Tuesday 24 May 2005
Why The Grocery Store Is Always Out Of Things
My comments on McDonalds’ (McDonald’s’? How do you do a possessive of a registered trademark that is itself already a possessive? McDonald’s themselves seem to prefer the ungrammatical ‘McDonald’s’ as the possessive, e.g. the large section about ‘McDonald’s commitment to diversity’ on their website. This is unpalatable because it seems to refer to something or someone called ‘McDonald’ and its or his commitment: Old McDonald had a diversity-enhancing, ‘minority’-boosting program, E I E I O. And through this program he hoped to avoid being sued, E I E I O. With a set-aside here, and a sensitivity initiative there, Old McDonald had his ass covered, E I E I O.)
Now where was I? Oh, yeah: my comments on some of McDonalds’ (damn them, I’ll do it my way) customer-service issues being rooted in their procedures’ inherent conflicts with logic and grammar seemed to strike a chord with a bunch of people, so I’m going to shamelessly attempt a repeat performance: Bart by the barrelful, I always say. Today, I will explain why my grocery store is always sold out of so many items.
Now, maybe your experience is different, but I find grocery shopping pretty frustrating. I generally patronize Martin’s in Front Royal. The Front Royal Martin’s is run by a guy who always wears a tie (so you can tell he’s the manager) but who seems to spend quite a bit of time in the store itself, rather than in his manager’s aerie counting doubloons or whatever it is most grocery-store managers do. Rarely do I go there and not see this guy in the aisles, stocking shelves, giving advice, or at least running around and giving a strong impression of Purpose.
This could just be a ruse, a George-Costanzian scheme of always appearing incredibly busy while actually doing nothing, but the odds are against it. I assume that this guy is at least an above-average grocery store manager, partly because of his visibility, and largely because the store itself is above average.
Oh, sure, there are some things that could use work: the salad bar’s closing seems tied mainly to the needs and desires of the staff, and not the needs and desires of Commerce; everything on the bottom layer in the fancy-cheese cooler tends to have been frozen at some point; the newspapers are badly placed; and the do-it-yourself tills are the inferior kind with the scales instead of the better (but larger) kind with the belts. These are, though, mainly minor things, and the store is, on the whole, good enough that I cannot understand how the competition (Food Lion) stays in business. The parking lots at both stores will attest to the fact that I am hardly the only person in Front Royal who prefers Martin’s to Food Lion.
The only, or at least the chief, fly in the ointment is that Martin’s is often out of things. Very, very rarely — if ever — can we get through a full shopping trip without at least one item on the list being out of stock. Most recently, it was Grape Nuts cereal.
I like Grape Nuts: so full of grapey and nutty goodness, they are. Eating Grape Nuts is like eating a bowl full of rocks, which is sometimes precisely what you need first thing in the morning. They make me feel like some kind of cartoon giant: I have been known to say ‘Fee Fie Fo Fum’ and to cackle maniacally while eating them.
But, the last time I bought Grape Nuts, it was at the hated Food Lion, because they were out of them at Martin’s — they were out of them for weeks.
And it’s not just Grape Nuts that they run out of. I went to the store today, and I took pictures of just some of the things that were out of stock:
Note that today they did have Grape Nuts: but they’re well on their way to running out. They have plenty of South Beach Diet ‘wheats’, though.
I didn’t get pictures of everything they were out of, partly because I didn’t want to get thrown out, and partly because after a while I didn’t have enough memory in my camera to get a picture of every last thing that was out of stock: I only had 1GB in there.
I’m not really sure what Grape Nuts are made of, but I don’t think there are any particularly rare materials involved. I used to see a bumper sticker all the time, put out by the Mining Industry Council of Missouri, that said ‘If it can’t be grown, it has to be mined’. I have never seen a Grape Nuts bush, so I have to assume that the things are dug out of the ground by giant yellow machines somewhere in Michigan. (Similarly, as I can identify no vegetation or animal obviously associated with Cool Whip or Miracle Whip, I assume that these things are cracked out of some substance that’s pumped out of the ground in the Dakotas: Crude Whip. The Tino Universe is a very orderly, if inaccurate, place.)
My point, anyway, is that there is not and was no shortage of Grape Nuts: Martin’s was just out of them.
Things run out: I understand that. But what’s bizarre is that they were out of Grape Nuts for weeks, during which time — I went back every couple of days before I broke down and went to Food Lion — there were about a dozen boxes of something called ‘Grape Nuts Flakes’ on the shelf next to the bare spot where the Grape Nuts, in happier times, were to be found. (Much of the space formerly taken up by Grape Nuts Flakes has now been taken over by South Beach Diet ‘wheats’.)
Nobody wants Grape Nuts Flakes. I know this intuitively: Grape Nuts and Flakes are polar opposites in the cereal world. If you want flakes, you don’t want Grape Nuts, and if you want Grape Nuts, you don’t want flakes. You want flakes, you buy Corn Flakes; if you’re a Post partisan, you buy Post Toasties (but not at Martin’s, because they don’t sell Post Toasties at all there).
