Competition in the North American grocery industry has never been fiercer. Traditional grocers are facing increasing pressure from retailers in other channels attempting to gain a greater wallet share of the food dollar. Today’s grocery retailers must contend with both broad economic challenges and major shifts in shopper behavior while taking advantage of new innovations to create customer experiences that deliver true differentiation. The Grocery Retail Innovation 2011 report features 12 best-in-class examples of leading innovation in food retail – approaches taken by retailers as they confront emerging challenges to their respective businesses. Included in this FREE report are examples of: * How retailers are using mobile technologies to enhance the shopper experience and how this is driving growth in the grocery segment; * The growth of value retailers and dollar stores and how they continue to erode the market share of grocers; * Loyalty programs that focus on offering a better value proposition to customers.

1. Building Brands. Building Business.
Building Brands. Building Business.
Grocery Retail Innovation 2011
12 examples of innovation & staying power
February 2011
January 2011
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Although food and beverage retailing has always been somewhat immune to changes in the economy
– we all need to eat and drink – grocery retailers today must contend both with broad economic
challenges and major shifts in shopper behavior.
The successful grocer must effectively incorporate the desires and needs of their shoppers into their
current brand proposition using various offerings that may include discounting, new media and in-store
technologies, community involvement and environmentally sustainable practices.
The following report features 12 examples of leading innovation in grocery retail – approaches taken by
retailers as they confront emerging challenges to their respective businesses in 2011.
If you want to explore this topic further, or if you’re interested in finding out how Watt International
can help you get “more people, to buy more things, more often”, please feel free to contact me.
Sincerely,
Patrick Rodmell
Research + Insights
President + CEO
Consulting + Strategy
Watt International
Brand Strategy + Positioning
prodmell@wattintl.com
Design + Marketing
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4. 4

5. Trends & innovations in the
supermarket of 2011
We have identified several trends in the market that many grocery retailers in the US have responded to, resulting in
their continued growth and staying power:
• Quality, Fresh, Health (fresh produce, broad selection) – 66% of shoppers say they’re seeking ways to “improve their
health and wellness through the foods and beverages they consume”
• Social Responsibility & Community Involvement (community involvement, locally grown, green, employee retention,
acknowledgement of local ethnic groups) – 45% of shoppers purchase locally grown products 1-3 times a month
• Convenience (smaller store formats, intelligent merchandising, “ready-to-eat” solutions)
• Value (balancing with quality, channel blurring) – 35% of shoppers cite cost as a major obstacle to healthy eating
• Loyalty and Rewards (refined private label offerings, online promotions, loyalty programs) – shoppers indicate they
will spend the same or more on private label in 2011
• Digital Communication (in-store signage, flyers, coupons) – in 2010, digital coupon usage increased by 59%
The following are some key examples of innovation that respond to these trends.
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6. quality
1 Owning health
Whole Foods Market is positioning itself as the
savior of America’s health, promoting healthier
prepared foods and employing a healthy eating
specialist at each store.
Profitability has doubled in the latest quarter to
$57.5 million, and sales in 2010 grew by 12.1%, at
$9 billion.
The company is highly regarded by shoppers; by
December 2010 it boasted 1.8 million followers on
Twitter and received 428,520 “likes” on Facebook,
making it the most popular supermarket on the
social network site.
www.wholefoodsmarket.com
Watt’s P.O.V.
Attracting new shoppers and refreshing the brand
for current shoppers has become especially urgent at
a time when consumers are less loyal to their main
store due to economic pressures. Tags like “Health
Starts Here” at Whole Foods Market delight the
shopper by providing focus and offering lifestyle
solutions, which in turn fosters shopper loyalty.
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7. quality
2 Grocery stores lose grip on “fresh”
Target recently advertised their fresh offering on buses
nationwide – pictured here is the one in Chicago.
The “prototype fresh” stores – those that include
a full fresh produce section – launched in 2008 in
Minneapolis. Currently Target operates 350 remodeled
P-Fresh stores across the country. These fresh produce
departments will be available in 850 stores, out of
its 1,743, by the end of 2011.
Target has quickly gained credibility in the fresh food
category, while maintaining its value message across
all categories.
Target is also opening smaller stores to better
accommodate urban markets.
www.target.com
Watt’s P.O.V.
Target’s P-Fresh format exemplifies how grocers
are quickly losing share to other channels. This is
an example of intensive advertising and aggressive
store re-formatting that players in the grocery
channel could be leveraging.
