WALMART’S EVOLVING PRIVATE LABEL STRATEGY

With Walmart reported to be abandoning its Price First entry-level range, and ending its agreement with Wild Oats for organic items, we look at how the retailer’s private label strategy is evolving.

Critical element of strategy to enhance price competitiveness with discounters

There was an expectation that we would see some major changes this year to Walmart’s private label line-up. The retailer’s senior leadership in the US started to indicate last year that private label items would have a stronger role as part of the category mix. Greg Foran, the retailer’s president and CEO, stated that while the Great Value brand and product is an area of strength for the business, in some areas, pricing was not competitive. Evolving the entry-level offer is a key way to address this and has been area which Walmart has been focused on, particularly given the growing competition from discounters, particularly Aldi, where the product offer is almost entirely private label.

Signalling the end of generic entry-level ranges?

The move away from Price First may form part of its strategy to compete more effectively with Aldi, and prepare for Lidl’s market entry in 2018. The discounters typically operate with a range of category specific private brands, rather than a banner specific approach. RecentlyTesco in the UK introduced new entry-level brands in seven fresh food categories, replacing its ‘Everyday Value’ brand. Branding and packaging of the new range stands out on shelf and communicates quality and provenance connotations, through the sourcing cues provided by the individual farming related brand names, alongside low prices.

Learnings from Canada: integrating organics into Great Value range

It has also been reported that the retailer is to end its partnership with organic brand, Wild Oats. The Wild Oats brand was re-launched at Walmart two years ago as part of its plans to improve the affordability of organic ranges through creating a new price position for them. Partnering with Wild Oats enabled the retailer to build scale in the category quickly, in line with growing consumer demand. At the end of last year Walmart Canada launched a range of organic items under the Great Value brand and could be the model that Walmart will replicate in the US. Moving to this model should enable it to deliver a strong price proposition for organics, a key growth and competitive segment in the US market.

Walmart Canada’s private label offer also includes a small number of Price First products, and the ‘Our Finest’ premium range of products. In addition, Walmart can draw on significant food private label expertise from its international operations, including Asda-Walmart in the UK.

ROBOTS READY TO REVOLUTIONIZE RETAIL 

Gary Hawkins

A key message I have been focused on driving across the industry is that technology-fueled innovation is transforming retail at an increasing pace. The corollary to this is that innovation moves from ‘isn’t that interesting’ to widespread adoption much faster than the vast majority of people in the industry are aware of. Nowhere is this more true than with robotics.

Robotic innovation is poised to transform and disrupt retail from several directions - and that’s just based on what is happening today. We’re seeing companies creating self-navigating robots that cruise store aisles to constantly monitor merchandising, alerting store personnel to out-of-stocks, misplaced products, and other issues. Other companies are aggressively testing and conducting real-world pilots of delivery robots for use in cities and neighborhoods. Yet other companies are developing robots to serve customers in restaurants and to use in manufacturing. The day a self-driving delivery van pulls into your driveway and a robot rolls out to deliver your groceries to your front door is coming soon.

Imagine the use of robots in commissaries and food production, an area that is ripe for the application of this technology. Imagine you step up to a deli counter in the store to order a sandwich for lunch… and a machine actually makes it, wraps it, prices it, and hands it to you. Imagine robots stocking store shelves; not much of a reach when you consider the use of robotics today in distribution centers. And for those readers that are laughing to themselves as they read this thinking it will never happen: Reread the first paragraph.

The application of robotics to retail related functions and capabilities is increasing. With it comes a need for those in the industry to consider the implications involved. The ability of a robot to help reduce out of stocks is a no-brainer. The use of robotics to prepare and serve a sandwich may be a positive development in terms of accuracy and consistency but there are issues related to that capability replacing a human in that role. I think we not only as an industry, but also as a society, need to start focusing on and considering the implications of the innovation explosion we are experiencing. Technology advancement and innovation are not going to slow down and it is certainly not going to go away - and I am not suggesting it should. I am suggesting we as an industry should start thinking more about the implications of what is coming at us.

Why supermarket foodservice is becoming strategically important to grocers

By David Henkes, Technomic | 28 April 2016

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Whole Foods among US grocers to have built significant prepared foods ranges

David Henkes, advisory group senior principal at US foodservice consultants Technomic, outlines why more US supermarkets are putting greater emphasis on prepared foods, with some providing in-store eating and becoming grocerants in turn.

