Save-A-Lot Part 2: Know How Makes Small Stores Fit Customers

A while back, a post in this blog pointed out that Save-A-Lot is a retail chain that’s ahead of the pack when it comes to critical functions retailers are adopting today, such as operating more efficient, smaller stores while still satisfying demanding customers, and that post came with a promise to detail how the chain, a division of Supervalu (SVU), accomplishes that.

So, let’s take yogurt, for example.

“Yogurt is one of those product categories where you could completely fill our dairy case with what conventional grocery stores have and still not have enough space to fit it all,” says Mike Kemp, Save-A-Lot vice president of procurement.

That means editing the assortment, part of a larger process that involves cutting selection down more tightly than most other retailers would ever consider to shoehorn things into the chain’s 15,000 square foot stores. But Save-A-Lot has its methods, including sticking closely to a disciplined decision making process that helps the retailer make difficult judgments. Low price is the chain’s calling card, and it’s one of the few retailers that can challenge Walmart (WMT) on cost to the consumer based, in part, on its private label program. Save-A-Lot also can make a virtue of necessity, promoting competition among suppliers who are attracted to the limited space it offers in each store because that’s multiplied by the 1,200 locations it operates.

Yet, what goes into Save-A-Lot must also suit its circumstances as well as its size. Kemp noted:

We look at the demographics. We look at what products fit our customers. We cluster our stores so we know what the average income is, and what the spending pattern is. We know what to look for in our decision tree and what are the items we can be in. We cannot be all things to all people. We’re not going to be able to carry the variety of certain products. Where we have been growing, we keep looking at that and, a year from now, we may say, the consumer has changed and is starting to go over there.

So, Save-A-Lot is ready to make substantial shifts in its selection as buying patterns change. But the process of amending assortment includes not only looking at product and price but also what share of the customer’s wallet Save-A-Lot gets, and what part goes to other retailers. Much of Save-A-Lot’s success derives from not trying to capture too much of the customer’s business. That might be a counterintuitive approach, but the retailer’s disciplines have stood it in good stead. Some retailers that have had success with focused operations get tempted into trying things that don’t play to their strengths, as happened even to Walmart when it tried offering trendier products in apparel and other departments, only to step back when its program disappointed.

By careful analysis, Save-A-Lot has learned how to weigh which product categories it ought to contest and which it ought to leave to others, a process Walmart is more focused on today with its Win-Play-Show strategy. Save-A-Lot’s process identifies where it stands at an advantage and ought to compete. “It tells us what our place is, and what we have to give up to get our share,” Kemp said.

Customers might not purchase everything they need from Save-A-Lot. In fact, they probably can’t. Still, visits to other stores don’t worry the retailer. The chain’s shoppers get an idea of what significant bargains it provides on the products it does carry when they see prices on like items at rival retailers.

In the upcoming final post in this Save-A-Lot series, the subject will be private label, the chain’s advanced position on own brands and what the future holds.