March 14, 2008
Grocers at Risk
David Orgel, editor-in-chief of Supermarket News, suggested in an editorial earlier this week that a number of formats that in the past have been considered comparatively minor threats to traditional grocery store operators on the food side of the business have moved well beyond the nuisance phase to become full blown pains in the _____ (our phrasing, not that of the more eloquent Mr. Orgel).
Specifically, Mr. Orgel mentioned Target and limited-assortment competitors Aldi and Save-A-Lot as rivals requiring close attention.
Target, he rightly pointed out, has made a major commitment to food in recent years with increased space devoted to grocery in the company’s mass merchandise stores while at the same time it has ramped up construction of SuperTarget units.
Target’s food push, he asserted, raises “concerns for supermarkets because, compared to Wal-Mart, Target’s customer base and merchandising approach are much closer to those of grocery stores.”
Mr. Orgel’s commentary also suggests that in retailing, as in comedy, timing is pretty close to everything. A case in point are limited assortment stores, such as Aldi which happens to be on a fairly aggressive expansion program at a time when a growing number of Americans are looking to find ways to save money.
While limited assortment stores typically cater to those on the bottom rungs of the economic ladder, current economic conditions have opened a window of opportunity for the Aldi’s and Save-A-Lot’s of the world to expand their franchise with lower-income consumers while attracting middle-income shoppers seeking refuge from the high prices that have hit mainstream grocery outlets.
Supermarkets, Mr. Orgel correctly pointed out, have been successful in remaking their images in recent years to differentiate and establish consumer-accepted niches. One of the biggest challenges, he asserted, is that “grocers could become too comfortable with the current competitive dynamics” and risk losing their gains to Target, Aldi, Save-A-Lot and the ever present Wal-Mart.
Discussion Questions: Do you see supermarkets as being more at risk to competitors such as mass merchandisers and limited assorted stores at this point in time? What competitive response does the current environment demand?
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Good supermarkets can survive everything these days except continue analysis by experts. Alas, supermarkets may appear to be dying beyond their means but they are like fertile forests that regrow new limbs as needed. While mass merchandisers and niche retailers have grown in significance good supermarkets are postponing any potential death by living, by suffering, by error, by risking, by revising, by giving, by losing, and mostly by perseverance. Risk may be prevalent, death isn’t.
The Supermarket is under siege at every turn, by every type of competitor. Anyone who knows the business knows how tiny the profit margin for groceries is. The supermarket as we knew it 20 years ago is gone. Every town used to have three or more players however, after 2 years in the business in the late 90’s, Wal-Mart superseded Kroger as the nations largest grocer–a position Kroger held for years!
Traditional grocers will need to be service stars with great and unique selection. This is being performed by a few mass grocers currently such as Publix and definitely Wegmans. I do not consider Whole Foods a traditional grocer — they are a specialty grocer.
Grocers will need to change and adapt or they will disappear from the onslaught of the competition.
There is already only one traditional store per marketplace remaining in a lot of areas. It is a most difficult time for a difficult business. I am afraid that many of the remaining traditional grocers will disappear.
What’s the definition of a supermarket today versus 20 years ago? Answer that question and then you can answer the rest. Those that will survive will be redefined and have been over the years. The offering is ever changing to the extent that it may not even be recognizable. However, regardless of the definition, some form will be around for years and years to come.
In the same way their demise was predicted for the last decades, it continues. The problem is reinvention and redefinition. Is the supermarket for which death was predicted 20 years ago dead? Likely, but many upon many are still around even under the same name. Different yes, but still a supermarket. Did you think you’d buy gas at the supermarket even 10 years ago?
I hate to quote Mark Twain on death and exaggeration; so I won’t.
Mark Hunter said it best, that supermarkets will always survive and prevail (I paraphrase). If 39 years (not as long as Gene Hoffman) in the supermarket bidness counts, please allow me to “amen” Mark’s comments by testifying that I’ve seen mother-in-law research similarly report the demise of the conventional supermarket bidness in the U.S. at least five times, with almost identically arousing journalistic questions posed. Just ask my Mother-In-Law.
Turns out the sky never fell, journalists continued to be remunerated for encouraging public discomfort with patently false intuition considered printworthy, and supermarkets survived. Again. And while I endorse Mark’s conclusion, I don’t buy the idea that supermarkets are “at the bottom of the food-chain in terms of filling basic needs.” Is this like las cucarachas still scurrying around after a nuclear holocaust? There are many lower levels of food acquisition, as bug-eating contests in TV reality-shows remind us.
