CHAPTER 2: TYPES OF RETAILERS

1. Distinguish between variety and assortment. Why are these important elements of
retail market structure?

Retailers can offer the same merchandise but differ in the variety and assortment of
merchandise offered. Variety is the number of merchandise categories a retailer offers.
Assortment is the number of different items offered in a merchandise category. Variety is
often referred to as the breadth of merchandise, and assortment is referred to as the depth
of merchandise.

The above two are essential elements in any retail market since the customer base is very
vast. Different customers have varied likes and dislikes. To fully tap the large customer
market, it is of utmost importance to diversify as much as possible. Moreover, it is the retail
offering that ultimately distinguishes one retailer from another.

2. What sorts of competitive pressures are confronting traditional grocery stores?

What options do these stores have to ease these pressures?

Although conventional supermarkets still sell a majority of food merchandise, they are under
substantial competitive pressure. Everyone wants a piece of the food retail pie. Supercenters
are rapidly attracting conventional supermarket customers with their broader assortments of
food and general merchandise at attractive prices. General merchandise discount chains like
Target and Walmart and extreme-value retailers like Dollar General and Family Dollar are
increasing the amount of space they devote to consumables. Convenience stores are also
selling more fresh merchandise. Supercenters and warehouse clubs are particularly
troublesome for supermarkets because their superior operating efficiencies enable them to
have low costs and prices. These stores have tremendous bargaining power in the market
because they can buy such large quantities. They also have invested heavily in state-of-the-
art supply chains, assortment planning, and pricing systems that reduce their inventories
while increasing their sales and margins. Warehouse club stores concentrate on buying
special deals because they do not carry the consistent and deep assortment found in
supermarkets.
To compete successfully against intrusions by other food retailing formats, conventional
supermarkets are differentiating their offerings by

(1) emphasizing fresh perishables,

(2) targeting health-conscious and ethnic consumers,

(3) providing better value with private-label merchandise, and

(4) providing a better shopping experience.

3. What do off-price retailers need to do to compete against other formats in the

future?

The main competitive weapon for off-price retailers is their low price. The increasing
competition from discount stores makes some problems for the department and specialty
stores. However, the off-price stores may be at a relative disadvantage since most
merchandise is bought opportunistically from manufacturers that have overrun, canceled
orders, forecasting mistakes causing excess inventory, close-outs, and irregulars. They also
buy excess inventory from other retailers. Closeouts are end-of-season merchandise that will
not be used in the following seasons. Irregulars are merchandise that has minor mistakes in
construction. Due to this opportunistic buying, customers cannot be confident that the same
type of merchandise will be in stock each time they visit the store. Different bargains will be
available on each visit.

For many off-price shoppers, however, inconsistency is exactly why they like to go there.
They enjoy hunting for hidden treasures. Since the option of improving service may increase
costs and weaken their only source of competitive advantage, low price, off-price retailers
should focus on strategies to keep their costs and prices low. To improve their offerings’
consistency, some off-price retailers complement their opportunistically bought merchandise
with merchandise purchased at regular wholesale prices. In terms of keeping operational
costs low, they can locate in lower-cost urban and rural areas. They can also implement more
efficient inventory and merchandise management systems. Also, they can expand their
sourcing to include imports from low-cost international markets. Off-price retailers can
explore the possibility of using the Internet for relatively low-cost advertising.
 4. Compare and contrast the retail mixes of convenience stores, traditional
supermarkets, superstores, and warehouse stores. Can all of these food retail
institutions survive over the long run? How? Why?

Element of Convenience Traditional

Superstores Warehouse Stores
Retail Mix Stores Supermarkets
second- or third- limited and irregular
close to where warehouse-type
tier shopping assortment of food
Location consumers shop structures with large
centers with low and general
and work parking facilities
rents merchandise

broad assortments of
grocery and general
limited and irregular
merchandise products,
Merchandise limited variety and average variety assortment of food
a large percentage of
Assortment assortment and assortment and general
nonfood items and
merchandise
focus more on dry
groceries

high-low pricing
lower pricing than
from general
supermarkets.
higher prices than merchandise lower pricing than
Pricing Sometimes they buy
supermarkets discount chains supermarkets.
merchandise
and extreme-
opportunistically.
value retailers

limited advertising,
offering gasoline
Advertising high-low pricing limited advertising minimal promotion
and tying gasoline
and chains advertise since most have since all merchandise
sales to their
Promotion weekly specials. everyday pricing is basically on sale.
frequent-shopper
programs
Personal
minimal minimal minimal
selling
have simple interiors
enable consumers merchandise is
and concrete floors.
to make purchases shipped in cartons
Aisles are wide so
quickly, without on crates that can
Store design that forklifts can pick
having to search serve as displays same as supermarket.
and display up pallets of
through a large so that no
merchandise and
store and wait in a unloading is
arrange them on the
long checkout line needed
selling floor.
 some services for
greater emphasis on
dairy, produce,
perishables—produce,
Service minimal deli, bakery, minimal
meat, fish, and bakery
meat, and fish
items
categories.

All of these food retail institutions survive over the long run because they appeal to different
customer needs.

- Convenience stores are also selling more fresh merchandise and healthy fast-food choices
to reduce dependency on fuel sales while maintaining on-the-go ease and convenience. They
also provide more services for customers such as cutting meat to order.

- To compete successfully against intrusions by other food retailing formats, traditional

supermarkets are differentiating their offerings by (1) emphasizing fresh perishables, (2)
targeting health-conscious and ethnic consumers, (3) providing better value with private-
label merchandise, and (4) providing a better shopping experience.

- Supercenters are rapidly attracting conventional supermarket customers with their broader
assortments of food and general merchandise at attractive prices.

- Warehouse clubs sell food items in very large containers and packages—sizes that also
appeal to larger families. These stores have tremendous bargaining power in the market
because they can buy such large quantities.

In addition, the same consumer may shop at all four types of food retailers depending
on the nature of the shopping trip. So yes, all of these food retail institutions survive
over the long run.