Urban retail #4: how to prevent the coming failure of the DC region's Giant Supermarket chain
The only way I can make sense of Walmart's entry into the DC retail market, where they are "overstoring"--building more stores than objective analysis would argue are supportable based on the demographics of the market--is that they are expecting to take significant market share away from Giant Supermarkets.
Typically, Walmart's entry into a market kills the #2 or #3 supermarket chains. Even though Giant is #1 in the market, the constant loss of market share isn't a trend that makes them #1 from a position of leadership and strength.
Giant was the preeminent supermarket chain in the DC region for decades. When I moved here in the late 1980s, the company had a greater than 40% market share. These days it's less than 30%, as the company has faced greater competition from new entrants, as well as ongoing internal corporate problems as the company was acquired, digested, and reorganized multiple times by Royal Ahold, a Dutch company with significant holdings in the US. (Supervalu, the parent of Shoppers Food Warehouse in the DC region, and Farm Fresh in Richmond, has similar kinds of problems for similar reasons.)
Not that Safeway isn't subject to market pressures as well. Nationally, the company has had problems for years, but over the past 5-10 years the company has been reinvesting in many center city and suburban locations, upgrading their stores, locating stores in mixed use developments, and opening completely new stores.
Still I think that Safeway's ongoing investment in upgrading the center city stores communicates a winning strategy. Although it is threatened somewhat by Walmart--for example, the Georgia Avenue Walmart will be equidistant, less than 2 miles away from two Safeway stores north and south of their location--if the company continues to invest in their stores and furthers these investments by including moving to a greater emphasis on prepared foods and eat-in options and experiential marketing.
Right: Mixed use apartment building where Giant Supermarkets will locate a store on the ground floor of the development, on the 300 block of H Street NE in Washington, DC.
By contrast, while Giant is opening more new stores in the center city, I don't see anything that Giant is doing--even though they are finally upgrading the store on Wisconsin Avenue (the delay isn't the company's fault), opening another new/upgraded store at the O Street Market on 7th Street, and a completely new supermarket on the 300 block of H Street NE, along with other urban store examples in the Waverly district in Baltimore and Tivoli Square in Columbia Heights in DC--as communicating a new positioning strategy that will allow them to protect their market share in the face of Walmart's entry to the marketplace here.
The stores might be upgraded compared to older stores, but so far, there is nothing new to their offer in terms of quality of the experience, and it is the experiential quality of the offer that really matters going forward in terms of remaining competitive. E.g., see the report from Alix Partners, Trouble in Aisle 5, which sees a continued growth in the consumption of prepared foods.
However, Giant could develop a strong repositioning and renewed strength in the market, if Giant Supermarkets were to adopt the approach of Lubbock, Texas based United Supermarkets. According to "Brand Ensemble Performs at United Supermarkets" in Supermarket News, the company has 3 separate supermarket banners, complemented by a convenience store format (not unlike Giant-Eagle's GetGo convenience store chain).
The United banner is the general format, not unlike the standard Giant Supermarket of today. The company has a handful of Amigos United stores targeting Hispanic/Latino demographics and an upscale format, Market Street, more comparable to upmarket formats by companies like HEB, Giant-Eagle (Market District), and Publix, with 10 stores (and more to come) located in retail trade areas with premium demographics, and a big emphasis on prepared foods including eat-in options.
Of course, if Giant were to do this, it would need to be complemented by a full scale design and style upgrade. For example, both Safeway and Giant have extensive private label initiatives. But while the Safeway designs generally are "modern" and attractive, Giant's are incredibly dowdy (not unlike how I complain about bad transit marketing by government agencies).
But Giant could divide their store locations according to these three formats, and upgrade and reposition accordingly.