However, basic is basic, and supermarkets epitomize basic. That’s because on a location-by-location basis they understand who their competitors are and usually make the appropriate marketing responses to every retailer challenge. For the journalists who still insist that this question, “Will supermarkets survive?,” is newsworthy, please also provide a semi-literate review (e.g., book report) of similar phenomena in the recent history of our industry. Be fair and balanced.
I couldn’t let this topic pass without also making an observation about comments that evaluations of the future of the conventional supermarket industry should be based on bidness “segments.” Surely the last company in the buggywhip bidness “segment” had 100% market share and grew revenues from the previous year. “Segment” doesn’t apply to this topic, as true grocers know. Competition comes from unmeasurable sources such as bodegas, handcarts, and here-today-gone-tomorrow fad stores. Home gardens, home bakeries, and local slaughtering facilities (licensed and unlicensed). Therefore, true grocery entrepreneurs specialize also in community relations, return policies, and sponsoring local dirt-track quarter-midget racing. (Those are drivable scale model racecars, not little people.)
There’s always some “threat” out there–this is really nothing new. There have been recessions, gas shortages, new niche players and threats from Club Stores and mass discounters in the past–and there will be more in the future. Grocery shopping is still convenience driven–can I get what I want, when I want it and know that the value is there for my money. Aldi is the only limited assortment format to worry about as they have been able to move out the traditional low income areas and appeal to a broader spectrum of the market. Target is Target–sterile, nothing real exciting and pricing that is just “so, so.” Everyone predicted the death of “regular” supermarkets when Wal-Mart rolled out the SuperCenters and tried to roll out the “Neighborhood Markets” and guess what–those that fill the needs of the marketplace are still around. From my perspective, this is “much ado about nothing!” I would be more concerned about the government screwing thing up and creating artificial shortages and raising prices through bad policies (i.e. ethanol).
The grocery business is a very regionalized business, so what is the case where I live may not represent the national trend.
That said, IMHO, in the Milwaukee area we have had too much migration to the higher end of the grocery business. The company that started as a “low price leader” in the area now has pricing that is generally on par with and sometimes higher than the “high end” grocery stores. This opens a huge opportunity at the lower end of the spectrum, whomever the player(s) might be.
In Southern California, the big grocery strike drove many consumers into stores like Trader Joe’s and Costco to buy groceries. Many, including my family, found groceries that were equally good, if not better, than traditional grocery stores, service that was better and better prices.
What does this mean for traditional grocers? If they are going to be competitive, they must offer a wide product selection and superior customer service.
As a result of the strike, many consumers in SoCal permanently changed their shopping habits. The current economic conditions might cause more to do the same
I think we need to separate mass merchandisers from limited assortment stores (like Aldi or Trader Joe’s). Target and Wal-Mart superstores permit a full, or very close to full shopping experience. We’ve been suggesting for a few years now that Wal-Mart supercenters are a major threat to grocers because they are a grocery store–not a Wal-Mart. Nielsen presented data at an IIR meeting showing that shoppers tended to shop for grocery or for general merchandise, but not both on the same trip. Super Targets have the same potential. As such, grocers are now facing a low-price competitor who’s limited assortment is not that limited–that’s their issue.
Warehouse and Club are targeting a small group of shoppers and are much less of a threat to traditional grocers. Trader Joe’s and Whole Foods likewise.
Yes, grocers can get niched to death, but the nature of the threats are different by type of limited assortment store.
In a soft economy the competition is not from other retailers that sell grocery items. The competition is from any place where money is spent, this includes the gas pump, utility bills, cell phone providers, doctors, and every retailer. Consumers make decision that cross all traditional norms when times get soft.
As much as it’s easy to say Target, etc, are going to nick away at a grocer’s business the same can be said of a grocery store nicking away at something as basic as a haircut. Grocery stores are still at the bottom of the food-chain in terms of filling basic needs so therefore they will come through this slow-down in good shape.
An analogy could be made about how the “Big 3” networks have lost their dominance to all the niche-ing in media. Supermarkets have gone beyond trying to be “mass media” or all things to all people (at least the survivors have) and the best ones now have more differentiation and positioning. A strong store brand program and a good understanding of its shopper base is crucial and will become increasingly important as the competitive field continues to grow and niche. But there are no magic bullets.
