Supermarket Evolution

An article in the Wall Street Journal today discusses how supermarkets are competing against Wal-Mart. The traditional grocery retailers had been losing market share to Wal-Mart’s low price operating model. Knowing they could not compete on price alone, companies such as Safeway and Kroger began focusing on consumers who value shopping in less crowed, more convenient, better stocked stores. They compete on price for the staples but supplement those low priced items with higher-margin fresh produce, higher-quality meats, wine, and easy to prepare foods. The supermarket chains have also learned to pick their battles and focus on their strengths. They are reducing the number of drugs and beauty products, which are Wal-Mart’s strengths, stocked in their stores.
Supermarkets have also come to understand they can no longer appeal to all types of shoppers with a single type of store format. For example, Kroger now has four different formats that range from urban stores that stock a limited number of items at ultra-low prices to stores targeted towards wealthier shoppers who value prepared meals and gourmet items. All of these efforts appear to be making a difference. Last year, sales at supermarkets that had been open at least one year rose 4%, which is the largest increase in five years.

This is a good example of companies getting creative in the face of change and evolving to survive. It also demonstrates the importance of knowing the market in which you compete and understanding how the market can be segmented. One market in particular that I can see becoming further segmented is the market for health care. As consumer-driven healthcare gains traction, it will become a catalyst for individual consumer demands to play a more significant role in shaping the types of healthcare services made available. One example of segmentation that has already begun is the introduction of concierge medical services where a patient who can afford the fee can essentially have a personal doctor on retainer for consultation whenever needed. This is in contrast to the low-cost retail clinics popping up that service a limited set of needs with minimal consultation usually with a nurse practitioner verses a doctor. What other types of markets are poised for further segmentation?