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BUDAPEST, Hungary – On the second day of the annual CIES World Food Business Summit, it was time to get down to the operational nitty gritty.

How to compete.

The agenda was ambitious, focusing on how retailers from various parts of the world, ranging from Europe to the US to Singapore, are competing under difficult circumstances.

Stephan Grünewald, Managing Director of the Rheingold Institute for Qualitative Market and Media Research, set the tone for the day by describing the various reasons that “hard discounters” like Aldi and Lidl have been successful in the European markets they have invaded. “In 2001 and 2002,” he said, “the world changed and people felt insecure.” This unease was fueled primarily by the terrorist attacks of 9/11, but also by the changeover in many countries to the Euro, taking away currency they had known all their lives, and high unemployment rates. “It changed how people felt about their lives,” Grünewald said. “They were looking for security as well as clarity.”

On the shopping front, this meant that companies like Aldi and Lidl - that removed the economic and mental costs associated with shopping much larger stores – suddenly became viable shopping alternatives.

This isn’t to suggest that the trend is permanent. Grünewald said that in Germany, “the Aldi/Lidl euphoria has declined because these stores have become ordinary, everyday and routine. Now, shoppers have begun to feel like they might be missing out on something,” and are returning to some of the stores they spurned just a few years ago.

(Grünewald also made an interesting observation – that, if you want to understand hard discounters, you have to talk to the shoppers who go their by choice, not those who go there out of economic necessity.)

This trend does two things, the message seemed to be.

One, it forces hard discounters to be more creative and innovative if they are to retain customers that may be defecting to other formats.

Two, it gives more traditional retailers a window of opportunity – but it is a window that they must take advantage of, creating for consumers compelling and differentiated shopping experiences that will lure them in and capture their imaginations.

Some examples:

  • Responding to the theory that discounters such as Aldi and Lidl are putting hypermarkets under enormous competitive pressure because they are beating them consistently on price, Michel-Edouard Leclerc , co-president of French group Centres Distributeurs E. Leclerc, said that his group will continue to develop the hypermarket as the best long-term response to consumers’ needs. “I believe in hypermarkets and supercenters as…the best response” to what consumers want and need,” he said.

    Leclerc said that competition has been around in one form or another for the 40 years that he has been in the retailing business, and suggested that it is important not to overreact to it. “One should be wary of vogues,” he said. “You have to know what you believe in.”

    Still, Leclerc conceded, in order to remain competitive in view of French legislation that puts certain restraints on hypermarket expansion, his company will begin developing a so-called “hard discount” format to complement its fleet of hypermarkets.

  • The multi-format approach to retailing was thoroughly endorsed by Gordon Campbell, CEO of Spar International, who said that his company’s various formats have certain things in common – fresh foods, branded products, outstanding customer service, and competitive pricing.

    With 15,000 stores in 35 countries, Campbell said that the reality of price-driven retailing may be something that retailers have to live with for a long time. “I’ve never seen a time when consumers were more focused on price and value,” he said. “It may be a permanent shift, and will certainly be with us until the end of the decade.”

  • S. Chandra Das, chairman of Singapore’s NTUC Fairprice, said that his company – which has the advantage of owning a market share of better than 50 percent – had been able to fight off the influx of foreign retailers by a) improving operations, b) driving loyalty through a card program and a rebate scheme, c) doubling the number of private label SKUs that offered consumers a differential advantage, d) focusing on quality assurance throughout the store, and e) using a nationalistic marketing program that promoted the company’s local cultural roots.

    All of which worked. Though starting out with a 50 percent market share probably was a help.

