Peanut Butter Strategy

I am a little late to the game, but I recently came across this term, and it captures the essence of strategy nicely. And our childhood connection to this lovely delicacy helps it stick. The "Peanut Butter Manifesto" came from a Yahoo executive back in 2006, and it describes spreading anything—money, energy, time—too thin to be effective.

Any strategy should start with the diagnosis. It is a careful and often painful internal evaluation. It requires setting aside egos and opening up minds and kimonos. All of which can be difficult to do in any organization. The problem is that without the prioritization of issues and a clear diagnosis, there is no focus and minimal opportunity identification. And without this focus, you guessed it, we get a peanut butter strategy.

The peanut butter approach has been a staple in the grocery industry for decades and it worked up until the Great Recession. Prior to the financial crash, customers were largely loyal, supermarkets continued to capture big baskets, and share declines were minimal. Mass, warehouse, and discount channels were gaining momentum but had not hit their stride. After the Great Recession, Pew Research reported that about half of households experienced work-related hardships. With these hardships, many shoppers had more time to shop.

The number of retailers shopped increased, and lower priced mass, warehouse, and discount channels were often the new stop. This was the beginning of shopper loyalty breaking down and transitioning from a retailer to a retailer AND department. Rather than focusing one's shop at a retailer or two, loyalty was now also cut by department. Costco became the go-to for paper products, the supermarket for meat and produce, and Trader Joe's for frozen items.

Competitive intensity ramped up even more in the post-COVID world, which resulted in double-digit inflation and another wave of supermarket shoppers testing mass, warehouse, and discount channels. Many found that between the Great Recession and COVID, quality in these lower-priced channels had continued to improve even while the supermarket price gap versus these channels continued to grow, i.e., supermarket value delivery declined and their price premiums were even less warranted.

Point being, peanut butter strategies are no longer an option. Colin S. Gray makes the point in "The Future of Strategy." The weaker the organization relative to the competitive set the more important a well-defined strategy is. With football on the horizon, a nice example is when the Super Bowl-winning Seattle Seahawks play the struggling Las Vegas Raiders. One team needs a buttoned-up game plan while the other does not. The talent and execution abilities of the Seahawks can overcome a weak game plan, but for the Raiders to win, they need both a perfect game plan and flawless execution. This is similar to the national big box retailers vs. most medium and smaller regional retailers.

The bar is raised for regional retailers. Spreading resources thinly across departments regardless of return is no longer an option. This means saying "no" to many things, which is a difficult task for many close knit family run operations. Michael Porter famously said, “the essence of strategy is choosing what not to do.” To be able to say no, the process starts with a clear diagnosis. The diagnosis uses robust insights, careful consideration, and a willingness to make meaningful changes to uncover and prioritize key issues. With a strong insight foundation, this is simply a collaborative process to rank problems and opportunities. It includes quantifying market gaps as well as the return and level of effort required to take advantage of these opportunities and grow the business.

I hope this help to explain why strategy and planning are so important. Because the benefits are often undervalued by organizations, the investment and effort put into this function is often lacking and that simply won't cut it in today's market. In addition, this is an ongoing continuous learning muscle that is built over time. Customers, competitors, technology, and the government are always changing, so there are always opportunities to assess change and pivot when needed. Consider how much the market has shifted since 2008. Exercising that muscle and process will be essential to navigating the waters ahead.

To dive a bit deeper into the two primary strategic paths for grocery retailers, read my last post on Kroger’s purchase of Giant Eagle.

https://www.derivzero.com/post/another-one-bites-the-dust