Supermarket Chains Go Back To The Basics To Draw In Customers Grocers Lure Shoppers With Personal Service, Special Conveniences

With wholesale clubs, specialty gourmet stores and organic markets increasing their share of the $425 billion-a-year grocery business, supermarket chains are promoting customer service to cling to their piece of the pie.

Independent grocery stores have used personal service for years to maintain loyal customer bases. But with the use of technology, supermarket chains hope to retain customers by offering today’s busy shoppers conveniences such as prepared meals and savings cards that trim the fat off grocery bills.

Increased competition and consumers’ changing life-styles are forcing the grocery industry to go back to basics and put the customer first.

“The big trend for supermarkets today is to make the shopping experience simple and easy for the time-starved consumer,” said Sherrie Rosenblatt, spokeswoman for the Food Marketing Institute, a wholesale and retail trade association in Washington, D.C. “They need to offer the shopper more convenient ways to get dinner on the table, value-added meals like marinated meat and pre-packaged vegetables.”

The percentage of disposable income spent at grocery stores and supermarkets has been declining since the 1970s. In 1996, grocers rang up 6.5 percent of consumers’ disposable income, compared to 7.3 percent in 1990, according to the U.S. Department of Agriculture. In 1970, the figure was 10.2 percent.

The Food Market Institute reports 47 percent of all midrange supermarkets ($51 million to $500 million in annual sales) offer some kind of frequent-shopper benefits. The strategy behind such customer programs, they say, is to build loyalty, expand sales and marketing databases and promote the company’s image. Nationally, 55 percent of customers surveyed by the institute in 1997 participate in these programs.

What kind of return on investment are grocery stores getting for their savings-with-a-smile programs? Nationwide studies reveal that savings card holders spend an average 33 percent more, or $36, on groceries each week. Card holders not only spend more, but are more loyal. The institute found that only 18 percent of card holders defect to competing grocers, compared to 21 percent for cardless shoppers.

In Northern California, Safeway entered the customer-retention war last month, introducing its Safeway Club Card. The card eliminates the need for coupons, and savings are automatically deducted at the register. Customers must provide only their name, address and phone number to be eligible.

“It’s easy to use, easy to get and means instant savings,” Safeway spokeswoman Debra Lambert said of the card. “Our focus now is on the customer and serving individual needs.”

In a trend started by the credit card industry, Pleasanton, Calif.-based Safeway has joint marketing agreements with Wells Fargo Bank and Pacific Bell. The three companies will cross-promote their savings programs. Safeway officials said it would not, however, share its customer database with its marketing partners.

“Safeway is not reinventing the wheel (by introducing a card),” said Jonathan Ziegler, supermarket analyst at Salomon Brothers. “It’s positive for them, and smaller stores may have to do something similar.”

One independent company disagreed. James Falletti, vice president of San Francisco-based Falletti Foods Inc., cites cost and strategy as reasons not to follow suit. “It costs about $10,000 per checkout stand to implement the technology, and we cater to a different customer.”

Shoppers choosing the independents enjoy the personal attention and quality that major chains can’t deliver, said Falletti, who operates three San Francisco-area supermarkets.

“We stick to the tradition of building relationships and greeting our customers by name,” he said.

Nationwide, chain supermarkets capture 59 percent of the grocery stores’ $425 billion pie, compared to 16.8 percent for independents, according to the institute.

Despite a wide range of innovations, the bottom line for grocery stores is loyalty, said consultant Brian Woolf of South Carolina-based Retail Strategy Center, a private consulting group. “For the last 40 years, customers have been cherry pickers, dancing from store to store for better deals, and retailers see the importance of knowing who the customer is and what he wants.”