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Sweet Spots For Retail Competition

Here are two stories that intersect in the night. First the Seattle Times reports that Starbucks e-mailed some employees in the Southeast US and urged them to distribute electronic coupons to friends and family for a free iced coffee at Starbucks.

It is unclear why Starbucks did this but, very quickly, and predictably, the coupons spread around the world including showing up on a bunch of web sites for great bargains. Although chat rooms and other forums reported that many stores were rejecting the coupons, enough hit headquarters that Starbucks officially voided the coupon even though it was good through the end of September. It claimed they had been distributed beyond what had been intended in this ‘friends and family’ promotion.

A lot of free coupons must have been turned in to risk this publicity. After all, ice coffee doesn’t cost much and, presumably, some of the people buy a cookie or something while they are there.

I suppose we could write an article about the blindness of some Starbucks employee who didn’t see what obviously would happen.

But, almost simultaneously, I read a piece in the St. Petersburg Times that indicated that Aldi has targeted Orlando and Tampa for its initial foray into Florida. This is the German discount chain whose parent company also owns Trader Joe’s. How does Aldi work? Here is how the article describes it:

The no-frills chain … is all about limited services and low prices that are frequently below those of Wal-Mart.

“We keep it simple,” said Dave Behm, vice president the Florida operation.

Customers will hear no Muzak in its Spartan stores. They have to bag their own groceries. They must pay a quarter for a shopping cart, which they get back when they wheel it back to the cart corral in the parking lot.

Such cost-cutting and the limited assortment of mostly private-label products are the formula for prices as low as 35-cent loaves of bread. With 1,300 items, an ALDI stocks about as many types of groceries as a warehouse club. But there is only one brand and it comes only in the most popularly purchased size rather than those big volume sizes. ALDI, which also stocks fresh produce and meat prepacked by a supplier, boasts that all its products are rated at least Grade A Fancy, Choice or US No. 1.

These stores get little media attention because the media likes to write about glamorous things. So an in-store tortilleria that sells 1% of the tortillas sold by a store may get a 100 articles. The mundane Aldi, which now has 800 stores in 26 states and contributed mightily to Wal-Mart’s defeat in Germany — which caused a $1 billion write-off — is basically ignored.

But not by the Pundit.

The interesting thing about the Starbucks story is that many consultants and trade press articles go around spouting that there now exists this new affluent consumer who doesn’t care about price.

That is not what the Pundit sees. Costco is the classic case; that its parking lot is filled with Jaguars and Land Rovers is legend.

But I see lots of rich people on Jet Blue, and maybe that Starbucks coupon tells us that Starbucks is vulnerable to competition too.

Maybe if someone built a nice place where you could get Starbucks-quality coffee at a discount, people would go for it.

Aldi may be too low quality; note that it promises only Grade A Fancy, Choice or U.S. No. 1. They take aim directly at Wal-Mart’s shoppers.

The Pundit thinks there is a sweet spot in the market for an Aldi-type concept that sells only the best quality. Extra Fancy, Prime, all the best — but at a bargain price.

My brother’s stores, which I wrote about here, are doing this in clothing. His stores physically are as nice as the competitors — much as Jet Blue’s planes are as nice as its competitors. And my brother’s stores don’t sell cheap clothes; they sell good clothes for a lower price. A food store on that model would succeed.

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