  • Treating food as fashion was the approach advocated by Arthur Goethals, CEO of Delhaize Belgium, who said that his company decided to compete with the more price-driven Carrefour when it came to Belgium by focusing on 10 “ingredients” for success: 1) a passion for food that is the foundation for everything the company does, 2) developing store designs that “create the place where the customer would like to live”, 3) making sure its network of stores were identified as a single brand, creating marketing and recognition synergies, 4) focusing on convenience through self-scanning technology, 5) treating labor as an asset, not a cost, 6) using private label as a way to promote innovation and differentiation, 7) using a pricing policy that it calls Every Day Fair Pricing (EDFP) that reduces promotional activity and hypes the quality component, 8) think of both the stores and employees as a communication vehicle, 9) executive effectively enough to stay within five percent of hard discounter prices and three percent of hypermarket pricing, and 10) promoting from within whenever possible.

    Goethals said that while the trend has been for supermarkets and hypermarkets to lose share to hard discounters, this 10-step approach has allowed Delhaize to actually improve its market share from 23.5 percent to 25.6 percent in Belgium.

  • John Podeschi, senior vice president of merchandising for 7-Eleven, explained to the summit audience that despite the price pressures created by discounters, his company remained steadfast about not playing that game, but rather continuing to be relentless about convenience products at acceptable margins, saying that more commuting time and two-career families has heightened the need for effective c-stores. However, he said that 7-Elevcen is bowing to other realities by offering healthier convenience products that address the nation’s obesity problem, and by creating a store-driven “demand chain” that replaces the traditional supply chain. To succeed, he said, 7-Eleven needs to focus on “first, best and only products” that give it a clear niche in the marketplace and the mind of the consumer.

Finally, Dominique Reiniche , President European Union Group of The Coca-Cola Company, and Peter Child, Leader of Global Retail Practice at McKinsey & Company, previewed a new consumer survey conducted by the Coca-Cola Retailing Research Council Europe (CCRRCE) and McKinsey & Co.

While the full study won’t be available until August, they said that the survey covered 10,000 shoppers in five countries - France, Germany, Italy, Poland and the UK – in an effort to learn what consumers valued.

It ends up that what they value is value – not necessarily low price. And while the study acknowledges that price is important to varying degrees, depending on the market (Germans are more price oriented than the French, for example), there usually is something else determining where people shop and why.

And, the survey said, in order to appeal to these shoppers, retailers need to meet the bar on price, raise the bar on value, and set the agenda for success by becoming famous for one asset or another that the competition cannot or will not replicate.
KC's View:
Retailers need to have some sort of central, defining understanding of a specific customer need/value if they are to succeed…and then create a mechanism that addresses this definition.

In one presentation on Thursday, Pierre Kosciusko-Morizet, founder and CEO of, a French online marketplace for new and used goods, said that he believes that “people are becoming more oriented toward usage and less oriented toward possessions.” This belief has, in a sense, informed everything he has done on his site, which generates more than 10,000 sales a day, has 2.6 million registered members (from France alone) and listings for more than nine million products – and makes money.

That’s called insight. And it is highly specific.

It gives him both a place to start, and a place to go.


Talk about coincidence.

We’re sitting in our Budapest hotel room writing, listening to iTunes on our computer as it randomly chooses songs from the more than 1400 that we’ve downloaded. And as we were writing, “Baba O’Reilly” from The Who came on..which, if you don’t remember, starts like this:

Out here in the fields
I fight for my meals
I get my back into my living
I don't need to fight
To prove I'm right
I don't need to be forgiven…

Just seemed appropriate. Because out in the field, everybody is fighting for just a few meals, searching for the formula that will help them compete.

Maybe that’s the problem.

We have a thought.

Could we once and for all agree that in order to compete in 2005 and beyond, retailers have to 1) find a differential advantage other than price, 2) know their customers better, 3) figure out both what shoppers’ values are and what they define as value, 4) focus both on efficiency and effectiveness, and 5) get famous for something?

Some would suggest that these are obvious…though others would reply that often retailers can be oblivious to the obvious.

These points are just starting points...the price of admission, if you will, for playing the retailing game at a time of severe if not unprecedented pressure. It’s what retailers do after they’ve covered these bases that really matters.

Retailing is both art and science. Understanding these five points is the science…the formula, if you will.

It is art that retailers generally lack, and magic that they need to conjure up if they are to compete.

Show us the magic.