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8. social responsibility & community engagement
3 Quenching the food deserts
Planners in several cities in the US have recently
Photo Credit: Mr. T in DC – flickr©
begun offering incentives for chain grocers to
open stores in underdeveloped urban areas,
including “food deserts”, areas with little or no
chain grocers in walking distance. According to
First Lady Michelle Obama, there are 25.3 million
Americans living in these areas. Grocers such as
Whole Foods Market in Harlem, Harris Teeter
in Northern Virginia, Safeway in Cityvista, DC
and Giant in Columbia Heights, DC are taking
advantage of these incentives.
www.giantfood.com
www.fooddesert.net
Watt’s P.O.V.
Although retailers in this example have been
acting mostly out of pragmatism rather than
altruism, it pays in the long run for companies to
be socially responsible. A recent study by Cone
found that 65% of consumers felt companies
should be ethically responsible, and that 60% of
them would be more likely to buy products from
companies open to shopper involvement.
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9. social responsibility & community engagement
4 Integrity from the inside out
Wegmans, with 36,770 employees in the US, is
listed at #3 on FORTUNE magazine’s 100 Best
Companies to Work For. Wegmans has not had a
layoff in its 94 year history.
The Wegmans Organic Farm has its own
consultant, author and farmer Eliot Coleman.
H-E-B’s Hispanic format in Texas exemplifies
excellence in shopper marketing. The store
environment emulates a Mexican marketplace, and
features specialty products that attract a customer
base that is up to 70% Hispanic.
www.wegmans.com
www.wegmans.com/blog
Watt’s P.O.V.
Creating a strong corporate culture among
employees through internal marketing programs
has proven effective by retailers like Wegmans.
Without the dedication of staff, the message does
not get effectively communicated to the shopper.
Similarly, H-E-B would not have experienced
success without catering to the specific needs of its
local area shoppers.
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10. convenience
5 Specialty stores are the star
Compared to more traditional large format grocers,
smaller format supermarkets are faring extremely well
in the aftermath of the recession.
Large scale supermarkets such as Supervalu have faced
economic challenges during the downturn, while
retailers in the club, supercenter, limited assortment
and specialty segment are experiencing gains.
Many success stories of the smaller niche market
include natural food retailers, such as The Fresh Market
in the Eastern US, Whole Foods Market, Sprouts
Farmers Market and Earth Fare (in the South East and
quickly growing).
www.thefreshmarket.com
www.sprouts.com
www.earthfare.com
Watt’s P.O.V.
Grocers with a niche offering – like specialty or
ethnic foods, artisanal products, or entertaining
retail environments – can inspire shoppers to make
purchasing decisions for reasons other than price.
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11. convenience
6 Saving time
Stop & Shop’s “Scan It!” self checkout system
allows shoppers to walk the store, paying with
their Stop & Shop card as they go.
Shoppers benefit from great deals, free offers, and
special savings that are tailored to their shopping
habits.
Late last year, Apple introduced an iPhone
application called “AisleBuyer” that allows
shoppers to use their mobile phone to scan and
purchase items themselves.
www.stopandshop.com
www.aislebuyer.com
Watt’s P.O.V.
In stores with a self-scanning option, a recent
study found only 22.3% of shoppers actually used
the self-scan lane, indicating a need for further
merchandising and marketing around that option.
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12. value
7 ALDI and the art of value
ALDI is a leader in value. Accepting only cash and
debit, keeping merchandising simple and floor-
ready, and offering private brand options that
delight the customer, ALDI has a firm grip on the
value segment.
ALDI keeps its store offering simple by carrying a
limited assortment of 700 SKUs [most supermarkets
carry 15,000], with nearly 90% of their products
being private label.
Although financials are not made public, ALDI’s
revenue in 2009 was an estimated $6.5 billion.
The company’s expansion – launching over 50 new
stores each year – demonstrates their continued
success in an unsteady economic climate.
www.aldifoods.com
Watt’s P.O.V.
ALDI has perfected the respectable value offering,
providing bright cheerful stores and quality value
options such as the Granger brand bacon wrapped
beef filet, at $1.99.
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13. value
8 Dollar store heyday
Dollar stores are increasingly offering wider ranges
of food, digging further into the traditional grocery
sector pie. They are also aggressively promoting this
offering. For example, Dollar General dedicates up
to 50% of their circulars and advertising to grocery
goods.
