Niche markets such as organic products form an important source of growth for generalist grocery stores. However, generalists increasingly face competition from organic retailers expanding their store network. This is especially relevant considering the continuous opening of new organic stores offering a 100% organic assortment. Thus, the growth of organic specialist retailers creates a need for generalist retailers to evolve their strategies.
A new Journal of Marketing study analyzes the implications of organic specialist store entry on the performance of generalist stores. Using a rich store-level scanner dataset covering all SKUs from all major packaged food and beverage categories, we study the impact of three organic stores’ entries on total category sales at 38 incumbent generalist grocery stores from five retailers in the Dutch market. We provide novel insights on which strategies reduce the harm for generalist stores.
The results indicate that category sales at the incumbent generalist store are about 3% lower after an organic store entry. Additionally, we find that price sensitivity (i.e., the impact of price on sales) at incumbent generalist stores intensifies compared to pre-entry levels. Hence, unlike discounter store entries, incumbent stores are likely to experience a more price-sensitive consumer base after an organic store enters their area.
Moreover, the performance impact of specialist store entry on generalist incumbents can be mitigated by reducing the relative distinctiveness to the new entrant, unlike the entry of another generalist store. We identify three underlying dimensions (i.e., variety, price-quality, and authenticity) of a premium specialist’s distinctiveness and propose that these dimensions can be influenced by the organic focus of the generalist incumbent.
First, when faced with a premium organic store entrant, incumbents can reduce distinctiveness in terms of variety by offering a larger number of organic products. In addition, more frequent feature/display promotions can maximize perceptions of organic product variety at generalist stores.
Second, distinctiveness in terms of price-quality to the premium organic entrant can be reduced by increasing the focus on more premium organic products. While generalist grocery retailers have stepped up their assortment of organic products, we observe that they tend to focus more on lower premium organic products. While this may appeal to price-sensitive consumers, an increased focus on more premium organic alternatives can help withstand the growing network of premium organic specialist retailers. Frequent and deep discounting on organic products can amplify the distinctiveness in terms of price-quality relative to the premium specialist store. We find that retailers that engage in more frequent and deeper discounts on organic products are more harmed by a premium organic specialist, limiting the frequency and depth of these promotions can minimize the harmful decrease in perceived quality among consumers.
Third, distinctiveness in terms of authenticity can be reduced by adopting an organic specialist brand. In categories in which few organic specialist brands are available to the non-organic retailer, non-organic retailers may also consider launching their own organic specialist brands using a stand-alone branding strategy. Finally, generalist stores in our study did not react to the organic store entrant, which may represent a missed opportunity. Increasing organic product variety of high-quality and authentic organic products at the generalist store after specialist entry could further reduce the specialist’s distinctiveness and the generalist’s sales losses.
From: Stijn Maesen and Lien Lamey, “The Impact of Organic Specialist Store Entry on Category Performance at Incumbent Stores,” Journal of Marketing.
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Stijn Maesen is Assistant Professor of Marketing, Imperial College Business School, UK.
Lien Lamey is Professor of Marketing, KU Leuven, Belgium.