Summary
Consumer shopping preferences for grocery, health and beauty care and general merchandise products have changed dramatically during the past decade. Today’s shopper is more concerned with lifestyle needs, health, convenient shopping hours, demands value and selection, and wants to multi-task (use banking, dry cleaning, and other services) while at the supermarket, according to Supermarket News’ Vision 2000 report.

While shoppers surveyed in the Vision 2000 report clearly pointed to supermarkets as their favored destination for perishable items such as produce, meat, bakery and deli, they are increasingly turning to mass merchants and warehouse clubs for canned goods, health and beauty care items, and the other non-perishable product lines that make up the supermarket’s center store.

Why Center Store is Important
The grocery and non-foods departments of the supermarket are vital to a shopper’s choice of where to shop. The two departments have traditionally been the “cash engine” that drives the bottom line of most supermarket operators. The center store also represents the most significant sales opportunity in the store, covering 70% of the store’s selling space and accounting for just under half of total retail sales volume, according to Progressive Grocer’s 2000 Annual Report of the Grocery Industry.

An example of the importance of the center store is shown by an analysis of nine categories in the grocery and non-foods departments conducted by Procter & Gamble. Laundry detergent, peanut butter, fabric softener, toilet tissue, diapers, coffee, toothpaste, paper towels and shampoo collectively represent about $17 billion in annual supermarket sales, according to syndicated data. By doing nothing to retain the sales in these categories, operators will lose an estimated $1.2 billion in the next two years. Worse, the rate of volume lost is accelerating in several categories, including coffee, cereal, chilled drinks, and soup.

What Happened
Over the last 20 years, the business model that many supermarket operators base their operations on has changed to one that sells products at the same price they are purchased for, and relies on trade promotions to cover all other costs and provide the profit margin. During the same period, new competitors for the center-store business arrived to attract customers from traditional supermarkets by offering lower prices, larger or different pack sizes, a more exciting shopping experience, or all of these.

The growth in meals away from home is also an increasing factor in supermarket operation, as companies improve the quality of perishables sections (at the cost of devoting less resources to the center store) in an attempt to recoup the share of stomach lost to foodservice.

The combination of the buying-oriented business model, the new competition, and the growing emphasis on perishables has resulted in the center store often falling into some level of disrepair.

The fact that many center-store categories are suffering was noted in a recent AC Nielsen study, which showed that 25% of dry grocery and non-foods categories experienced volume growth of 5% or less; another 5% experienced no volume growth at all; and the remaining 70% experienced declines. On average, 70% of total store space is dedicated to center-store categories. Other channels are capturing center-store sales from supermarkets for the following reasons:

Competition from alternate channels is a major factor in the decline in supermarkets’ center-store sales. Sales volume in the center store at a majority of supermarkets has been shrinking since 1990 due to increased competition from alternate channels, retail emphasis on perishables to recapture sales lost to foodservice, and a corresponding lack of resources dedicated to the categories that make up grocery and non-foods.

ITREC Initiative
N.G.A.’s Industry and Trade Relations Executive Council (ITREC) has focused on recapturing center-store sales as a priority. ITREC reflects N.G.A.’s unique mission and involves the trading partners involved in the independent sector of the food industry, executives from the retail, wholesale and manufacturing communities.

Strategies 2005: A Vision for the Wholesale-Supplied System, a report developed by the Food Distributors International (FDI) and sponsored by N.G.A. made it clear that wholesalers and the independents they serve will be facing significant challenges in the near future. The study found that the wholesale-supplied supermarket trade channel represented a $178 billion market, 37% of total retail grocery industry sales, down nearly 5% from 1992. A substantial portion of that loss in market share is from center store volume deterioration.

ITREC’s Special Report: Keys to Successful Center-Store Growth presents strategies to help supermarkets solve the attrition of center-store sales, and includes a report by Willard Bishop Consulting on opportunities to increase the efficiency of trading relationships, ways to help trading partners achieve these opportunities, and the economic payback that can be achieved.