Prepared foods - such as a rotisserie chicken, fully prepared hot and cold sandwiches and fully prepped and hot pizza - have made significant inroads in the US supermarket channel, causing changes in the way individuals and families obtain and consume meals.

The landscape of supermarket foodservice has changed dramatically in the US over the past several years. Within Europe and the United Kingdom, purchasing high-quality, fresh pre-made (generally chilled) foods at retail outlets has been commonplace for consumers; in the US there have been experiments on and off for years but only fairly recently have we seen sustained and strong focus put against delivering strong value within prepared foods. 

What is important to note is the dramatic growth in this segment in the US. Today, most leading supermarkets have identified foodservice as their leading strategic priority, with the result being long-term growth of over 10% annually in supermarket foodservice over the past ten years. The segment now is valued at over US$27bn in consumer sales, larger than foodservice segments such as colleges and recreational foodservice. As part of those strategic initiatives, retailers have made considerable changes to the physical layout of stores and an emphasis on perishables - with a growing perimeter and shrinking centre store - has been a prevailing theme. The prepared foods department provides one of the best opportunities to truly differentiate. 

For supermarkets, expansion of - and dedication to - fresh prepared foods is an imperative. Food retailing is more competitive than ever with supercentres and warehouse clubs being joined by drug and dollar stores, as well as online providers (such as FreshDirect and Amazon) in creating a much more competitive environment and encroaching on supermarket territory. With the blurring of channels, share of stomach is becoming more and more fragmented. Supermarkets need a unique offering to shift decisions about store choice beyond price and location. 

While retail is a business known for its slim margins, the prepared foods area increasingly contributes not only traffic but stronger margins and healthier bottom lines. The mindset of supermarket management has changed and they increasingly see foodservice as a profit centre; on average, prepared foods now represents 5% of supermarket sales. Moving forward, we expect to continue to see that percentage rise as higher-margin offerings become a stronger focus throughout the grocery channel.

For many leading supermarket operators, the perimeter has become a bit of a 'food court' with a variety of food and beverage alternatives available to customers. An increasing number of supermarkets are introducing limited or full-service restaurants in to their physical footprint. Along with this, most stores have hired corporate executive chefs to design their prepared foods menus and in-store chefs prepare meals and serve them to customers in contemporary in-store dining cafes.

Prepared foods have been traditionally takeaway-oriented but some of the leading supermarkets are adding seating areas, leading to the term "grocerant" – Whole Foods Market as an example offers the opportunity to dine in at a couple of its leading-edge stores.

Furthermore, supermarkets are increasingly offering more "food stations" to include separate areas for both self-serve and made-to-order items. These food stations use the freshest ingredients, often sourced locally, and items are frequently prepared right in front of the customer using an open kitchen. These in-view preparation areas are meant to be a means of differentiating versus the competition. Stations also cater to changing preferences by offering both traditional comfort food items such as chicken or pizza as well as a variety of ethnic or specialty items such as sushi, barbeque, seafood, and vegan fare.

The future of the supermarket foodservice landscape appears bright. Supermarket executives almost unanimously agree they will be expanding and improving their foodservice offerings in the coming years. They believe this is necessary as on-the-go trends continue and consumers are seeking out new venues in stead of restaurants or other foodservice operators. Projections also suggest this channel as one of the most dynamic in the years ahead. Annual growth in the range of 8 to 9% is a reasonable expectation through 2017.

For food and beverage suppliers, selling into supermarkets does not only mean selling packaged goods anymore; much of the food is prepared on-site or prepared off-site by commissary kitchens, and the selling process is much different than what used to be the "traditional" supermarket. This area of foodservice is dynamic and growing, and supermarkets are looking to suppliers to provide expertise and advice to assist in growing this strategically important part of their business.

The Local And National Issues Shaping Hunger In 2016

Posted by Mike Berger

Date: April 27, 2016

in: New Channels Report, Northeast

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Catherine D’Amato

The Greater Boston Food Bank (GBFB) recently announced the five major themes that it believes will shape hunger locally and nationally in 2016. The issues, already becoming priority items for state and federal governments and communities, include fostering community sustainability, understanding the growing epidemic of senior hunger, decreasing wasted food, defining food insecurity and increasing food safety.

