Supermarkets Seek Ad Alternatives to Price

Competition from national megastores puts premium on grocery chains’ image

Supermarket advertising used to focus primarily on price. But since Wal-Mart and other national megastores have entered the market, regional chains have tried to establish a fresh point of difference with image advertising.

The Richards Group in Dallas and 02 Ideas in Birmingham, Ala., are creating image ads for two grocery chains owned by Ahold USA, which spends about $30 million a year on its six brands.

Richards will develop advertising for Mauldin, S.C.,-based BI-LO, while 02 is doing the same for Landover, Md.-based Giant Foods.

Giant, which has never had an outside agency, has hired O2 to discover what the chain means to consumers, said Kevin Hancock, the company’s vp of marketing.

“The industry has undergone a lot of upheaval. We need to know where we need to be positioned,” Hancock said. “We want to know where we are, where do we want to be, and how do we want the consumer to see us.”

The chief threat to traditional supermarkets comes from Wal-Mart, which sells groceries through 1,179 of its Supercenters and 36 local markets, making it the nation’s biggest supermarket operator, according to market-research firm TDLinx. Retail Forward, a consultancy specializing in the supermarket industry, expects Wal-Mart to have 2,000 Supercenters and 500 markets in three years. By 2006, the consultancy expects Wal-Mart to capture a third of an estimated $90 billion increase in consumer food purchases, cutting competitors’ share. Wal-Mart now has a 14 percent share of the grocery segment, according to market-research firm Trade Dimensions.

“I think the progressive [stores] are recognizing that they’re either going to slug it out on price, which very few have made work, or they need to start telling customers why they’re different,” said Neil Stern, a senior partner at retail consultancy McMillan|Doolittle in Chicago. “Traditional circulars aren’t effective in doing that.”

Other chains that run image advertising are Publix, H-E-B and Giant Eagle.

A shift to image advertising ” ‘de-commoditizes’ the market,” said Kelly O’Keefe, CEO of brand consultancy Emergence in Richmond, Va. “Consumers will have companies fighting to win their dollars based on experience, service and brand. Wal-Mart is forcing these folks to think, ‘Can I build a better market?’ ”

02 president and chief creative John Zimmerman said he expects that Giant advertising will focus on quality. “If we allow the battle to be waged on price, we’ll lose,” he said. “The battle will be fought in the fresh departments, the quality of goods and by adding services, floral departments and international foods.”