FOOD MARKETING CONFERENCE PANEL SERIES: It's all about value!

Articles
April 28, 2009

FOOD MARKETING CONFERENCE PANEL SERIES: It's all about value!

In the 44th annual Western Michigan Food Marketing Conference, executive forum, the topic of discussion was leading and winning in the new economy. Moderated by Phil Lempert a panel of five key retailers exchanged insights in a discussion on consumers in the wake of turmoil and the challenges and opportunities the food industry is facing. In our first series of these discussions, it's all about value! In an NGA/SupermarketGuru consumer panel, 2,000 shoppers were surveyed and asked what's most important to them when they shop, and the 2009 number one answer was "value". "Health" slipped to the number two position, which was number one in 2008. The five experts on the panel were Jim Wright, Chairman, President and C.E.O of Tractor Supply, Mike Jackson President and Chief Operating Officer of Supervalu and Chairman of NGA, Mark Batenic, Chairman, President and C.E.O of IGA USA, Alex Miller President of Daymon Worldwide, and Craig Sturken, Executive chairman of Spartan stores. Phil Lempert: Value? Is this a temporary situation with consumers or do we think or hope that six to nine months from now the rules change again? Mark Batenic: Value is here stay, and I think value never really left. I just think people put more value in being easier with they were spending when times were easier. But times are tough. The county where I live in North Carolina, quick story, the unemployment rate is 17.9%. The fella across the street from me owns a service station, and he knows the price of milk. I never would've dreamed in a million years that he would have known the price of milk, so value is out there today. And I don't think it's going to go away. Values have changed. They are fundamental shifts and habits that are never going to go away.

In the 44th annual Western Michigan Food Marketing Conference, executive forum, the topic of discussion was leading and winning in the new economy. Moderated by Phil Lempert a panel of five key retailers exchanged insights in a discussion on consumers in the wake of turmoil and the challenges and opportunities the food industry is facing.

In our first series of these discussions, it's all about value! In an NGA/SupermarketGuru consumer panel, 2,000 shoppers were surveyed and asked what's most important to them when they shop, and the 2009 number one answer was "value".  "Health" slipped to the number two position, which was number one in 2008.

The five experts on the panel were Jim Wright, Chairman, President and C.E.O of Tractor Supply, Mike Jackson President and Chief Operating Officer of Supervalu and Chairman of NGA, Mark Batenic, Chairman, President and C.E.O of IGA USA, Alex Miller President  of Daymon Worldwide,  and Craig Sturken, Executive chairman of Spartan stores.

Phil Lempert: Value? Is this a temporary situation with consumers or do we think or hope that six to nine  months from now the rules change again?

Mark Batenic: Value is here stay, and I think value never really left. I just think people put more value in being easier with they were spending when times were easier. But times are tough. The county where I live in North Carolina, quick story, the unemployment rate is 17.9%. The fella across the street from me owns a service station, and he knows the price of milk. I never would've dreamed in a million years that he would have known the price of milk, so value is out there today. And I don't think it's going to go away. Values have changed. They are fundamental shifts and habits that are never going to go away.

Phil Lempert: Mike, would you agree?

Mike Jackson: Yes, I would agree, it's not going to away. You're question, "Is it temporary?" It all depends on what you would define temporary. I think it's something that has been calibrated; it's going to stay for quite some time.  And, they'll probably be another event, I don't know what that is, but I think what we're seeing today is probably going to be in place until there is another event to push that out of the way and something else will occur. But just remember, we got away from value and consumption in a lot of things in this country, and things got a little bit out of whack, so this has been a major calibration just to get things back in line somewhat. I know it's been overdone a little bit and maybe a kneejerk, but it is a calibration from where we started.

Phil Lempert: Craig, would you agree?

Craig Sturken:  Yes, I do. But remember there's more to the equation than just price.  As a retailer, I think retailers that do not have an equation that equals a value for the consumer will be in trouble. Going forward, I think the consumer has learned to expect value. I think of a retailer like Whole Foods. I think that would be an equation that may be in jeopardy, particularly today and maybe tomorrow.

