Taking Stock

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Allegiance Developing ‘Path Forward’ For Future Growth In Radically Changing Market

Allegiance Retail Services, the retailer-owned co-op that supports such banners as Foodtown, Freshtown and D’Agostino’s, held its annual meeting earlier this month at The Renaissance Hotel in Iselin, NJ, near the company’s corporate headquarters in that same Garden State berg.

More than 400 vendors attended the meeting, which was led by Allegiance president and COO John Derderian.

“We need to find a path forward that encompasses smart solutions – brand positioning and improved vendor relations – change, built on trust, all driven to produce a store of the future that consumers will embrace. Together, we can achieve that path forward,” he said.

In a concise, yet detailed 65-minute overview, Derderian proclaimed that the current “retail revolution” was at an “inflection point” where winners and losers will be decided in the next few years.

And why has this “inflection point” been reached? According to the former Pathmark executive, a combination of changing consumer DNA, rapidly accelerating digital growth and ongoing economic factors have all been major contributing factors to the revolution.
Specifically, Derderian noted that changing family structures and an increase in family shopping decisions made by men (approximately 30 percent) have made consumer targeting more complex and difficult for traditional grocers to grasp.

“Next year, millennials will have more buying power than baby boomers,” he affirmed.
In explaining the digital explosion, Derderian said that the industry must learn to deal with two eco-systems: offline (print) and online (digital), adding that those retailers that achieve success will be able to deal with both components.

And while many believe that the recessionary times of 2008-2009 have greatly subsided, Derderian believes that ongoing economic factors still adversely impact much of the population. He cited under-employment, wage stagnation, healthcare cost burdens and the reduction of SNAP benefits as ongoing issues affecting consumers.

Like many traditional operators, the industry veteran believes that supermarkets must separate themselves from other channels in order to remain successful.

“When it comes to digital, we need to offer a personalized experience. In terms of variety, if we feature more organic items we have an edge. We need to emphasize our value proposition and make our ‘own brands’ relevant. And, of course, we need to make our stores a more enticing place to shop for our customers,” Derderian said.

An example he cited was the need of Allegiance’s members to be more focused in providing meal solutions. “Yes, we need to offer meal solutions, but in order to build that business we need to be as good as or better than the QSRs, the local restaurant or pizza shop fighting for the same dollar.”

In directly addressing vendor issues for the first time during the meeting, Derderian noted that CPG suppliers have witnessed “an attack on their brands” in recent years and also must confront the same changing dynamics that retailers face concerning brand loyalty, pack size and ingredient transparency. He added that vendors have to make difficult choices when it comes to the digital marketing of their brands suggesting that some have made or are considering an “unholy alliance” with Amazon.

“American consumers no longer buy based largely on category or brand. They decide what to put in their shopping carts based primarily on immediate or anticipated needs, and secondarily on brands that meet those needs at the price points they are comfortable with. We are not selling categories, we are selling solutions,” Derderian proclaimed as he began to provide more detail on Allegiance’s “path forward.”

Specifically, he called upon the reps and brokers to reposition their brands (“a smart solution”) and “fix the mix” in helping to create a new store prototype by 2020, which aligns with tomorrow’s consumer.

Derderian then unveiled a video highlighting Foodtown’s new marketing theme: “Shop Foodtown. That’s Smart!” The new spot focused on Foodtown’s private brands (including Rancher’s Legend beef and Green Way organic products), fresh and healthy food, advice with tips on living a healthier lifestyle, Foodtown’s new mobile app, a click & collect service (available in select stores) and a “rewards” program tied to its loyalty card.

According to the Derderian, Allegiance’s new branding position will continue to stress its primary message: “Save me money. Save me time. Teach me something new. Make it easy for me.”

Next up to speak was Mike Conese, Allegiance’s VP-center store, who updated the audience on the company’s in-store execution (ISE) program which was first addressed at last year’s vendor meeting in October 2016 and begun this past January.

In prioritizing the need for suppliers to work with Allegiance member stores to “fix the (item) mix” at its more than 80 stores, Conese said the first objective of the plan was to ensure that the 1,200 top SKUs were on the shelf. A detailed plan-o-gram process was developed where top items by category (including new items) were put on store shelves.

That included extensive store resets which were customized to accurately accommodate unique sizes (5,000-40,000 square feet) of Allegiance members’ stores. Also part of its ISE initiative is a reliance on section mapping which will build a database to capture section sizes to better understand most predominant sets throughout the organization so an optimal plan-o-gram catalogue can be built.

Conese, who joined Allegiance in 2015 from Fairway Market, quoted the immortal Dr. Seuss when telling the vendors in the audience: “Unless someone like you cares an awful lot, nothing is going to get better. It’s not.”

Dean Holmquist, Allegiance’s VP-perishables, provided the gathering with a detailed and informative group illustrating the declining channel share of traditional grocers, while also pointing out opportunities where conventional supermarkets can leverage their unique strengths to stop the bleeding and regain market share.

Here are some facts he disseminated; traditional grocers dollar share by channel has been cut in half over the past 29 years (from 90 percent to 44 percent); the number of traditional supermarkets in 2016 eroded by 5.8 percent over the previous year and the supermarket channel by dollar sales decreased 5.9 percent. By 2021, store counts are predicted to decline a whopping 24.6 percent and dollar share will dip another 3.5 percent.

Holmquist stated that by format ranking, ecommerce was poised for the greatest annual growth (25 percent) followed by limited assortment stores and fresh format units.

Traditional grocers are expected to experience a negative 0.3 percent annual growth rate. In fact, the perishables executive affirmed that two of the most shifting trends include dollars spent eating at home vs. eating away from home. In 2013, 60 percent of all food dollars were spent eating at home; in 2016 that number dropped to 56 percent and continues to trend downward. Moreover, total food and beverage e-commerce sales, which Holmquist said reached $33 billion last year (about 4 percent of a $795 billion pie), is expected to reach $70 billion by 2021 and carve out 8 percent of a $930 billion base.

Holmquist noted that current physical stores do have some distinct advantages including the ability for consumers to physically see and touch the merchandise; instant gratification; and the ability to interact with employees. He viewed departments such as deli/fresh (prepared foods and grab & go) and produce as likely sales builders that deserve more space allocation and that ideas such as smaller format stores, green building techniques and differentiating department space from other existing stores are worth considering or implementing.

In closing, the 30-year Allegiance/Foodtown executive revealed that a task force has been assembled to assess “next generation” store layouts; analyze technology requirements; and review merchandising concepts.

As Derderian took the podium again, he reinforced the urgency for Allegiance’s retailers and its suppliers/brokers to unite in its path forward together.

“CPG manufacturers have to trust Allegiance in brand positioning to speak to the new consumer and in trade partnerships and our new ISE process. We need our vendor partners to enhance our business intelligence in collaboration with our syndicated data partners and to continue to develop an overall strategy to align with the new consumer,” Derderian stated. “Allegiance also has to trust the CPG/broker community to continue product innovation and drive more business. We need to develop a business strategy that includes more regional players and find partners to sell ‘solutions.’ We are facing a new retail paradigm – the supermarket industry and our CPG/broker partners are inextricably linked to success in the future.”

In talking with nearly a dozen suppliers and brokers who attended all agreed that the meeting was informative and valuable and many noted that they appreciated the professionalism and the succinctness of the message delivered by Derderian and his team.