Niche stores with limited assortments, as well as mass merchandisers, are a threat to traditional supermarkets, at least for a certain share of the dollars spent by consumers. However, supermarkets still have many inherent advantages to offer every day consumers, including location, comprehensive fulfillment of consumer’s all-purpose needs, and in the case of the better supermarkets, superior service, familiarity, and ease of shopping.
If traditional supermarkets resist the temptation to compete on prices alone, and also avoid trying to imitate Target, Trader Joe’s, Club stores, Whole Foods, and other specialty or alternative formats, than they will continue to enjoy a loyal customer base.
What’s important is that supermarkets each create certain realistic points of differentiation in product assortment in a traditional sense. Consumers count on supermarkets not only for consistency but also for variety.
Change or die. The question is, if you are willing to change, how should you? One sure way is to look at who is doing well, and do what they are doing. Of course, that is no guarantee, because you can’t do EXACTLY what anyone else is doing, and maybe neither you nor they really understand the source of their success.
So I think I know something about this, but I don’t have the skin in the game that any supermarketer does. Offsetting that is that I have data that no supermarketer does. Hmmm! What to do?
We need to make the shift: moving from the perspective of the industrial revolution and an abundance of resources to one where resources are scarce. Innovative companies that are already adopting to this mindset are the ones that will succeed.
Absolutely, supermarkets are at risk. They are caught in the middle of an hour glass economy and their market shares are shrinking all the time. Consolidation is always and everywhere at this time. We are seeing plain vanilla grocers like Safeway, A&P, and Winn Dixie jump for joy just to get some insignificant same store sales increase. While on the other hand niche operators like Whole Foods and Wal-Mart are showing some nice increases. Not so much Wal-Mart on the percentage side but certainly in dollars and market share.
Winn Dixie and A&P have had to shutter entire divisions to stay afloat. Safeway is on the ropes in Chicago and Texas with little hope in sight. Albertsons was forced to throw in the towel as well.
Aldi, Super Target, Costco, Trader Joe’s, and Fresh Market are on the grow. Super Target which has been a read dud in grocery in the past is starting to make some big gains. When looking at same store sales in grocery operations at Super Target you can see they are gaining momentum.
If 20% (roughly) of each retailer’s consumers provide most of the revenue or profits, then there is room for differentiation in the marketplace. That requires innovative formats, offerings, and alternatives that are risky. There really is no need for more retailers using the same format.
Biggest threats to conventional supermarkets? Not Aldi or Sav-A-Lot. Not Target or Wal-Mart or Dollar General or CVS. It’s the real estate business. As supermarket leases expire, landlords look for higher-paying tenants. Traditionally, supermarket leases have the lowest rents per square foot. If you’re a landlord, wouldn’t you rent to the tenant who’s (1) willing to pay the most and (2) has the best credit rating? How many supermarkets fit that description? How many former supermarket locations are now drug stores or office supply stores? Look at the last 10 years of location growth in the drug store business. Compare it to the location growth of conventional supermarkets.
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Good supermarkets can survive everything these days except continue analysis by experts. Alas, supermarkets may appear to be dying beyond their means but they are like fertile forests that regrow new limbs as needed. While mass merchandisers and niche retailers have grown in significance good supermarkets are postponing any potential death by living, by suffering, by error, by risking, by revising, by giving, by losing, and mostly by perseverance. Risk may be prevalent, death isn’t.
The Supermarket is under siege at every turn, by every type of competitor. Anyone who knows the business knows how tiny the profit margin for groceries is. The supermarket as we knew it 20 years ago is gone. Every town used to have three or more players however, after 2 years in the business in the late 90’s, Wal-Mart superseded Kroger as the nations largest grocer–a position Kroger held for years!
Traditional grocers will need to be service stars with great and unique selection. This is being performed by a few mass grocers currently such as Publix and definitely Wegmans. I do not consider Whole Foods a traditional grocer — they are a specialty grocer.
Grocers will need to change and adapt or they will disappear from the onslaught of the competition.
There is already only one traditional store per marketplace remaining in a lot of areas. It is a most difficult time for a difficult business. I am afraid that many of the remaining traditional grocers will disappear.
