Grocery landscape ever-shifting
Tick off the names of supermarkets serving the Capital Region and you soon run out of fingers.
Price Chopper, Hannaford, ShopRite, Trader Joe’s, Fresh Market, Healthy Living Market and soon Whole Foods. Also Aldi, Ideal Food Basket, Save-A-Lot, Price Rite, and Walmart’s Neighborhood Market. No wonder industry observer Jim Hertel says of the U.S., “We’ve just got too darn many supermarkets.”
Hertel, managing partner of the retail consulting firm Willard Bishop, offered an outlook last month on grocery retailing as part of a webinar sponsored by BMO Financial Group.
One slide he presented was telling: A red line showing a more or less constant number of U.S. supermarkets over the past 25 years (varying between 27,000 and 29,000), juxtaposed against a blue line showing a steep drop in traditional grocers’ share of the food market — from 90 percent in 1988 to 50 percent in 2006 and to just under that today.
Where did the sales go? To “alternative” channels: mass merchants, drugstores, club stores, dollar stores, convenience stores and limited-assortment outlets. Another of Hertel’s slides showed arched bands of share from these retailers piled atop relatively flat traditional supermarket sales to create the $1 trillion U.S. grocery business.
The interlopers really can’t be called “alternative” anymore, Hertel said, “because, quite frankly, they’ve taken the lion’s share of the food business.”
Indeed, a look at the annual reports of discount retailers Family Dollar and Dollar General shows how consumables — a category that includes food along with paper products and health/beauty aids — now represent a greater proportion of sales. At Family Dollar, consumables accounted for 72 percent of sales in fiscal 2013, versus 66 percent in fiscal 2011. Dollar General showed a similar uptick.
Both chains are adding frozen, refrigerated and packaged foods to increase foot traffic.
Hertel noted that changes in consumer behavior, linked to a generational shift, have aided the interlopers. While baby boomers gravitate to traditional supermarkets, their children — the Millennials now entering adulthood — are more “convenience-driven” and “variety-seeking.” They find fresh, natural/organic and specialty food retailers especially appealing.
Hertel also pointed to economic forces at play: Food retailers serving top-earning households — stores that “delight upscale, educated consumers” — have been doing well, as have “value formats,” such as Aldi, that target lower-income shoppers.
But “stuck in the middle,” he said, are traditional supermarkets, whose typical customers have lost ground on earnings over the past couple of decades. And that middle is “unsustainable,” according to Hertel, who predicted ongoing sector consolidation.
All is not bleak, though. In-store prepared foods have shown growth, and the “fresh” part of the supermarket — produce and meat — can be a “differentiator,” Hertel said. He also foresees “lots of experimentation” by grocers, in formats, services, delivery options and marketing.
His message to supermarkets: “ ‘Executing last year’s plan better’ is just not going to be the answer.”
Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at email@example.com.