Système U: The New Merchants
By Lauren Carmier

Système U offers a wide variety of cooking accessories such as the selection of plastic bags pictured here.

Shown here is a variety of PL products that can be found at Système U.

Système U continues to increase sales in the domestic market and expand the number of stores under its banner.

In France, it is almost impossible to hear the words “les nouveaux commerçants” without humming the catchy jingle, which completes each Système U radio spot. Who are les nouveaux commerçants (the new merchants), and how has this collection of independent grocers managed to continue gaining market share in France in spite of big gun competition from powerhouse retailers like Carrefour and Auchan?
Système U is the largest cooperative of independent grocers in France. Originally called Unico after a brand of cigars; this name was adopted by the merchants because it evoked the idea of a union of merchants with unique merchandise.

In 1975, under the leadership of Jean-Claude Jaunait, the name was simplified from Unico to U and the name became Super U, simple, direct, memorable. Today, the group of businesses under the banner Système U includes 3 store formats; Hyper U, Super U and Marché U. Their tag line, “Et si vous passiez au U commerce?” (And what if you would switch to U commerce?) tempts the consumer to experience the pleasure and savings found inside their stores.

6th to 5th Place in 6 years

And how are sales on the home front? Unlike Auchan, Carrefour and Intermarché who have lost market share since 2001, and Leclerc whose sales are flat, Système U has continued to experience increases in domestic market share. They are now the fifth largest grocery retailer in France with annual revenue of 12.5 billion euros in 2006 up 2.7 %. Today, Système U claims 8.9 % market share, up from 6.9 % in 2001.

The group boasts 863 outlets up 9 from 2005 with a target of 901 stores by end 2007. In 2006 Hyper U stores grew from 44 in 2005 to 48, Super U from 665 in 2005 to 672 in 2006, Marche U dropped from 145 in 2005 to 143 in 2006. In 2006, revenue climbed 7.2% in the Hypermarchés, which now constitute 15.89% of sales. The Super U stores contribute 79.58% of volume and had an increase of 2.8% and finally, the Marché U proximity markets comprise 4.53 % of the group’s sales and saw a drop of 1.8% in sales over 2005.

PL Drives the Growth

Système U features a variety of sweets including fruit cake and mini apricot-stuffed cakes.

An analysis of 2006 revenue shows that the driver of profit and growth is the Système U PL. The Group U has 2 types of PL: the U brands, and Bien Vu their opening price label. The U product umbrella includes the logos, Produit U, Les Saveurs U, BY U (health and beauty products) and a new launch this year, U Ecologique.

The Produit U logo is generally found center label and shows a red U on a white background with the famous words “les nouveaux commerçants” high-lighted beneath in blue. To push sales of their house brand, items are often promoted in shrink wrapped value packs of 2-5 units with a special offer or added value sticker like these extra fine green beans 800 g x 2 for 2.00 euros. Following the lead of other retailers, Système U appeals to children through the use of a cartoon-like animal on the packaging of its children’s snack products, cereals and diapers. Unlike Tom and Pilou of Casino’s children’s brand fame, Système U’s unidentifiable creature with a Mohawk and floppy ears remains as yet unnamed. PLI noticed another Produit U kid’s item, this one on promo, a 6pack of pocket tissues featuring the Warner Bros. licensed characters, The Flintstones 1.25 euros.

For the Discerning; Les Saveurs U

Les Saveurs U represents the gourmet PL and looks the part. The packaging has all been recently redesigned. This correspondent found a series of enticing Les Saveurs U products such as Eggplant à la Provençale 650g for 1.90 euros and White beans cooked in goose fat 780 g for 1.99 euros.

A merchandising tactic used to promote this PL label is to include a frame around the shelf price to highlight the PL product. For the Saveurs U products, this frame could read either Les Saveurs or Le Savoir des Saveurs, the latter can be roughly translated to “the knowledge of flavor.” These price frames are found around a series of jarred terrines and pâtés–promoting this oh so French delicacy. This correspondent found two to four facings each of 5 different Les Saveurs meat spreads; for example, 180 g of Country Pate for 1.29 euros, Rillette of duck made with 70% duck 1.86 euros and terrine of deer at 1.48 euros made with 32% deer, no colorings or preservatives used. The Saveurs U labels are color coded to reflect the different varieties on offer.

Oiling all the Bases

Système U carries a variety of teas including green tea with mint under the U line.

Interestingly, in the oil department, all 3 U product labels are well represented. At the high end of PL oils are Les Saveurs olive oil with garlic, and olive oil with basil both 2.89 euros for 25cl; then Produit U’s extra virgin cold extract olive one liter for 5.69 euros and finally the opening price Bien Vu extra virgin olive oil one liter at 4.64 euros. Produit U even offers a special oil for fondue–bourguignon, if you please, packed with branches of aromatic herbs, one liter 3.49 euros.