What’s the definition of a supermarket today versus 20 years ago? Answer that question and then you can answer the rest. Those that will survive will be redefined and have been over the years. The offering is ever changing to the extent that it may not even be recognizable. However, regardless of the definition, some form will be around for years and years to come.
In the same way their demise was predicted for the last decades, it continues. The problem is reinvention and redefinition. Is the supermarket for which death was predicted 20 years ago dead? Likely, but many upon many are still around even under the same name. Different yes, but still a supermarket. Did you think you’d buy gas at the supermarket even 10 years ago?
I hate to quote Mark Twain on death and exaggeration; so I won’t.
Mark Hunter said it best, that supermarkets will always survive and prevail (I paraphrase). If 39 years (not as long as Gene Hoffman) in the supermarket bidness counts, please allow me to “amen” Mark’s comments by testifying that I’ve seen mother-in-law research similarly report the demise of the conventional supermarket bidness in the U.S. at least five times, with almost identically arousing journalistic questions posed. Just ask my Mother-In-Law.
Turns out the sky never fell, journalists continued to be remunerated for encouraging public discomfort with patently false intuition considered printworthy, and supermarkets survived. Again. And while I endorse Mark’s conclusion, I don’t buy the idea that supermarkets are “at the bottom of the food-chain in terms of filling basic needs.” Is this like las cucarachas still scurrying around after a nuclear holocaust? There are many lower levels of food acquisition, as bug-eating contests in TV reality-shows remind us.
However, basic is basic, and supermarkets epitomize basic. That’s because on a location-by-location basis they understand who their competitors are and usually make the appropriate marketing responses to every retailer challenge. For the journalists who still insist that this question, “Will supermarkets survive?,” is newsworthy, please also provide a semi-literate review (e.g., book report) of similar phenomena in the recent history of our industry. Be fair and balanced.
I couldn’t let this topic pass without also making an observation about comments that evaluations of the future of the conventional supermarket industry should be based on bidness “segments.” Surely the last company in the buggywhip bidness “segment” had 100% market share and grew revenues from the previous year. “Segment” doesn’t apply to this topic, as true grocers know. Competition comes from unmeasurable sources such as bodegas, handcarts, and here-today-gone-tomorrow fad stores. Home gardens, home bakeries, and local slaughtering facilities (licensed and unlicensed). Therefore, true grocery entrepreneurs specialize also in community relations, return policies, and sponsoring local dirt-track quarter-midget racing. (Those are drivable scale model racecars, not little people.)
There’s always some “threat” out there–this is really nothing new. There have been recessions, gas shortages, new niche players and threats from Club Stores and mass discounters in the past–and there will be more in the future. Grocery shopping is still convenience driven–can I get what I want, when I want it and know that the value is there for my money. Aldi is the only limited assortment format to worry about as they have been able to move out the traditional low income areas and appeal to a broader spectrum of the market. Target is Target–sterile, nothing real exciting and pricing that is just “so, so.” Everyone predicted the death of “regular” supermarkets when Wal-Mart rolled out the SuperCenters and tried to roll out the “Neighborhood Markets” and guess what–those that fill the needs of the marketplace are still around. From my perspective, this is “much ado about nothing!” I would be more concerned about the government screwing thing up and creating artificial shortages and raising prices through bad policies (i.e. ethanol).
The grocery business is a very regionalized business, so what is the case where I live may not represent the national trend.
That said, IMHO, in the Milwaukee area we have had too much migration to the higher end of the grocery business. The company that started as a “low price leader” in the area now has pricing that is generally on par with and sometimes higher than the “high end” grocery stores. This opens a huge opportunity at the lower end of the spectrum, whomever the player(s) might be.
In Southern California, the big grocery strike drove many consumers into stores like Trader Joe’s and Costco to buy groceries. Many, including my family, found groceries that were equally good, if not better, than traditional grocery stores, service that was better and better prices.
What does this mean for traditional grocers? If they are going to be competitive, they must offer a wide product selection and superior customer service.
As a result of the strike, many consumers in SoCal permanently changed their shopping habits. The current economic conditions might cause more to do the same
I think we need to separate mass merchandisers from limited assortment stores (like Aldi or Trader Joe’s). Target and Wal-Mart superstores permit a full, or very close to full shopping experience. We’ve been suggesting for a few years now that Wal-Mart supercenters are a major threat to grocers because they are a grocery store–not a Wal-Mart. Nielsen presented data at an IIR meeting showing that shoppers tended to shop for grocery or for general merchandise, but not both on the same trip. Super Targets have the same potential. As such, grocers are now facing a low-price competitor who’s limited assortment is not that limited–that’s their issue.
