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Trend watch: Creating an oasis

March 27, 2012
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More retailers are committing to add more stores in food deserts

The band America had it right with its song A Horse With No Name that, in singing about the desert, says: “there were plants and birds and rocks and things, there was sand and hills and rings.” However, there was no access to healthy, affordable food, which is why many U.S. food retailers such as Walmart, Walgreens and Supervalu, are pledging to help eliminate food deserts. Others are likely to join the movement as well.
Given the low income levels in such areas, it’s likely that offering private label products, and the right mix of private label for each market, will be essential to making money in these food deserts.
HOW DOES PL FIT IN?
A key challenge for consumers in food deserts is finding quality food that is affordable.
Retailers such as Supervalu owned Save-a-Lot achieve significant operational cost savings, which can then be passed on to consumers in the form of lower price savings, by providing a limited, but pantry-filling selection of everyday grocery items primarily under its own private labels, according to Mike Erlandson, vice president of government affairs for Supervalu.
“The widespread use of private label brands [more than 80 percent] at Save-a-Lot allows us to offer prices that are, on average, 40 percent lower than traditional grocery stores and this is critical to sustaining a successful business in areas like food deserts,” he says.
Given the captive nature of the clientele, many don’t have personal transportation to drive to far-off big boxes or other retailers,  private label makes a lot of sense for food desert stores, adds Jeff Weidauer, vice president of marketing and strategy for Little Rock, Ark.-based Vestcom, a marketing consulting firm. “First, there are not a lot of alternatives, by definition. Secondly, price will play a strong role in the buying decision. Finally, the greater margins for private label will help to offset some of the increased costs of operating in these environments.”
Agrees Susan Viamari, editor of the monthly Times & Trends at research firm SymphonyIRI Group, Chicago, “Through the course of the economic downturn, store brands have provided customers an opportunity to save money and keep their grocery budget in check. And so, when you’re looking at these food deserts, which are historically in lower income areas, again the whole perception of value is very important and private label products have very strong value perception.”
Private label will be a major part of any successful format that competes in the food deserts, Carl Munyon, former PLBuyer editorial board member, has told PLBuyer. “These customers will demand competitive prices to not make the trip to the larger retail markets that offer all of the variety. Convenience is important, but price and quality will be the determination of long-term success for these retailers.”
SMART MOVE?
Is flocking to food deserts a smart move for retailers? “It could be, depending on the retailer,” says Weidauer. “That is a strategic question that will vary by retailer. It will certainly be a smart play for the right store.”
“If the market being entered is truly a desert, then anyone that brings water, in this instance a new store, has a change of success. In the short run, they will have a competitive advantage as the first to market,” Paul Osinski, PLBuyer editorial board member and senior vice president, commercial sales, with Salient Management Co., has told PLBuyer in a roundtable discussion.
“This is a smart move for retailers because it’s a new niche and opportunity for growth and it’s a challenge to continue to find new and innovative ways to grow,” says Viamari. “Of course the most profitable and productive way to grow is to listen to the needs of the consumers out there and filling these food deserts with options is obviously a huge need.”
 “The dearth of competition in food deserts is a big part of what makes them attractive,” says Weidauer. “The challenge for the retailer will be how relevant it is to that customer segment, and how well it can control costs. Operating in many of these environments will require greater investments in logistics and loss prevention.”
Agrees Viamari, “There really is a lot of competition out there, but I think the retailers that are already entering into the food deserts have an advantage in that they are used to competing in a smaller environment and they are farther along the curve of defining what exactly is the right assortment to bring profitability.”
MIXING IT UP
Which private label items or categories will sell best in food deserts and at what price points? Those questions are yet to be answered; finding the answers will require a great deal of trial and error in terms of product mix, private label vs. branded assortment decisions, and pricing.
Because there is no one-size-fits-all strategy for these markets, retailers that move into food deserts need to be ready to make adjustments, not just desert by desert but even on a store-by-store basis.
“We encourage and allow our store managers and licensees to adjust products and displays to match the individual needs of their respective neighborhoods,” says Supervalu’s Erlandson. “While the bulk of a store will utilize our low-cost, private label staple products, individualizing these locations on a store-by-store basis is also important.”
Agrees Viamari, “Retailers definitely need to change up their store mix. Marketing today is much more about having that 360 degree view of your key shopper and when you think about something like store brands, consumer perceptions around store brands are very favorable in general. But again, it’s not a one-size-fits-all type of perception.”
The role, and level of PL will vary, but still be critical, whether those stores are placed in value-driven communities or upscale neighborhoods, adds Osinski.
While there is an opportunity for retailers to make money in food deserts, they will
need to educate themselves.

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