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Food Fight

Local grocers battle Mainland chains and big-box outlets for survival

(page 1 of 2)

   Photo: David Croxford

We saw what happened to Aloha Airlines when go! flew in and started a price war that eventually put 1,900 Aloha employees out of work. We shook our heads in dismay when neighborhood department stores such as Cornet, GEM and Woolworth got choked out of the Hawaii market by big-box discounters like Costco, Kmart and Walmart.

Many fear Hawaii’s supermarkets are next. Star Markets and some family-owned independents such as Shima’s in Waimanalo have already surrendered, selling out to Times Supermarkets, whose local owners themselves sold out to a California chain in 2002.

Hawaii’s population isn’t growing – and we aren’t eating a lot more – so the only way for grocery stores to grow is by luring customers from their competitors. Survival comes down to basics: prices, service and adapting to customers’ changing preferences.

Safeway, Costco and Walmart are Mainland chains with deeper pockets, more purchasing power and more national branding than local chains. But longtime Hawaii chains, such as Foodland, Times and KTA Super Stores, have loyal customers and remain more convenient for quick grocery runs than big-box retailers.

Real estate expert and consultant Stephany Sofos says national chains will increasingly challenge local retailers. “It’s expensive to run a business here, and when your competition is so big and so strong, over time, it will wear you down,” Sofos says. “From an economies-of-scale perspective, it’s hard to compete with the 800-pound gorilla.

“Ultimately, it’s up to consumers to determine who will stay and who will go.”

The intense competition means consumers get more places to shop, more selection and generally lower prices.

Foodland CEO Jenai S. Wall says the biggest change in the local supermarket industry has been the proliferation of new stores. “With little change in population, there has been a tremendous increase in square footage devoted to grocery retail,” she says. “That means customers have more choices than ever before and supermarkets have to work harder than ever to maintain market share and sales.”

“The increased competition forces us to adapt and grow,” says Derek Kurisu, executive VP for KTA Super Stores on Hawaii Island, “and it shows us that we need to be flexible or we’re going to be extinct.”

Customer always right

In the past several years, consumers have become increasingly concerned with food safety and healthier eating, but they’ve also become more price conscious, says Nelson Eusebio, executive director of the National Supermarkets Association, which represents about 400 individually owned and operated grocery stores across the U.S.

Claire Sullivan, community and vendor relations coordinator for Whole Foods Market, says another trend is that “customers are requesting more information about where their food is from, who grew it or how it was made, so retailers have to deliver.”

Some supermarkets have become one-stop shops, where customers in a hurry can grab an oven-baked pizza for dinner, deposit money at the bank and pick up a customized birthday cake from the in-house bakery. But Linda Cox, associate dean and director of extension for the University of Hawaii-Manoa’s College of Tropical Agriculture and Human Resources, warns, “If you’re going to be this convenient one-stop shop, the opportunity for taking losses really increases.”

Two decades ago, average consumers shopped near where they lived and were less selective about what they bought. Today, most grocery stores try to appeal to both the price-conscious Costco shopper and the gourmet willing to spend more for quality.

KTA’s Kurisu puts it bluntly: Grocers no longer dictate what they want to sell; it’s about what the customer wants to buy.

   Derek Kurisu, executive VP of KTA, visits Maikai Farms, one of
   KTA’s hundreds of local vendors.
   Photo courtesy of KTA

Heavy competition

Competition intensified when Costco opened its first Hawaii store in 1988. “Costco revolutionized the way local people shopped,” Sofos says. The members-only chain proved people would shop in a dimly lit warehouse if the price was right. But, over the years, Costco spruced itself up and started appealing to more than just businesses and large families – which intensified its threat to grocery stores.

The local landscape got even more cutthroat when Walmart opened its first Hawaii store in 1993. The Kunia outlet didn’t carry much produce and meat, but sold hundreds of pantry items and household goods. Its gains were everyone else’s losses.

“Walmart and Costco capitalized on providing the maximum value for the consumer by leveraging their purchasing power,” says Glenn Muranaka, president and general manager of Meadow Gold Dairies. “Not even the bigger chains like Foodland and Times can spread out their cost like a Walmart or Costco can.”

Growing farmers markets have also reduced traffic at traditional supermarkets, and Cox says there will be more of a shakeout in the future.

Muranaka suspects niche stores, such as Whole Foods or Tamura’s Fine Wine and Liquors, will find it easier competing in this environment than markets that try to be everything to everyone.

One advantage that smaller stores have is personality. “It’s not like these big chains where all the stores look the same, have the same feel and are so cookie-cutter,” says the NSA’s Eusebio.

“When you’re a national chain, you have more access to capital, so that’s a huge advantage, but they can’t touch the smaller markets when it comes to customer service and quality interaction.”

KTA’s Kurisu agrees. “All things being equal – say your store is nice and clean, your prices are competitive, parking is good and your selection is good – it all comes down to customer service. That’s where supermarkets really have the opportunity to win over customers,” and that is precisely KTA’s strategy for long-term success. “We want people to come back again and again and hopefully, eventually, their kids and grandkids will shop here.”

Kurisu will be the first to admit, that when customers walk into a KTA, the first glance indicates nothing special. He says careful lighting and expensive floors are nice to have, but they’re not as important as food safety, customer service and competitive prices. (This from a guy who shares an office with one of his meat buyers and stores files in recycled apple boxes because he says the money should be spent on customers rather than fancy furniture.)

“When you come into one of our stores, it’s a different feeling,” he emphasizes. “It kind of feels like the old days the way people interact and are friendly and helpful. We really like that.” Many of KTA’s younger clientele know Kurisu as “Uncle Derek” and employees have even driven to customers’ homes after their shifts to deliver groceries that were forgotten in the checkout line.

Sofos says shoppers also appreciate store details, such as increased signage, faster checkouts, in-store demonstrations and help out to their cars. If companies don’t constantly reinvent themselves, consumers will get bored, Sofos says.

Foodland’s Wall agrees. “You have to care about your customers and work hard to let them know how important their business is to you.”

Hawaii Business magazine invites you to comment on our articles and the issues they raise. Comments are moderated for offensive language, commercial messages and off-topic posts and may be deleted. Some comments may be chosen for inclusion in the magazine on the Feedback page.

Jul 23, 2010 12:12 am
 Posted by  LiveWellBrandsHawaii

The best method for locally-owned Hawaii stores to combat big-box retailers and other mainland companies is to provide the best local service. It is essential to "get back to basics" by providing excellent customer service with a personal touch and value-based prices. One thing that big-box mainland company's can never do in Hawaii is be local and live aloha. As a local organic food product small business owner, I have learned that the best value Hawaii stores offer is the Spirit of Aloha.

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