Shop’s version gets top billing here. There are signs about how to double your savings with it, how to make money for your local schools, and how to get cheaper gas — for every $100 customers spend, they get 10 cents off each gallon at store-owned stations and participating Shells. “We really hope that our guests that have a Stop & Shop card see it as one of the most valuable cards in their wallet,” says Joe Kelley, the chain’s recently appointed New England president, who notes his wife recently saved $1.50 a gallon.
Kelley, a 46-year-old Massachusetts native who left the CEO post at Indiana’s Marsh chain for this job, arrived at an exciting time in the transformation of the company. Years ago, fighting the impression its prices were too high, Stop & Shop started mining loyalty-card data in service to its Value Improvement Program, or VIP.
“We literally lowered thousands and thousands of prices,” Kelley says. In order to do that, the company also stopped carrying many items it knew its best customers didn’t buy very often.
This idea was something akin to a retail revelation: A successful grocery store no longer need carry everything for everyone, just everything that each particular store’s top customers like to buy.
The researchers who studied the data of that anonymous East Coast supermarket found that Walmart took especially valuable customers, including those with pets or kids. Those groups spent so much that if the supermarket had retained just 10 percent of them, its $250,000 in losses would have been cut by more than 60 percent.
“Why didn’t [the supermarket] know that? Why didn’t they do anything before Walmart came in?” asks Song, the Burlington analyst. “The question today is: ‘Do I know this 10 percent?’”
Stop & Shop does. So when it renovated this Norwood store several months ago, the line of natural and organic food its top customers really like was expanded and moved up front. Before its recent renovation in Hyannis, the company learned that people there wanted really wanted convenience, so that store got fewer shelves of organic goods and more cases of prepared foods. When Stop & Shop renovates a store now, it chooses the main design from a pool reflecting not geography, but shopper preferences, Kelley explains. “We’re almost to the point where we can do store-specific [layouts] — that’s really where we want to get.”
As it works toward that goal, the company already has a tool that can pretty much personalize any of its stores. At the front entrance in Norwood, just below a flat-screen TV advertising weekly specials, is a row of hand-held scanners called ScanIt! When customers scan their loyalty cards and start shopping, the device mines their buying history to generate personalized mobile coupons they can use on that visit.
The hand-helds work extremely well, which helps explain why their maker, Quincy-based Modiv Media, was bought in April by Catalina Marketing, a data-mining giant based in Florida. Catalina tracks the purchases of 90 million households, about 75 percent of US shoppers, and then uses its data to produce personalized coupons cashiers give to customers after they pay. Catalina machines print up $6.5 billion worth of them a year, and they’re eventually redeemed by up to 25 percent of shoppers. But because the mobile coupons are displayed while people are making decisions in the aisles, they can achieve redemption rates as high as 60 percent.
Last year, Stop & Shop also began deploying a free app version of the device, ScanIt! Mobile, that converts customer smartphones into scanners. Some of the coupons, which pop up on your phone with a “ka-ching” sound, are based on your location in the store (you could get one for Coke while reaching for Pepsi), and some on what you’ve already put in your cart (like one for hamburger to go with the buns you just scanned).
When company spokeswoman Suzi Robinson taps the app on her phone, coupons generated by her shopping history are already waiting. There are some for organic foods because she always buys them for her 4-year-old son, and one for Canada Dry ginger ale because she was recently sick and bought a lot of it. There’s also one for Cheetos, which Robinson seems to find slightly embarrassing. “I have a total weakness for Cheetos.”
There’s something awfully intimate about a supermarket that can essentially tell when you’ve been ill and when you’ve bought junk food. But the company seems to believe people don’t mind sharing data as long as they get information and offers that are truly useful. “Customers give us [shopping] data with the increased expectation that we’re going to use it to make their experience better,” Keptner says.
Besides, research shows the 80 million or so young people that make up the Millennial Generation aren’t particularly fussed about what’s going on with their data. And by the end of this decade, analyst John Rand says, those digital natives will account for more than half of the country’s retail spending.
NOT LONG AGO, Rand was sorting through his mail when he saw a Stop & Shop flier. He didn’t think much of it; the coupons had never seemed particularly relevant to him. “I used to laugh,” he says. “Stop & Shop would regularly send me Purina Dog Chow coupons, and my cats don’t care.”