Système U gets Eco-friendly

Often the PL of the big grocery groups mimics the packaging of the national brands. PLI did not find this to be the case with the U product PL.

A great example of this can be found in the new U Ecologique line of 13 environmentally-friendly cleaning products. These products are appearing in stores now and the packaging is right on the mark. Products include paper towels, cleaning solution, window cleaner and dish washing liquid.

While Système U seems to be ahead of the development curve regarding environmentally-friendly PL products, they are behind in the development of organic and equitable commerce PL, having no dedicated label for these important growth categories.

According to 2006 sales results, the U products represent 25% of sales, up 1.2%. Bien Vu shows a gain of 0.3% to capture 3.9% of sales and the national brands are down 1.6% to 71.1%. The gains made in the U brands represent 70% of the increase in the groups 2006 sales.

There are currently 2600 U products on the shelves with another 800 planned for 2007 and 450 Bien Vu, representing 18% of product and 29% of store sales. 1200 U products had a facelift in 2006.
Don’t Follow the Leader

Doing what the others don’t has been another key to the success of Système U. If the big guys settle in highly urban areas or strip malls and commercial centers, Système U prefers the small to large villages so plentiful in France.

They have also been quite successful in heavily trafficked border towns and coasts where tourists flock.
A recent visit to a Super U store in Saujon near the coastal town of La Rochelle confirmed Système U’s strategy of appealing to tourists: a store announcement in French was followed by the same announcement in English to “our English–speaking customers” in this case the many English tourists who invade the French coasts in the summer. The fact that the stores are still run by local, independent retailers gives them more flexibility in their buying and allows them to easily offer regional delicacies which are quickly snapped up even in the least touristy of towns.

However, this does not mean that the group plans to ignore the visibility and buying power of metropolitan areas. Système U needs to attract new customers in order to widen its customer base. According to a recent Système U survey, only 28% of French households shop at a Système U store as compared with the 50% and 46% of households, which shop at Leclerc and Intermarché respectively.

Small Town Become Big Time

While well known in many parts of France, its presence in the Isle de France, the most heavily populated region comprising Paris and surrounding departments, is minimal, and the name lacks consumer recognition. But that’s changing thanks to Serge Papin, the President of Système U since 2005. Papin has lead a drive into urban areas around Paris and Lyon, which has recently opened 9 Super U’s in the greater Lyon area. A large format prototype for future Super U stores has just opened in Noisiel about 30 minutes outside Paris.

The push into urban areas would have been difficult without another key strategic move by Papin. Ever media-friendly, he has mounted an aggressive marketing and public relations campaign, which is yielding results via increased market share and store margin.

On January 1, 2007, Système U became the first grocery group to advertise on television, taking advantage of a change in French law, which took effect with the ringing in of the New Year. This strategy has succeeded in increasing the visibility of the store and its brands. The ads are modern, young and to the point. They focus on one particular PL product, which the stores are urged to stock and display prominently. Unfortunately, with 860 independent retailers, they don’t all succeed in translating the ad dollars spent into store margin gained. For example, a recent TV spot for U System Activ 3 liquid laundry detergent generated sales of 15 units in one outlet and 86 in another over the same period. The difference was the store selling 86 units had created a center aisle display; the other had left the PL in the back of the department.

Front and Center

The U strategy continues to center on maximizing the sales of PL products through prominent placement in the stores i.e. at eye level, front of store for advertised items, and displays.

This is exactly the case in the Noisiel store. The week’s promotional items are presented immediately upon entering the store, not on shelving units stacked 3 meters high but in low laying center aisle displays that allow customers to look across from one aisle to the next. This gives the area an open-air bazaar type atmosphere.

The first aisle of grocery items starts after this point with a promotional aisle; and what’s on offer this week, none other than Super U products. The special savings are flagged with a huge red PROMOTION banner overhead and running the length of the aisle. A few of this week’s offers are a value pack of 2 cans of Product U yellow corn kernels shrink wrapped together, 2 x 300 grams for 1.00 euros, if bought individually the price is 0.69 euros a can.

Palletized in the center aisle are bags of Product U tortillas and cheese twists. This week’s offer is a lot of three 90 g bags of goat cheese and pepper twists for 1.59 euros. If bought separately–0.72 euros a bag.

Challenges

French retailers, such as Carrefour, have gained more than just market share through expansion into Europe. As they cross national borders, they are realizing more favorable pricing structures and sharper supplier pricing through buyouts of similar chains in nearby countries. They have then incorporated these advantages into their domestic pricing strategy.

Système U grows through increasing the size of existing stores, welcoming defectors from other cooperatives like Intermarché, and adding independent grocers.

In order to survive amidst the growing competition from international retailers, Système U must develop successful alliances with similar cooperatives of independent grocers within the European Union.