Kroger Taking Marketshare From Wal-Mart?

Cincinnati-based grocery chain Kroger is actually taking market share in groceries from Wal-Mart, according to a story in the Cincinnati Enquirer. According to some analysis - the article doesn't make it clear who did it, "a recent building binge of supercenters by Wal-Mart not only failed to garner it more market share, but may have led a growing number of shoppers to seek out Kroger's neighborhood shopping approach."

In addition to emphasizing convenience, Kroger is closing the price gap.

A pricing analysis by Bank of America analyst Scott Mushkin last fall found that Kroger's prices were 7.5 percent higher than nearby Wal-Mart supercenters, compared to 20 percent to 25 percent five years ago.

Kroger chairman and CEO said that his company has increased marketshare in 27 of "34 major markets in which supercenters have achieved at least a No. 3 market share." Here's Wal-Mart's statement:

"We continue to grow and have regained position as No.1 on the Fortune 500 list of companies ... We are a No. 1 shopping destination for Americans. New customers continue to go to supercenters, particularly in Ohio."

So what's to learn? Wal-Mart's reliance on a rhetorical response is, I think, telling. There's no way I can know if the numbers that Kroger claims are correct, but logic is on their side, in a way. No company can own all marketshare, and no one approach works everywhere in every category. I'm not sure that consumers would view groceries as a category in which prices are too high, and so might not consider Wal-Mart. Or it could be that people don't like the idea of shopping in a big box environment for all products.

For Music Labels, Distribution Is the New Worry

There's an interesting article in the Wall Street Journal of April 27, 2007 about the problems that music labels face from the big box stores. According to the reporting:

big-box chains are now responsible in the U.S. for at least 65% of music sales (including online and physical recordings), according to estimates by distribution executives, up from 20% a decade ago.

Having that much potential distribution and sales tied up with a limited set of customers is a scary concept for any company for a few reasons that I learned in my time in business and in writing about business. One is that with so much ability to exert pressure, you can bet that prices to the retailers will eventually be coming down. Another, you now have narrower demographic segments dictating what will be commercially acceptable music.

Third, big producers need small producers to create new niches and open fresh areas for production, and that gets much tougher when the large stores are going to be less likely to pick up the work of small labels because it becomes too much trouble to maintain a vendor that supplies a small amount of what the retailer sells.

The kiss of death is, as the story mentions, is that the stores will find the category unprofitable compared to other areas:

That's partly because, with CD sales falling steeply, the discs aren't as hot as other products the stores sell. Also in the wake of the Don Imus controversy, the debate over the lyrical content of rap, rock and pop has flared up again. Oprah Winfrey recently has focused on rap lyrics on her talk show.

Best Buy has apparently reduced the space devoted to CDs, and Wal-Mart has given a quiet heads-up to the big music distribution industry that it will cut back space for music by as much as 20%.

What's a record label to do? Learn a lesson about non-traditional distribution. Some book publishers have been smart, putting their books for years into places where their natural customers might appear but that aren't the usual independent and chain stores. Most publishers don't get it, which is why so many are having problems. You have to meet the consumer where the consumer wants to be. So look at what Starbucks has done and start moving in that direction. Popular music labels could experiment with selling CDs through various fashion outlets, specialty interest stores, and other places where they could receive impulse buys - if music isn't a life style purchase, I don't know what would be. Put it in in the Gap, in Williams-Sonoma, at news stands, in gas stations, in craft stores. It doesn't matter where so long as the people who go to those places are the sort who buy the music. When things get tough, it's time to start thinking outside of the big box.