Dollar General announced that it will be expanding
its 9,200 store presence in 35 states, opening 625
stores and hiring more than 6,000 workers in 2011.
Consumables in the store currently account for 72%
of sales. Dollar General had sales of about $11.8
billion in 2009, up from about $9.5 billion in 2008.
www.dollargeneral.com
Watt’s P.O.V.
Dollar stores are a force to be reckoned with,
gaining in popularity through a challenging
economy, and claiming their share of the food and
fresh categories. This channel reinforces the need
for grocers to differentiate beyond price.
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14. loyalty & rewards
9 Building loyalty with perks
Kroger executives perceive loyalty as the company
being loyal to the customer, rather than the
customer being loyal to the store.
Kroger’s loyalty program offers a number
of incentives, including coupons that can be
downloaded online to shoppers’ Plus card
accounts. In 2009, shoppers were given a chance
to win free groceries for a year with their Kroger
MasterCard. The company’s quarterly coupon
magazines are personalized to reach the 20% of
customers who represent 60% of sales.
Kroger’s sales in 2010 reached $76 billion, with
3,634 corporate stores and 24% private brand
penetration.
In the first quarter of 2011, Kroger reached same
store sales gains of 5.8%.
www.kroger.com
Watt’s P.O.V.
In recent years, Kroger has focused on offering a
better value proposition to the customer. In addition,
the use of customer analytics, the development of
their private brand offering, shopper-relevant price-
based incentives and promotions, and an emphasis on
service have helped Kroger to differentiate from the
discounters.
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15. loyalty & rewards
10 The fun trade
Owned by the Albrecht family, Trader Joe’s
generated sales of about $8 billion last year from
its 342 locations, up from $7.2 billion in 2008 (est.)
The store features extensive signage created by
an in-house artist. The “Fearless Flyer” promotes
specialty limited-time private label products, which
represent up to 90% of the store’s sales. Stores
emulate an “island style”, with associates dressed
in Hawaiian shirts.
www.traderjoes.com
Watt’s P.O.V.
A lot can be learned from TJ’s approach to
retailing, which emphasizes fun and adventure for
the shopper - an aspect of retailing that can get
forgotten at some supermarkets.
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16. digital communication
11 Approachable grocers
Giant Eagle’s website highlights personalization
with lifestyle profiles, quotes and video feeds of
happy Giant Eagle shoppers, like “Michael: Giant
Eagle customer for 18 years”.
The website walks shoppers through every
aspect of the store, including how to sign up for
“eOffers” that are integrated with the Giant Eagle
loyalty card.
Giant Eagle’s sales were estimated at $8 billion in
2010, with 15% of these sales coming from private
brands.
www.gianteagle.com
Watt’s P.O.V.
Giant Eagle has encapsulated its core customer
and identified their needs, creating a promotional
space that fully reflects and responds to them
personally.
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17. digital communication
12 Bringing the savings to the shopper
Food suppliers such as P&G and Betty Crocker are
finding new ways to reach customers in-store, using
mobile coupon systems that are linked to store sites.
Green Giant is teaming up with supermarkets
nationwide to offer Farmville (an online Facebook
game) cash coupon stickers on its products. Safeway,
ShopRite and Kroger also offer mobile coupons.
Harris Interactive’s Mobile Couponing Survey
indicates that mobile couponing is a hit with
shoppers, with 65% of them redeeming electronic
coupons from the Internet or via email. Jupiter
Research estimates that 2011 will generate more
than $7 billion in sales through the use of three
billion mobile coupons.
www.pgesaver.com
www.bettycrocker.com
Watt’s P.O.V.
Mobile couponing will continue to expand and
drive growth in the grocery segment. Redemption
rates for mobile coupons are 10x that of mail or
newspaper distributed coupons. While user adoption
has been high, shoppers have been frustrated by a
lack of infrastructure at retail locations to allow them
to redeem them at the register.
