1. Mine local market information.
In underserved markets, companies often need to collect new types of information and collect information in new ways in order to get an accurate and useful picture of consumer behavior.
Products that are appropriate for middle- and upper-income consumers often need to be entirely reinvented for low-income consumers. Companies need to understand, in depth, the specific tradeoffs and requirements of low-income consumers, and redesign their products and services for those consumers’ needs.
Shaw’s supermarket in New Haven, Connecticut, is a good example of a retailer that increased its capability and range by being attentive to the local market. Shaw’s management was attracted to the site initially because market studies showed a high level of unmet demand. There was no major supermarket within two miles, and only 20 percent of the area’s residents owned cars. Shaw’s would capture a large share of the food spending if the company could get the residents into the store and provide them with an attractive array of products.
But Shaw’s management also knew that getting residents into the store, and finding the right mix of products, would not be easy. The store would need to draw individuals from a wide cross-section of ethnic and income backgrounds. The store is located in a low-income neighborhood whose residents are primarily African American. In order to succeed, however, the store would also need to draw in students and employees from Yale University, whose campus begins several blocks away. In addition, within the two-mile trade area, New Haven is home to a dizzying array of ethnic groups. The Shaw’s market team identified 42 different ethnic and religious affiliations within the trade area. Clearly, a “one size fits all” model wouldn’t work.
Shaw’s management mined local market information by collaborating with community groups and organizing meetings with the ethnic leadership to discuss product offerings. Meeting in a former YWCA, Shaw’s buyers and category managers, sitting at tables arranged by category (e.g., produce, seafood), conversed one-on-one with the community representatives and solicited ideas on what products to carry. From this dialogue, the company customized its merchandising approach to fit the community’s ethnic mix. As an example, the store chose to stock fresh goat meat to satisfy the needs of consumers from some Caribbean countries.
Thanks to target merchandising and marketing, the store has also been successful at drawing members of the Yale community. Each year, Shaw’s prepares a gift pack for new Yale students containing toothpaste, mouthwash, soap, and a redeemable phone card. Last year, Shaw’s distributed 500 gift packs during freshman orientation week.
By first taking the time to understand the local market, and then reinventing its product format, merchandising, and marketing strategies, Shaw’s has been able to create a profitable store and bring high-quality, reasonably priced merchandise to an underserved community that formerly had no easy access to a supermarket.
[Source: Initiative for a Competitive Inner City, 2002.]
The expansion of Shaw’s supermarket in New Haven into an underserved urban market represents a trend among grocers. Oversaturation in the suburban retail grocery market—with suburban grocers now competing with nontraditional food-sellers like Wal*Mart, Trader Joe's, and 7-Eleven—has led grocers to look for other markets in which to expand. The enormous buying power of inner-city populations has convinced many retailers that doing business in inner cities is worth overcoming the high development and operating costs and navigating diverse underserved inner-city populations.
