Raise the Hammer

People have commented about pent-up demand ,a large customer base and good future prospects for a downtown supermarket. You think about it and wonder how could it be that no major supermarket chain wants to set up in the core?

Are they mad? They have extensive well-developed supply chains that are already serving their stores in the suburbs and just outside of the core. How much more effort would it take to service one more store just a couple kilometers away?

Why, it almost seems like they don't know a great opportunity when it presents itself; wouldn't first-to-market benefits flow to the company that has the vision to set up here before the inevitable rush of me-toos follow in kind?

I've been thinking about this a lot, looking for the strongest reason for those players' decisions, year after year, to not set up shop in the centre of one of the largest cities in the Province. Thinking about how they run their distribution empires, I think I may have stumbled upon the reason for this puzzling situation.

I would like to propose that the reason major grocers will not establish themselves in downtown Hamilton is: Mixed Income.

What, you say? But isn't mixed income one of the things that makes a given area a better functioning community. Isn't inclusiveness essential to the creation of a successful City that continues to grow and prosper; a place for all?

Yes, of course. But, how does mixed-income fit into the picture for large grocers, who routinely split their brands into as many as five different price points in the same market? All of the majors do this.

In the near east end people are positively spoiled, by local standards, by the presence not one but two No Frills (Loblaw owned) locations, just a few kilometers between. Toward the wealthier west end we have Fortinos (now also Loblaw ownned) serving primarily people with cars. In other markets the same company operates under additional names like Zehr's, Valu-Mart, Independent, Maxi, Superstore, and others.

Each one of the sub-brands is tailored to a specific demographic. Stores are carefully situated, decorated, and priced to fit into a specific point on the price spectrum, a division that they've created over years via acquisition of rivals and price-splitting. You can buy that same can of peas at a wide variety of prices depending upon which store you shop at. It might be only 89 cents at No Frills but could be $1.45 at a Loblaws in Forest Hill. The other stores the company owns would feature the exact same can of peas, coming through the same distribution channels, for varying prices in between.

Each neighbourhood gets the store brand that fits with it's demographic profile. If a neighbourhood experiences gentrification then a Valu-mart may be upgraded to a Loblaws, for instance.

The other companies maintain the same division between their self-defined micro-markets, just the names are different.

So here's the problem, perhaps:

What brand of store would Loblaw Cos. put in at say, Main and Caroline?

If they put a No Frills in then relatively wealthy downtowners and office workers will be getting that can of peas at a price that is below what they would be willing to pay, which could draw more-profitable business away from their Fortinos outlet a couple kilometers to the west.

If they put a Fortinos or Loblaws in then they might worry that the up-market tone of those stores, carefully created by layering in more attractive store finishing, shelving and lighting, wider aisles, in-store bakeries and the like, could be diminished by the presence of conspicuously lower-income shoppers. Those same shoppers are unlikely to buy the premium-priced products that provide the profits to pay for the fancier stores' interiors.

I'm not saying that I like how the biggies have segmented the market but it makes sense to keep this in mind when trying to find a way to break the logjam which keeps stores of this scale out of the core.

Maybe there is some way for the biggies to address this stumbling block, with a little help. But they may not want a solution for what to them is not a problem.

Or maybe the right company would not be one of the major majors. It may be more appropriate to solicit a company on the next level below the majors.

Maybe Highland, Avondale, Fiesta Farms, Big Bee or someone else like that would like to create what for them would be a flagship store here. Those players wouldn't face the same conundrum as the majors: cannibalizing their own (perhaps over-developed) sub-brands.

Comment edited by lakeside on 2012-07-05 15:15:22

Reply | Permalink | Context