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18. Appendix
Page 5: All stats from: FMI US Grocery Shopper Trends 2010, except for *1: Digital Coupon Use Soars in 2010, Progressive Grocer, Nov 16, 2010
Example 1: Whole Foods rolls out changes to put “health” at forefront of shoppers’ minds, By Sarah Skidmore, Canadian Business online, Jan 10, 2010; Fortune Magazine’s 100 Best
Employers to Work for, 2010; Whole Foods Most “Liked” on Facebook, Supermarket News, Dec 31, 2010; Reaching Millions with Twitter: The Whole Foods Story, M. Stelzner, Social
Media Examiner, Feb 9, 2010; Company annual reports
Example 2: Westwood Village Target store to remodel and add ‘P-Fresh’ fresh food, P. Robinson, West Seattle Herald, Jan 10, 2011; Target’s Grocery Rollout Spurs Debate, J. Springer,
Supermarket News, Oct 4, 2010
Example 3: Urban Grocers Proliferate, R. Steuteville, New Urban Network, Oct 1, 2009; Push for Grocery stores in poor areas, S. Sager, ABC local New York, Sep 24, 2009; Chicago food
deserts: Drugstores adding fresh produce, Huffington Post, Sep 8, 2010; Just say no to food deserts, first lady tells Huckabee, FoxNews.com, Feb 21, 2010; Companies fail to engage
customers on environmental and social issues, Cone/Omnicom press release, May 2010
Example 4: Fortune Magazine’s 100 Best Employers to Work for, 2010; H-E-B opens Mi Tienda format in Pasadena, Wegmans Organic Farm
Example 5: Food retail format for the future, J. Domino, GLG News - Gerson Lehrman Group, Nov 11, 2010
Example 6: Forget check-ins, AisleBuyer is an LBS App that’s all about the check-out, Mobile Marketing Watch, Aug 16, 2010; Front End Focus, Best Practices For Superior Checkout
Merchandising, page 11, Dechert Hampe, FMI 2010
Example 7: Company Fact Sheet, Aldi Foods website; SN’s Top 75 Retailers for 2010, Supermarket News
Example 8: Ahead of the Bell: Service sector index, Jan 5, 2011, The Associated Press; Dollar General to add Colorado stores, Denver Business Journal, Jan 5, 2011; Retail ad circulars
reveal top marketing trends, (ECRM Data Points), D. Orgel, Supermarket News, Jan 4 2011; SN’s Top 75 Retailers for 2010, Supermarket News
Example 9: Marketing with Meaning Blog, Kroger shows loyalty to customers, DHI Non-conference, B. Gilbreath, Sep 30, 2009; Private Label Magazine’s Top 100 Retailers and
Wholesalers, Nov 2010; David Dillon – Power 50 Profile Ranking:1, Supermarket News, Dec 20, 2010
Example 10: SN’s Top 75 Retailers for 2010, Supermarket News; Trader Joe’s owner, German billionaire Albrecht dies, P. Donahue & H. Elfes, Bloomberg Business Week, Jul 28, 2010
Example 11: Private Label Magazine’s Top 100 Retailers and Wholesalers, Nov 2010
Example 12: Farmville cash invades supermarkets nationwide, V. Lavrusik, Mashable, Jul 21, 2010; Facebook credits making real money, Nov 15, 2010, Farmville Reviews (website);
Safeway’s grocery chain launches mobile coupon program, G. Tsirulnik, Mobile Marketer, May 26, 2009; Mobile Marketing: Retail’s Next Frontier, Honeywell; Mobile coupon
redemption rates to rise this year, R. Kats, Apr 21, 2010, Mobile Commerce Daily
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19. Watt International: who we are and why you should care.
Does your brand break through the noise? Getting into the hearts help uncover the most meaningful insights, set the right strategies,
and minds of consumers, and eventually their wallets, is challenging at and deliver results-oriented creative solutions across every brand
the best of times. And if all the pieces of your brand – your research, touchpoint. Through this integrated approach, our clients get single-
insights, strategy and creative – aren’t cut from the same cloth, you’re source management, efficiencies in account management, and a
fighting an even tougher uphill battle. brand experience that’s connected from the first insight to the last
creative expression.
The key is quite simple – get everyone to sing from the same song
sheet. But if you’re dealing with multiple consultants and agencies So if you’re finding that the pieces of your brand puzzle just don’t
something eventually gets lost in translation. We are a truly integrated seem to fit, we’d love to talk. Our single-source, best-in-class,
retail agency, with over forty years experience working in over forty integrated retail model works, and we’d love to show you how.
countries around the world. Working collaboratively with our clients
and other supporting agencies where existing relationships exist, we
we are retail.
Want to know more? contactus@wattintl.com
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20. January 2011
Scan this QR code with your mobile
device to join our Linkedin community.
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Contact us at 416 364 9384 x 240 or contactus@wattintl.com
to talk about how we might be able to support your business.
North America China
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please visit us at www.wattintl.com
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