But something about this flier was different. There wasn’t a single coupon for dog food, yet there were two or three for things he always bought — like the baby carrots he packs in his lunches. “I’ve never seen a coupon on baby carrots come to my house before,” he says, “but I buy baby carrots every week.”
Although Rand can’t say for sure — and Stop & Shop won’t confirm, because it carefully guards its customers’ privacy — he’s most likely been targeted by the most cutting-edge marketing program in the New England grocery industry, and one that might give supermarkets hope in the battle for a greater share of our food budgets in the future.
Customers now have a sea of options to choose from, so the toughest job for a supermarket is often just getting them in the door. To do that more effectively, Ahold USA has been looking for clues in loyalty data about why customers visit and why they don’t. Then, late last year, it began sending each of between 2.5 million and 3 million households mail and e-mail designed to motivate that family and that family alone.
Most of the fliers are “unique to that household and highly personalized based on purchase decisions in the past,” says Keptner. And by choosing the nine coupons each family gets from a much larger pool, the company is able to ensure that “just about each one of the customers have some unique combination [of them].”
Keptner says the ultra-targeted campaigns performed well from the beginning and have gotten even better, though he won’t share specifics.
If the results are anything like what the Kroger supermarket chain has achieved, Keptner has a hit on his hands. Kroger, which was the country’s largest grocery chain before Walmart arrived, began mailing personalized coupons to customers several years ago, according to The New York Times. Now, 70 percent of customers that get the targeted coupons use at least one. By comparison, only 3.4 percent of customers act on promotions included in old-fashioned mass mailings. Perhaps it’s no surprise that Ahold USA plans to continue its program.
Whatever new species of advertising found its way to Rand’s doorstep, it certainly worked. He may be an industry veteran who’s seen it all, but that doesn’t mean he’s any more immune to a good deal than the rest of us. The next time he went to Stop & Shop, he brought his coupons and bought those baby carrots. It felt nice to finally be understood.
GREAT MOMENTS IN LOCAL SUPERMARKET HISTORY
1926: Clarence Birdseye of Gloucester invents the “quickfreeze” process for fish and vegetables.
1935: Sidney Rabb, head of the chain later called Stop & Shop, debuts New England’s first supermarket in Cambridge. The store—which Rabb’s employees had called “Sidney’s Folly”—goes on to gross $2 million a year.
Alan Haberman, a former Massachusetts grocery exec, can’t get an industry committee to settle on the UPC symbol. He treats them to a fancy dinner in San Francisco, then to a midnight screening of Deep Throat. The committee adopts the bar code within a year.
1978: To offer name-brand quality at lower prices, Star Market chief John M. Mugar debuts the industry’s first line of store-brand products, including frozen French fries.
1983: MIT professor John Little, now called the father of marketing science, and his grad student Peter Guadagni publish a landmark paper analyzing early bar-code and loyalty-card data. It shows how customers’ past purchases can be used to predict their future ones.
2011: Quincy’s Modiv Media introduces the ScanIt! app at Stop & Shop. Modiv says its scanning technology now influences more than 1 million grocery trips every month.
ON THE GO
> We visit a grocery store 74 times a year, on average.
> The average man spends 39 minutes shopping in a traditional supermarket; the average woman: 42.
> More than half of our visits to food stores are so-called quick trips, in which we buy 5 or fewer items and spend less than $40.
Items we buy far more of than the national average, according to Progressive Grocer:
> Tea: 52 percent more
> Pasta: 46 percent more
> Puddings and desserts: 45 percent more
> Canned seafood: 38 percent more
> Refrigerated drinks: 36 percent more
TRY OUR NEW RECIPES
Among the best-selling new products of 2011-12, according to SymphonyIRI:
> P.F. Chang’s frozen meals
> Oscar Mayer’s artificial-preservative-free line (including Angus hot dogs)
> Thomas’ bagel thins
Among the bestsellers expected in 2012-13:
> Dannon Oikos Greek yogurt
> Skinny Cow chocolate candy
> Starbucks K-Cups
> We’re buying 47 percent more store brands than we did before the recession.
> Our coupon use grew 27 percent between 2008 and 2009, the second-highest spike in history.
> 52 percent of us use technology in our grocery shopping, most often searching for online coupons.Francis Storrs is a Globe Magazine assistant editor. E-mail him at email@example.com and follow him on Twitter @fstorrs.