The grocery channel wants to be more special. Average, ho-hum food shopping is not going to cut it anymore with consumers who aren’t afraid to forsake loyalty to their local grocers for the thrill of channel-hopping. And who could blame them when the food choices are so varied and great — savings at supercenters, samples at club stores, prepared selections at specialty stores, speedy pick-ups at the neighborhood drugstore, and even sizzling take-out from their favorite restaurant.

And so, supermarkets are learning to emphasize more of the attributes that consumers want most — easier-to-navigate layouts — stocked with specialty or hard-to-find items — well-merchandised in an attractive, ambiance-lit, amply-signed store — centering it all on an attitude of “convenience.”

Strategies like that are starting to turn the numbers around. Last year, sales at supermarkets open at least a year rose 4 percent, perhaps a modest gain, but still the biggest increase in five years, according to retail consultants TNS Retail Forward. And the channel gets a chance to make even bigger waves moving forward thanks to a bit of a competitive reprieve: Wal-Mart recently announced it would cut back on new supercenter openings for the next several years.

But perhaps the Arkansas retail giant will no longer be the largest threat to the channel now that a foreign player is about to step in (and most likely step up) the domestic food turf in a very different way. Last month, the Los Angeles Times referred to it as “the British invasion.” It is Tesco, Britain’s largest retailer, about to launch a chain of mid-size food stores. Tesco’s Fresh & Easy Neighborhood Market will be breaking ground this fall in Los Angeles, Las Vegas and Phoenix. The buzz is that the company already has about 100 stores in the works that might change the face of the supermarket landscape — stocking only about 3,000 items in only about 10,000 square feet of space — but all at neighborhood locations away from huge shopping centers.

The analyst consensus is that traditional supermarkets will have the most to lose by Tesco’s arrival, especially because the Fresh & Easy stores will be more conveniently located and will facilitate a “quick-in/quick-out” shopping trip.

Wisely, the strongest chains in the supermarket channel are already taking a more micro approach. The leading grocers are apparently realizing that “regional food markets are so distinctive that they demand local strategies,” according to analyst Bill Bishop of Willard Bishop Consulting. Supermarkets “have come to the understanding they can’t put cookie-cutter stores out there anymore,” adds Sandra J. Skrovan, a senior vice president at TNS Retail Forward.

But where does all this leave candy? Unfortunately, it doesn’t seem like the channel has transferred the “solutions” or “gourmet” approach to the confectionery aisles — at least not yet. “Supermarkets are great at capturing the routine shopper, the everyday candy shopper that’s in there once or twice a week, but when all is said and done, they really haven’t done a lot beyond that,” observes an industry analyst who works with many retailers and manufacturers in confectionery and wishes to remain anonymous. He adds that grocers are “not romancing the chocolate or candy shopper to any specific degree.”

CHANNEL LEADERS*
Chain	2006 Annual Sales (in billions)	% change (2005-2006)
1. The Kroger Co.	$66.1	9.2%
2. Safeway Inc.	$40.2	4.6%
3. Supervalu Retail	$28.0	163.4%
4. Ahold USA	$24.0	6.4%
5. Publix Super Markets Inc.	$21.7	5.3%
* Excluding Supercenters Source: Company reports and STORES magazine

What’s perhaps worse is that consumers perceive that they shop the channel for candy, more than they actually do, according to 2007 consumer data collected by the National Confectioners Association. In the research, 61 percent of shoppers indicated that grocery stores/supermarkets were their primary source of candy and snacks; in reality, the channel holds less than 15 percent of confectionery market share, according to separate NCA market data.

It seems that consumers are more apt to indulge in a candy impulse purchase away from the supermarket, leaving that one of the biggest opportunities in the category for the channel. “Candy is all about impulse, it’s an expandable consumable; when people buy it, they tend to eat it up,” says the confectionery analyst. “When consumers have candy, they eat it; they can buy twice as much and barely extend their purchase cycle, so there are incredibly expandable consumption opportunities for all retailers, but especially for grocers because people are in their stores once or twice a week.”

It’s not that supermarkets are oblivious to the confectionery trends — they just haven’t taken candy opportunities to the next step. For instance, many seem to have reacted quickly to the premium chocolate/dark chocolate trend, evidenced by special sections they have carved out in the candy aisles.

“There has been a tremendous amount of new items hitting premium, dark chocolate over the past year, and many supermarkets have implemented a premium section within candy,” confirms Jim Corcoran, vice president of trade relations for NCA. “That premium displays extremely well on their shelves — many are standup products, foil pouches, bars — they’re merchandised standing up and it is really an enhancement to the candy and confectionery section in supermarkets. Consumers are buying these items, they know about the healthy characteristics of dark chocolate and chocolate products, and it has grown that category tremendously — over 30 percent growth for three years straight.”

What’s lacking is the cross merchandising of this tall, dark and attractive confectionery candy. Corcoran and others mention cross-marketing premium chocolate with greeting cards, wine, produce, flowers, prepared foods, the deli — getting it out in the perimeter of the supermarket and giving it more of a “special market” feel. Some have merchandised chocolate “kits” for strawberries and fondues over the years in the produce section, but they haven’t expanded that. “Retailers have to get beyond their internal boundaries for cross merchandising of various departments,” states Corcoran.

The front end is another strong candy merchandising opportunity for supermarkets. A number of forward-thinking supermarkets are introducing premium products up front, particularly single-serve premium snacks and confections. But according to the experts, there’s room for more — and for a more frequently rotated selection that keeps seasonal trends in mind.

Beyond premium chocolate, sugar-free gum and mints should be a grocer’s best confectionery friend. “Sugar-free gum is just behind premium chocolate in growth; we’ve seen double-digit growth for five years straight,” says Corcoran. Industry research shows consumers respond very well to coupons and promotion in the segment — more so than in any other confectionery category. So the idea is to get it out up front and center, and promote it heavily, both in single packs and in value packs in-aisle.

Grocers with organic sections and private label organic offerings are missing a strong category connection if they are not into organic chocolate.

Chocolate is the largest growing snack segment in the U.S. organic market, according to an industry study, and into the near future, industry experts think it is likely that organic chocolate will track that of the organic food market, which is on a double-digit growth spurt. Baby boomers, now mostly in their 40s and 50s, comprise the core group of organic chocolate consumers, followed by 25-to-34-year-olds. Supermarkets have a great opportunity to target them with organic chocolate, especially now that mainstream players like Russell Stover are into the category.

Russell Stover’s organic line costs about 30 percent more than its traditional offerings; the company hopes to show that organic chocolate can be sold in other food stores besides Whole Foods.

“We’re seeing that the consumers most passionate about organic indulgence are also those who are most interested in a premium product,” says Mark Sesler, senior vice president and chief marketing officer for Russell Stover. “It’s not just the natural stores that can sell a good amount of organic chocolate.”

Grocers with ethnic slants, such as H-E-B, do a great job with ethnic promotions, but there is room for ethnic confection tie-ins, particularly to ethnic holidays, which would pick up seasonal candy sales at supermarkets.

According to Mintel research, a good area of exploration is Hispanic holidays, such as Dia de los Reyes, or Three Kings Day, celebrated on January 6. A major holiday in Mexico, the Three Kings Day has traditionally been the gift-giving time, rather than Christmas Day.

This is just one example of how supermarkets can expand the seasons for seasonal chocolate. Mintel suggests other holidays in which chocolate could be emphasized, including: Kwanzaa, Grandparents’ Day, and Sweetest Day.