Fostering community sustainability
GBFB predicts that more communities will continue working together to access hard-to-reach populations and tackle major social issues. Beyond hunger, communities will need to work together on all levels to alleviate homelessness, the opioid crisis and more. GBFB is taking the initiative local by collaborating with community organizations and developing programs to reach veterans and college students. It also is prioritizing health initiatives, including the launch of more food pantries at community health centers to expand its reach throughout the community.

The growing senior hunger epidemic
Seniors age 60 and older make up about 20 percent of Boston residents, according to the City of Boston’s Report on Aging Seniors. As the Baby Boomer generation enters retirement, Feeding America foresees the number of seniors requiring food assistance to increase by 50 percent by 2025. Limited income requires selective spending (e.g. choosing between paying for rent, healthcare costs or food). To alleviate this issue, GBFB has programs specifically targeted toward low-income seniors and administers the new federal grant program in Massachusetts—the Commodity Supplemental Food Program. Its Brown Bag program also targets vulnerable seniors, serving about 7,800 per month.

Decreasing wasted food
In the U.S., 40 percent of food goes uneaten and becomes the single largest component of municipal solid waste. As a major focus for 2016, GBFB has established collaborations with Lovin’ Spoonfuls, Food for Free and Daily Table. It also is paying close attention to MassDEP’s Commercial Food Waste Disposal Ban, and communities like Cambridge are taking action on food waste reduction. By creating partnerships and enlisting the community, GBFB hopes to see a reduction in greater Boston food waste in the coming year.

Defining food insecurity
Nationwide, one in every seven people are considered “food insecure,” meaning they do not receive an adequate amount or quality of food on a given day. Recently, Congress began looking into what determines food insecurity, the role of nutrition and access to healthy options via programs such as the Supplemental Nutrition Assistance Program, the Farm Bill and food banks. Hospitals are even starting to explore opportunities to screen for food insecurity via medical intake forms, a process in which GBFB is working locally to help solidify.

Increasing food safety
Already a hot topic in the news, food safety will remain top of mind throughout 2016. Following recent events at major restaurant chains, everyone—from farmers to supply chain managers to storefront owners—is examining the food the nation eats. GBFB expects this will continue to be a topic of interest throughout the year, focusing on transparency throughout the industry. Locally, GBFB is making improvements to its own supply chain, including a superior rating in a recent annual certification with the American Institute of Baking’s food safety certifications

“Local and national hunger-related issues are diverse and complex, but they affect everyone on some level,” said Catherine D’Amato, GBFB president and CEO. “Paying attention to how these issues shape the face of hunger in 2016 will help us achieve our mission to end hunger here by distributing enough food to provide at least one meal a day to those in need.”

FMI’s Fikes: Consumers Distrust New Science, Big Biz More Than GMOs

Posted by Kristen Cloud

Date: April 27, 2016

in: Home Page Latest News, Meat/Seafood/Poultry, National, Shelby Signature Content,Special Report

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David Fikes, FMI VP of consumer/community affairs and communications, discusses consumer concerns about GMOs.

With the battle over food labeling still raging, manufacturers and retailers are struggling to understand the best and most cost-effective way to ease consumer fears surrounding GMOs, or genetically modified organisms. What they don’t realize, according to David Fikes, VP of consumer/community affairs and communication for the Food Marketing Institute (FMI), is that consumers are less worried about any negative health effects of GMOs than they are worried that information is being hidden from them.

It’s a well-documented phenomenon that people are skeptical of new science, and they often distrust big business and government as well, noted Fikes at the 2016 Annual Meat Conference, held in Nashville, Tennessee, earlier this year. Unfortunately for GMO supporters and producers, that skepticism comes to a head in the issue of GMOs.

“Consumer confusion about GMOs is justified,” said Fikes, noting that it takes a great deal of technical expertise to really understand genetic modification. “We tend as human beings to distrust or question that which exceeds our comprehension… And we especially tend to distrust things, not only when we don’t understand it, but when we fear or we’re told that there is information being withheld from us.”

