Article

How Europe's grocers keep food sales fresh

Standardization helped retailers expand, but localization has helped leaders stand out.

Par Marc-Andre Kamel, Nick Greenspan and Rudolf Pritzl

First published on janvier 22, 2009
min


Pass through the doors of an Edeka grocery store in Nurnberg, Chemnitz or Bad Fussing and it seems like you've also entered a different planet: Here, shelves are lower to make them accessible to more shoppers, price tags are larger to make them easier to read, and—wait, is that a blood-pressure checker in the fresh fruit section? With consumer confidence eroding and retailers seeing sharp declines in sales, Edeka is one of several Western European grocers taking advantage of the strategy of "localization." The capability to cater to local preferences in a cost-effective way may help position these companies to weather the economic downturn better than their competitors. Western Europe's top-performing grocers grew at twice the industry's compound annual growth rate between 2000 and 2006. One practice that set them apart: The winners are more adept at localizing their offerings. Standardization initially helped retailers to expand efficiently. But localization has enabled a number of leading retailers to stand out from the crowd and gain market share. Just as too much standardization leads to stagnation, too much localization can cause costs to spike. Many of the leaders in the grocery business have learned to strike the right balance. One thing they're doing differently is paying more attention to how they format stores to the communities they serve. At Edeka's "50+" stores, designed to appeal to shoppers over the age of 50, elderly and disabled shoppers find a wide range of products with a health emphasis, particularly for special dietary needs. Shoppers also find single-serving meals, slip-proof floors, places to sit, specially trained employees and shopping carts that attach to wheelchairs. The stores became a hit with older shoppers, but what the company hadn't anticipated was the extent to which they had located the heartbeat of other groups, too. Shoppers with children in tow appreciated the wider aisles, and single shoppers came for the range of one-serving food items. And it has paid off: Revenue doubled between 2004 and 2006 in the store in Chemnitz, for example. Other leading grocers excel at matching customer preferences to what they put on their shelves. For example, Tesco's well-recognized ability to use customer data has helped position that company to weather the downturn. Since introducing its Clubcard in 1995, Tesco has collected data on each customer purchase and used sophisticated data analysis to understand what exactly its customers want. One of the grocer's segmentation initiatives was to use Clubcard data to divide shoppers into three income brackets: upscale, middle income and less affluent. Then it created private-label products clearly and simply geared to the needs and tastes of subsegments such as organic or low-calorie. Segmentation also allows Tesco to change promotions for individual shoppers as well as for certain stores and regions. The retailer can send specific coupons to Tesco customers living in a neighborhood where a competitor will be opening a shop, or avoid sending coupons for bread to customers who previously have purchased gluten-free products. This data-driven focus has helped Tesco grow its market share in the U.K., its most important market, by about 25% since 2000. Finally, the European growth leaders in grocery are particularly effective at changing with their customers. Italy's market leader, Esselunga, knew that Italian grocery shoppers are among the least happy in Europe. Because major chains there offer little differentiation, Italians show little customer loyalty. Preferring the convenience of neighborhood grocers, they haven't joined their fellow Europeans in embracing hypermarkets, the vast stores that sell everything from food items to appliances to clothing. So, Esselunga developed a new "superstore" format that is closer to the concept of a neighborhood store. To ensure that the stores are stocked with items reflecting the latest shopping trends, Esselunga holds weekly regional meetings with store managers to swap information about hot sellers, and to demonstrate effective product displays. Such careful monitoring led Esselunga to address Italians' increasing health consciousness by making fresh foods its core offering. Fresh foods now account for 30% of its sales. The payoff for changing with customers: Esselunga's 19% growth rate in 2007 was roughly double the average for Italy's grocers. As European retailers endure bad times, the ability to keep their fingers on the pulse of changing consumer demands—and then localize as needed—will be a key to growth. Marc-Andre is a partner in Paris with Bain & Company and leader of Bain's European retail practice. Nick Greenspan and Rudolf Pritzl are Bain partners in London and Munich, respectively, and members of Bain's European retail practice.

