Retailing

Why Safeway Needs a Future With Fewer Groceries


Why Safeway Needs a Future With Fewer Groceries

Photograph by Matthew Staver/Bloomberg

It’s been a rough week for U.S. retailers. RadioShack (RSH) is going to shed as many as 1,100 stores, Staples (SPLS) plans to do without some 225 locations, and now Safeway’s (SWY) merger with Albertsons is likely result is a slimming of the duo’s combined total of almost 2,500 supermarkets. All these businesses have their eyes on different role models for change: RadioShack wants to be more like the uncluttered Apple (AAPL) Store, Staples wants to capture some of Amazon.com’s (AMZN) online magic, and Safeway is heading down a path forged by Trader Joe’s.

That sort of change might have more to do with fewer items on than shelves than fewer stores. Robert Edwards, Safeway’s chief executive, vowed that deal would bring about a more “local, relevant assortment” in his stores as well as “an improved price/value proposition and a great shopping experience.” Edwards, who will run the combined chain, would be wise to focus sharply on simplicity and shift away from the grocery chain model of cramming 60,000 different products—or stock keeping units, in industry jargon—inside each location. A narrower list is smart strategy. Here’s why:

• Consumers like curation. People often equate fewer items with higher quality. Picture a store aisle with 50 types of cereal, and rows of sugar-fueled cartoon characters probably come to mind. Reduce that number to a fraction, and it’s more likely that you’ll sense that higher-quality items are making the cut. Most shoppers don’t want 20 brands of hummus or yogurt. They want experts to narrow that down to the best two or three, each offering distinct flavors and characteristics.

• Big brands are commodities. Ubiquitous brands are in ubiquitous places. Heinz, Kraft (KRFT), Doritos (PEP), Coke (KO)? Everybody sells them, which means people know they can buy them anywhere. It becomes a price game. Amazon and Wal-Mart (WMT) are no different than a Whole Foods (WFM) or your local corner store. Heck, if it’s sealed, you can buy it off the back of a truck. No chain is going to differentiate itself with a heavy reliance on these staples, unless it trims margins to the bone and hopes to make money on volume. That’s not a battle regional grocers can really hope to win.

• Private label is now a brand statement. Back in the days of Repo Man, private labels evoked blue-and-white cans labeled “Food.” Now it means the organic bagged spinach, beer bread mix, dark chocolate-covered sea salt caramels, and palak paneer. More than 80 percent of Trader Joe’s selection is private label. Is it still as lucrative for the store? You bet. But it’s also a statement to customers that they’re getting something they can’t buy anywhere else.

• “Local” is a growing priority. Buying locally produced food appeals to consumers on multiple levels. It’s more eco-friendly than shipping organic yogurt from New Zealand. It turns national retailers into community players that support local businesses and artisans in our increasingly entrepreneur-driven economy. And it seems healthier, as the food typically is fresher and more in tune with the seasons. It also means more seasonal turnover which, like the curation, keeps consumers interested and coming back.

• It doesn’t have to be expensive. When Whole Foods launched the grocery-shopping-as-entertainment franchise, all that soft lighting and tasteful displays were associated with gourmet mushrooms and artisanal cheeses only a king could afford. No more. Now such chains as Wegmans and Fairway (FWM) show you can have warmly lit, well-designed stores that offer value for money. Even Whole Foods has moved more in that direction, as have both Safeway and Albertsons.

Brady_190
Brady is a senior editor for Bloomberg Businessweek in New York.

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Companies Mentioned

  • RSH
    (RadioShack Corp)
    • $0.58 USD
    • -0.04
    • -6.66%
  • SPLS
    (Staples Inc)
    • $11.44 USD
    • -0.15
    • -1.31%
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