The fear that scientists, businesses and the government are hiding something from consumers is driving much of the backlash retailers are seeing against GMOs. Activists “are backing off of the argument about fear of the unforeseen consequences. They’re backing off of the argument about it hasn’t been adequately tested. Because that just wasn’t getting as much traction with consumers,” said Fikes.

One of the reasons they’re backing off those arguments is that they are having a hard time proving them; Fikes noted that in more than 20 years, there has been no verified instance of GMOs harming consumers. However, as the industry has noticed, “right to know” activists are gaining traction, and consumers are increasingly demanding to know what is in the foods they buy, including whether or not they contain GMOs.

“There’s widespread interest in GMO labeling, but it’s more about labeling and less about GMOs specifically,” said Fikes.

A 2015 study conducted by FMI found that among consumers who don’t avoid GMOs and who wouldn’t avoid them even if they were labeled, 63 percent are still in support of labeling GM foods. Among all adult shoppers, that number increases to 68 percent. The study also examined whether education about GMOs would influence consumer desire for labeling. Researchers provided four different groups of people with either no information on GMOs or varying amounts of positive information from government agencies and concerns from consumer groups. There was almost no difference among consumers who received no information, only positive information or mixed information; 66 to 69 percent of consumers still wanted labels.

To give consumers what they want and to ease fears that companies are withholding information, food processors and manufacturers who do not disclose GMOs in their products need to rethink their stance, and in the hopes of simplifying that process, FMI is in support of a national labeling standard. However, said Fikes, because more than half of the products in a grocery store contain GMOs, it makes more sense to develop a non-GMO label than a GMO label. Not only does this reduce the burden on manufacturers, but also it would be easier for consumers to find labeled, non-GMO products than it would be for them to sift through GMO labels looking for the products without them, he said.

One change that Fikes and others are pushing is to call for “required disclosure” rather than mandatory labeling.

“The reason for that is we want some flexibility in the way in which we communicate that required disclosure. Whether it be through the SmartLabel, QR codes, whether it’s total package labeling for some products, or whether it is on the website of the company,” he said.

That being said, Fikes urged conference attendees to try to find better ways to educate the public on genetic modification. Because consumers are distrustful of new science and big business, Fikes believes that companies will have to use social media to inform their consumers “because that is the way most people are being educated these days,” he said. “They’re finding out their information through posts of friends and family who are sharing with them information through social media.”

He recommends engaging sources that consumers do trust—like farmers, doctors and local supermarkets—to share reliable materials online that attest to the safety of GMOs. However they choose to educate consumers, the food industry will need to get creative as it tries to pull GMOs out of what Fikes calls the “vortex of consumer skepticism of science.”

What's Whole Foods' 365 All About?

Apr. 27, 2016 8:35 AM ET

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 About: Whole Foods Market, Inc. (WFM)

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By Ian Ritter

Whole Foods (NASDAQ:WFM) is launching a small-format store, called 365.

The name is in reference to its private-label brand of goods that are relatively inexpensive compared to its other high-end and organic products that coined the term "Whole Paycheck."

So far, there are three openings, with set dates, for the concept scheduled to open this year. The first will be in May in Los Angeles' hip Silver Lake neighborhood. Locations in Oregon, outside of Portland, and in the Seattle suburb of Bellevue, are forecast to open this coming summer. More stores are already planned for select areas around the country, including the East Coast.

The story behind the launch

This comes at a good time for Whole Foods. The grocer seems to have hit some headwinds when it comes to its most recent sales reports.

Whole Foods Market saw same-store sales decline by 1.8 percent, year over year, during the company's first quarter. Even though the grocer had record total sales of $4.8 billion, comparable store sales declines are not normal for the retailer. Net income also dropped during the quarter, but it's not as if the retailer is struggling. Whole Foods has a total of 30 new stores on tap for the coming year, in addition to the three Whole Foods' 365 units that are set to open in 2016.

There are a lot of advantages to Whole Foods' 365. For one thing, ALDI and Trader Joe's, both known for selling high-quality products at inexpensive prices, are expanding rapidly around the country, and have great customer loyalty.

To compete with these chains, it makes sense for Whole Foods to have another concept that will cater to the same consumer base that might steer away from the grocer due to the expectation of high prices.

Plus, Whole Foods is experiencing significant pressure from The Fresh Market (NASDAQ:TFM), Sprouts Farmers Market (NASDAQ:SFM), as well as regional higher-end chains, that target a wealthier consumer looking for organic and healthy (expensive) food products.