I don’t have to rely entirely on intuition, though: during the entire Grape Nut Drought, not one of those boxes of G.N. Flakes moved.
How can this be? How can a store with a diligent and hard-working manager be sold out of a very basic and popular item for weeks while having twice the shelf space devoted to a similar item that not only doesn’t sell out, but that doesn’t sell at all?
I’ll tell you how: it’s because supermarkets don’t, for the most part, actually function as markets any more. Or, at least, they don’t function as markets in the way you’d expect.
The grocery business is famous for its very low margins. The food that Martins sells me for $100 they probably paid at least $90 for. That 10% margin — and I’m being generous — has to pay for the building, the staff, the electric bill, and the profit. How do they do it? Well, yes, volume is part of it, thanks for asking. But they also effectively increase their margins while at the same time reducing their costs by farming out part of their operations to their vendors, and charging those vendors for the privilege.
Modern supermarkets are therefore less like ordinary shops, where the proprietor chooses a selection of goods, purchases them, and then offers them for sale, than they are like farmer’s markets, where individual vendors lease space from whoever owns the building.
In the cereal aisle, it works this way: assume that Martin’s has 100 linear feet of shelving that they decide to dedicate to breakfast cereals. They hold onto, say, 10% of this for themselves, for their twenty-pound bags of crumbly and slightly off-tasting things with carefully non-infringing names like Froonkenberry, Cheer-Os, and Corm Flakes. They then charge General Mills some amount of money for the right to put their products on 20% of the shelf space, and Post and Kellogg’s some other amounts for 35% each.
Kellogg’s, Post, and General Mills then develop marketing strategies and display guidelines, and send their guys in to stock the shelves with their products. Presumably the cereal people like this because they have more control over how their products are displayed: the Corn Flakes, a relative commodity, are always on the bottom shelf. Grape Nuts (and most of the other cereals for masochists) are on the top. In the middle, you find whatever bad ideas the cereal barons are really pushing at the moment: the children’s-movie-themed cereal of the month; Special K Now With Dried Lingonberries; Cheerios With Hollandaise Sauce; Atkins Brand Bacon Os; etc.
The problem is that this puts even more intermediaries between me and the brave men who toil in the cereal mines. We are supposed to be living in an age of disintermediation, but the way it’s generally being carried out, I don’t think we’re reaping any benefits from it.
In the old days, the grocery store bought its cereal from a grocery wholesaler who specialized in serving certain kinds of stores in a certain area; that wholesaler bought his wares from even larger wholesalers who specialized in certain types of goods. That wholesaler bought from the manufacturers and importers of those goods. By the time anything got to me, it had already been bought and sold four times. This is held to have been inefficient.
Today, when I manage to buy a box of cereal, I’m effectively buying it straight from the manufacturer. The grocery store just maintains a large building for the purpose of keeping all of this stuff dry, and they handle the mechanics of the transaction. In many cases, I’d bet they don’t even pay the manufacturer until they sell something off the shelf.
This is supposed to be more efficient, and it undoubtedly is. But it is more efficient at the cost of the most important function of a market — communication.
In those mythical, halcyon Old Days, when I wanted something that was out of stock, I’d tell the guy who ran the store. If he noticed a number of people complaining about (say) the lack of Grape Nuts, he might just come to the realization that he should order more Grape Nuts. He’d tell his supplier to send five more boxes of Grape Nuts in the next order, and the Grape Nuts problem would be solved.
Today, though, the guy wearing the tie at the grocery store doesn’t necessarily have anything to do with what’s on the shelves. The manufacturers determine what’s in demand by conducting surveys and focus groups, and by noticing what gets sold out before it’s restocked. They then apparently ignore most of this information and instead pack the shelves with whatever horrible fad the marketing department has fantasies of selling this week.
There’s nothing wrong with having vendors stock the shelves: but as the grocers have farmed that part of their business out, they have a responsibility to their customers — and to themselves and their stockholders — to see to it that the vendors are acting in everyone’s best interest, and not just in their own.
A lot of people complain about this. Usually, the complaints take the form of ‘Chain stores/restaurants/services stink’: very rarely, though, do people ask themselves why this should be. After all, a McDonald’s restaurant is a burger place with, ultimately, millions upon millions of dollars of capital behind it. Martin’s is part of an international conglomerate with enough volume to allow them, should they so choose, to have a full-time vice-president, with a staff, to do nothing but oversee their cereal aisles.
So why is it, then, that you almost always get better results from a place with maybe a million dollars in mortgaged-to-the-hilt capital, where the owner has to take time out from fine-tuning his inventory to change the light bulbs and mop the floor?
Because that small outfit not only has an actual channel for communication between customers and decision-makers, but it can make small adjustments to its operations. Large operations, despite their many advantages, seem totally unable to do this — and most of their ‘innovations’ have the effect, intended or not, of making communication and fine-tuning even more difficult. So even those items which are purchased and stocked by Martin’s, rather than by the vendors, don’t reflect the actual local demand: they reflect the opinions of someone making decisions with almost no relevant information.
And so they run out of Grape Nuts, and everything else.Posted by tino at 17:54 24.05.05
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