Pass through the doors of an Edeka grocery store in Nurnberg, Chemnitz or Bad Fussing and it seems like you've also entered a different planet: Here, shelves are lower to make them accessible to more shoppers, price tags are larger to make them easier to read, and—wait, is that a blood-pressure checker in the fresh fruit section?

With consumer confidence eroding and retailers seeing sharp declines in sales, Edeka is one of several Western European grocers taking advantage of the strategy of "localization." The capability to cater to local preferences in a cost-effective way may help position these companies to weather the economic downturn better than their competitors. Western Europe's top-performing grocers grew at twice the industry's compound annual growth rate between 2000 and 2006. One practice that set them apart: The winners are more adept at localizing their offerings.

Standardization initially helped retailers to expand efficiently. But localization has enabled a number of leading retailers to stand out from the crowd and gain market share. Just as too much standardization leads to stagnation, too much localization can cause costs to spike. Many of the leaders in the grocery business have learned to strike the right balance.

One thing they're doing differently is paying more attention to how they format stores to the communities they serve. At Edeka's "50+" stores, designed to appeal to shoppers over the age of 50, elderly and disabled shoppers find a wide range of products with a health emphasis, particularly for special dietary needs. Shoppers also find single-serving meals, slip-proof floors, places to sit, specially trained employees and shopping carts that attach to wheelchairs.

The stores became a hit with older shoppers, but what the company hadn't anticipated was the extent to which they had located the heartbeat of other groups, too. Shoppers with children in tow appreciated the wider aisles, and single shoppers came for the range of one-serving food items. And it has paid off: Revenue doubled between 2004 and 2006 in the store in Chemnitz, for example.

Other leading grocers excel at matching customer preferences to what they put on their shelves. For example, Tesco's well-recognized ability to use customer data has helped position that company to weather the downturn. Since introducing its Clubcard in 1995, Tesco has collected data on each customer purchase and used sophisticated data analysis to understand what exactly its customers want. One of the grocer's segmentation initiatives was to use Clubcard data to divide shoppers into three income brackets: upscale, middle income and less affluent. Then it created private-label products clearly and simply geared to the needs and tastes of subsegments such as organic or low-calorie.

Segmentation also allows Tesco to change promotions for individual shoppers as well as for certain stores and regions. The retailer can send specific coupons to Tesco customers living in a neighborhood where a competitor will be opening a shop, or avoid sending coupons for bread to customers who previously have purchased gluten-free products. This data-driven focus has helped Tesco grow its market share in the U.K., its most important market, by about 25% since 2000.

Finally, the European growth leaders in grocery are particularly effective at changing with their customers. Italy's market leader, Esselunga, knew that Italian grocery shoppers are among the least happy in Europe. Because major chains there offer little differentiation, Italians show little customer loyalty. Preferring the convenience of neighborhood grocers, they haven't joined their fellow Europeans in embracing hypermarkets, the vast stores that sell everything from food items to appliances to clothing.

So, Esselunga developed a new "superstore" format that is closer to the concept of a neighborhood store. To ensure that the stores are stocked with items reflecting the latest shopping trends, Esselunga holds weekly regional meetings with store managers to swap information about hot sellers, and to demonstrate effective product displays. Such careful monitoring led Esselunga to address Italians' increasing health consciousness by making fresh foods its core offering. Fresh foods now account for 30% of its sales. The payoff for changing with customers: Esselunga's 19% growth rate in 2007 was roughly double the average for Italy's grocers.

As European retailers endure bad times, the ability to keep their fingers on the pulse of changing consumer demands—and then localize as needed—will be a key to growth.

Marc-Andre is a partner in Paris with Bain & Company and leader of Bain's European retail practice. Nick Greenspan and Rudolf Pritzl are Bain partners in London and Munich, respectively, and members of Bain's European retail practice.