Regardless, the news about Whole Foods' 365 is good for retail real estate landlords. Whole Foods is a credit tenant, and the new concept will average 30,000 square feet. This means that its size will be more flexible than its full-line stores, which have been curving upwards of 40,000 square feet, depending on the locale.

The smaller format will give landlords opportunities to put the stores into smaller spaces, especially in retail strip centers and mixed-use buildings, where we have seen a glut of retail store closings so far in 2016.

Where others have failed

But, there is still a lot of uncertainty around the initiative. Consumers will have to experience Whole Foods' 365 before it can be determined a success or not.

A similar-sounding concept, Fresh & Easy, owned by the U.K.-based giant Tesco (OTCPK:TSCDY), opened a few years ago in the super-competitive California grocery market. It was a chain that promoted healthy food for inexpensive prices. Fresh & Easy, also in a small format, shut down after opening 200 stores and losing well more than $1 billion, after the concept was terminated last year.

The upside with Whole Foods, though, is that it has a name recognition that people associate with experiential retail. Many think, and for good reason, that they decide to shop at the company's stores for an experience that is beyond a simple transaction. They go there to taste good samples of food, take cooking classes, and eat at its cafes. There is bound to be plenty of excitement about the concept that will draw plenty of shoppers into Whole Foods' 365.

With measured expansion plans, there is little reason to believe the concept won't work, and it could be an overall benefit to the commercial real estate industry that draws increased consumer traffic.

Walmart's phasing out 'Price First' in private label revamp

Apr 26, 2016Jon Springer

Wild Oats isn't the only brand disappearing from the shelves at Wal-Mart Stores.

Price First, an opening price-point brand introduced around the same time that the Wild Oats brand was populating shelves at Walmart stores in 2014, is being phased out this year, a company spokesman told SN Tuesday.

Although Walmart declined comment on published reports this week that its deal with Wild Oats owner Yucaipa Cos. was winding down, that move and the concurrent retirement of the Price First brand suggests Walmart is asking its national brand equivalent, Great Value, to do more to gather both organic-food shoppers and price-sensitive shoppers.

Price First was designed to help Walmart's Supercenters and Neighborhood Market stores better compete for the shoppers at hard discounters like Aldi, executives said in 2014. Items featured a stark, "no-frills" style label across multiple dry-grocery and consumable categories, but it appears that customers may have had difficulty distinguishing it from the Great Value line.

Walmart spokesman John Forrest Ales told SN Tuesday that certain items from the Price First line are now coming in in packer labels, and that recent price investments includes items under the Great Value brand. 

While the brand selections are changing, Walmart appears not to be retreating from either organic or value, and remains committed to private label as an element of its strategy.

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"We've offered organic items for years, and know that more customers are looking for them in more aisles across our stores. Customers will see more organic under the Great Value brand, along with a great assortment of the national brand organics they're looking for," Ales said. "Our customers know the Great Value brand and trust the quality it stands for."

Steve Bratspies, Walmart's new chief merchandising officer, in a presentation last month noted that private brands was a "key loyalty builder" at Walmart, saying shoppers who buy them tend to make more frequent trips and have higher basket rings than non-private brand buyers. He also said Walmart was was increasing private brands in new items and overall SKUs.

"We believe winning with private brands comes down to three things: It's price, innovation and quality," Bratspies said. "And we're spending a lot of effort to invest in product development, sourcing, technology, new talent to be able to build this business."

Recent print circulars from Walmart include two pages of organic items under a variety of brands including Great Value.

There may also be a financial benefit to the move away from Wild Oats, natural products consultant Jay Jacobowitz of Retail Insights, Brattleboro, Vt., told SN Tuesday.

"I think Yucaipa had sold Walmart on the idea that the Wild Oats brand brought with it a name recognition and a pedigree of authenticity that would accelerate Walmart’s foray into organic," Jacobowitz said. "And when that turned out not to be the case, Walmart decided they would be better off building their own private label organically, with greater structural profit margins vs. a third-party license deal.

"That being said, I also never saw the 200, or even 100 SKUs on shelf at the Supercenters or any of the other platforms," Jacobowitz added. "So, it was an inconsistent rollout, at best."