Phil Lempert:  So building on your idea of that equation, let's look at that value equation that Whole Foods had five years ago. What would you suggest that was?

Craig Sturken:  When I look at Whole Foods I think of social acceptability, reasons to shop there that either nothing to do with product availability or price, but it's about the environment and the theatre which I think are really susceptible in a tough price market.

Phil Lempert:  So, now the equation changes, and they didn't have price even a little bit in the equation, and to do that 360 degrees is tough.

Craig Sturken:  Yes, I think that formula is the most susceptible to today's environment, and as a consumer gets used to getting a value, I think it makes it susceptible to tomorrow.

Phil Lempert:  I've seen a lot of consumers and gotten a lot of emails where they have discovered dollar stores. They've discovered all these save a lots, grocery outlets, and they are saying I never knew I could save so much. and they're getting a kick out of saving. It's becoming an enjoyable climate for them probably more than they ever expected. Jim, value, what do you think?

Jim Wright: First of all the consumer that we've all known and loved and sold to for 17 years is dead and gone. Seventeen years ago they saved eight percent of their income. That went negative in 2005, and now it's back to five percent, so they've learned a tough lesson. Seven or eight years ago we were all reading a book called "Trading Up".  That's no longer being sold. Consumers are now trading down or they're trading out entire categories. Businesses as Starbuck's or Whole Foods were founded on the consumer behavior of trading up or small indulgences. I think those are permanently gone or certainly for the next several years. The value equation is here to stay. And, I think it's a period that they would realize that value is a formula, and value is an equation of price on top and experience on the bottom. And the experience is everything from in-store to consumption or preparation in the case of food. It's an entire life long experience from when I purchased it until I used it. I think that smart retailers and manufacturers will be very much in tune with the fact that consumers' expectations of value, using that equation, are higher and likely to stay high for a long time.

Phil Lempert:  Alex, I wanted to ask you last because of the impact that we've seen on store brands with value. You're probably sitting there saying "I knew this was going to happen."

Alex Miller:  I'm glad it's happening. We see the store brand trend really growing. It's really been growing for a long time. And especially over the last four or five years I think it's gotten to be really strong. And certainly now, and during periods of when the shopper is more value-oriented we get more trial during those periods and typically, it will do better coming out of it. I know a lot of our branded counterparts will feel that as the recession ends that we will bound back up and go back to as Jim described, the trading up culture, but we don't really think so. We think that value is here to stay. I think that most of our retailers and customers are looking at ramping up penetration on private label, which is maybe in the mid-twenties up into the thirties and forties similar to what Europe has. And, I think as long as we can maintain our quality and our value for the consumer, I think this value orientation will continue.

Mark Batenic:  I think value is in the eye of the beholder, and I'm not sure what I mean by that, but let's stay on Whole Foods for a second. People value eating healthy and they're balancing that right now. Whole Foods has certainly taken a little bit of a hit, but some people are saying it is worth the value, and Whole Foods is reacting to the economy pretty well right now. They're still holding on pretty good. So for the consumer it's just not price, it's the value of the products that they're purchasing at least in the grocery stores and the value they see in health, and Whole Foods was founded on an organic, healthy lifestyle, which matches what America is all about today too. So, if they just re-tool that value equation, they could be big winners here, because not only would they have value in price, they'd have value in health, and probably have a little bit of an edge in some other formats in that area.

Phil Lempert:  But haven't they done such a good job in educating consumers that now most of those organic products I could go to an Albertsons or an IGA, and I don't need Whole Foods. They were my training for health, and now I can go elsewhere. I guess the question is can other stores ramp up quick enough. The big complaint I hear about Whole Foods is that you used to be able to go into any Whole Foods, go up to any one of their associates, ask any question and get an answer.  Now, you can't. Now they're just like any other "supermarket employee".

Mark Batenic:  Well, we will see what kind of marketing they do?

Next week, we will post the second series of this panel as Phil poses the question are retailers properly positioning themselves as we've seen many shutting their doors.