Warehouse and Club are targeting a small group of shoppers and are much less of a threat to traditional grocers. Trader Joe’s and Whole Foods likewise.
Yes, grocers can get niched to death, but the nature of the threats are different by type of limited assortment store.
In a soft economy the competition is not from other retailers that sell grocery items. The competition is from any place where money is spent, this includes the gas pump, utility bills, cell phone providers, doctors, and every retailer. Consumers make decision that cross all traditional norms when times get soft.
As much as it’s easy to say Target, etc, are going to nick away at a grocer’s business the same can be said of a grocery store nicking away at something as basic as a haircut. Grocery stores are still at the bottom of the food-chain in terms of filling basic needs so therefore they will come through this slow-down in good shape.
An analogy could be made about how the “Big 3” networks have lost their dominance to all the niche-ing in media. Supermarkets have gone beyond trying to be “mass media” or all things to all people (at least the survivors have) and the best ones now have more differentiation and positioning. A strong store brand program and a good understanding of its shopper base is crucial and will become increasingly important as the competitive field continues to grow and niche. But there are no magic bullets.
Niche stores with limited assortments, as well as mass merchandisers, are a threat to traditional supermarkets, at least for a certain share of the dollars spent by consumers. However, supermarkets still have many inherent advantages to offer every day consumers, including location, comprehensive fulfillment of consumer’s all-purpose needs, and in the case of the better supermarkets, superior service, familiarity, and ease of shopping.
If traditional supermarkets resist the temptation to compete on prices alone, and also avoid trying to imitate Target, Trader Joe’s, Club stores, Whole Foods, and other specialty or alternative formats, than they will continue to enjoy a loyal customer base.
What’s important is that supermarkets each create certain realistic points of differentiation in product assortment in a traditional sense. Consumers count on supermarkets not only for consistency but also for variety.
Change or die. The question is, if you are willing to change, how should you? One sure way is to look at who is doing well, and do what they are doing. Of course, that is no guarantee, because you can’t do EXACTLY what anyone else is doing, and maybe neither you nor they really understand the source of their success.
So I think I know something about this, but I don’t have the skin in the game that any supermarketer does. Offsetting that is that I have data that no supermarketer does. Hmmm! What to do?
We need to make the shift: moving from the perspective of the industrial revolution and an abundance of resources to one where resources are scarce. Innovative companies that are already adopting to this mindset are the ones that will succeed.
Absolutely, supermarkets are at risk. They are caught in the middle of an hour glass economy and their market shares are shrinking all the time. Consolidation is always and everywhere at this time. We are seeing plain vanilla grocers like Safeway, A&P, and Winn Dixie jump for joy just to get some insignificant same store sales increase. While on the other hand niche operators like Whole Foods and Wal-Mart are showing some nice increases. Not so much Wal-Mart on the percentage side but certainly in dollars and market share.
Winn Dixie and A&P have had to shutter entire divisions to stay afloat. Safeway is on the ropes in Chicago and Texas with little hope in sight. Albertsons was forced to throw in the towel as well.
Aldi, Super Target, Costco, Trader Joe’s, and Fresh Market are on the grow. Super Target which has been a read dud in grocery in the past is starting to make some big gains. When looking at same store sales in grocery operations at Super Target you can see they are gaining momentum.
If 20% (roughly) of each retailer’s consumers provide most of the revenue or profits, then there is room for differentiation in the marketplace. That requires innovative formats, offerings, and alternatives that are risky. There really is no need for more retailers using the same format.
Biggest threats to conventional supermarkets? Not Aldi or Sav-A-Lot. Not Target or Wal-Mart or Dollar General or CVS. It’s the real estate business. As supermarket leases expire, landlords look for higher-paying tenants. Traditionally, supermarket leases have the lowest rents per square foot. If you’re a landlord, wouldn’t you rent to the tenant who’s (1) willing to pay the most and (2) has the best credit rating? How many supermarkets fit that description? How many former supermarket locations are now drug stores or office supply stores? Look at the last 10 years of location growth in the drug store business. Compare it to the location growth of conventional supermarkets.