Today's NY Times includes an article about the serious challenges now facing the supermarket. The gist: the old approach to food retailing is being attacked from the top and the bottom.
As for the top, Whole Foods and Wild Oats are delivering on the customer's desire for organic meat and produce, deeper selections in categories like breads and cheeses, and taking advantage of the "Starbuck's phenomenon"; the overall upgrading of the American palate.
At the bottom, Wal*Mart and Costco are using killer business models to deliver great price/value performance to customers.
Often, the same customer (like me) shops at both Whole Foods and Costco. Both "gourmet" and "bargain" are cool. There's no longer any reason to go to the supermarket. If we need anything in a hurry, there's always the life-saving Giovanni's Country Market.
Between the demise of the traditional department store (when's the last time you bought something at Lord & Taylor?) and now the supermarket, we are witnessing a sea change in our buying habits. After World War II, America was giddy at the choices offered in these venues. Over time, as they all began looking the same, shopping in these stores became both boring and expensive.
The competitive engines that drive this incredible economy effectively addressed both problems. Whole Foods and Costco are not boring: they're more fun to shop than Stop & Shop, partly because of the merchandise they're offering, partly because of the experiences they're creating. Both offer distinct price/value propositions that give me the choice of what I'll buy at what prices. High or low, it's up to me. And, the store experiences are carefully designed to match the value proposition each is offering.
Meanwhile, supermarkets (and department stores) now find themselves in the worst possible position: the dreaded "middle" on both price and quality. Not a place anybody wants to be in this market that thrives on distinctiveness.
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