The retail world will change more in the next twenty years than in all of the history of modern day retailing. This is driven by the seismic shift in consumers’ shopping habits: they’re filling smaller baskets during each trip to the store; different categories drive consumers to different types of stores; and the ability to shop online for groceries is more prevalent than ever before, with the advent of services like Amazon Fresh and retailers boosting their digital fulfillment efforts.
On the retail front, channels are converging. What was once your traditional drug store may now be viewed as a convenience destination. Up against the likes of Blue Apron and Amazon’s filing for a meal kit patent, traditional supermarkets are crafting their own ways to compete in the meal kit game. Big box mass merchandisers are now competing with discount and dollar stores.
As the U.S. grocery industry continues to navigate the complexities of emerging channels like discount grocery retailers, it’s worth noting how these dynamics played out in Europe and assess if their success across the pond is a precursor to what we might see stateside. Across the pond, nearly three-fourths of market share was consolidated into the region’s top four retailers. And what’s more, over the last eight years, the top four’s share eroded from 73% to 67%, while the newer discount retailers that encroached on the market nearly doubled their share.
However, the European market where the likes of Aldi and Lidl dominated and reigned success is a very different world than the U.S., which is facing a different set of challenges.
Discount grocery retailers are typically smaller format than traditional supermarkets, though their U.S. counterparts are twice the size of their European stores which estimate 10,000 square feet. Still smaller than traditional stores, that means a limited assortment of products on the shelves. Despite this limited shelf space, discount grocery retail stores are growing. Between 2011 and 2016, store counts increased 17.6% across the U.S. Though not apples to apples, the growth of discount retailers in Europe could serve as a precursor to what we might see in the U.S. in the near future. Some may be wondering whether this channel could potentially rise to capture a significant percentage of the U.S. grocery marketplace, putting pressure on other retail channels on how to compete.
The growing presence of discount grocery retailers is sure to create (or add onto) the domino effect that is causing traditional grocery retailers to rethink their growth strategies to remain relevant. As the industry continues to navigate these effects, there are five key questions that retailers should be asking themselves today to prepare for tomorrow:
Retail Channel Dynamics: Where Are Consumers Shopping?
Gone are the days when consumers shopped for all of their groceries at their neighborhood supermarket. Today’s on-the-go consumer can now pick up deli prepared meals at the drugstore or purchase all natural beverages and snacks at convenience stores, something that was once limited to niche natural specialty stores.
According to Nielsen Homescan panel data, grocery shopping trips grew the most at discount grocery retailers (2.9%) compared to other brick and mortar channels in the last year. However, basket sizes at discounters slightly declined 0.3%.
This decline in spend per trip could be the result of many factors, one of which is consumers’ on-the-go lifestyles and the growth of sprawling urban areas where households may not have as much physical space to store packaged items. Retailers must focus on what drives consumption—including product variety, package sizes and store formats—in order to remain competitive.
Pricing Pressures: Combating Price with Value-Adds
Downward pricing pressures are lowering the growth ceilings for all retailers, driven in part by the looming threat of discount grocery and online retailers. That being said, value is about more than just the lowest price. According to a Nielsen 2016 retail growth strategies study, consumers rate high-quality produce (57%), convenient location (56%) and product availability (54%) as more influential in store-selection decisions than the lowest price.
Consumers are looking for good deals regardless of their economic circumstances. And indeed, for many consumers, deal seeking is the thrill of the chase. Sixty-eight percent of Americans say they enjoy taking the time to find bargains, and discount grocery retailers have hit the nail on the head to provide the bargains they are seeking at price points that meet their wallets.
Investing in Store Brands: Private Label Driving Highest Growth in Discount
For many retailers, but particularly deep discount retailers, store brands (or private label) play a strategic role for winning over shoppers from other channels. Compared to other major retail channels, discount grocery retailers have more than twice the share of store brand dollars (51%), compared to only 15% store-brand dollar share in mass merchandise and 20% in supercenters. read more
Chris Morley, CONTRIBUTOR
IImagine going to the grocery store for dinner, not to pick up a rotisserie chicken to take home, but to actually eat at the store. As online grocery shopping grows, many supermarkets are adding sit-down restaurants in a move to attract more millennials. And it seems to be working.
This valued event brings together the leaders of Georgia’s retail industries along with Georgia legislators to discuss the future of retail as well as laying the foundation for GRA’s legislative and membership priorities for 2018.
Kyle Riggs, who manages Market Grille, the restaurant at a Hy-Vee grocery store in Columbia, Mo., says most people don't expect to find this level of food service next to the produce aisle.
"And then when they walk in here, they're just amazed at the full wine wall with the ladder that slides," he says. "We have 20 beers on tap and a lot of high-end alcohol, whiskeys and things like that, and great food."
The ingredients come from the store. They are cooked in the store's kitchen and served here. Riggs says football games can pack the 148-seat restaurant with college students and young professionals.
Indeed, Rob Hunt, 30, and Aaron Hadlow, 28, have been stopping by all summer for happy hour after work. Hunt says the variety of food, the local, craft beer on tap and ultimately the price are a big draw.
"You can't get $2 pints of beer anywhere else and that's honestly the biggest thing," he says. "We tried a couple of other places this summer and they were fun, but it's just cheaper over here."
Across the country, supermarkets like Whole Foods have been offering sit-down dining and drink deals for years. The trend of adding full restaurants, sometimes called "groceraunts," falls in line with the uptick in prepared store meals, which has grown 30 percent since 2008 and driven $10 billion in sales last year, according to the NPD group.
Hy-Vee, which was one of the early adopters of the groceraunt model, has added 115 Market Grilles to date.
While grocery stores had been losing customers in recent years to smaller markets and online food shopping, groceraunts have helped bring back foot traffic to the old-school grocers.
"It's really made a big difference for us in the evening," says Jeremy Gosch, executive vice president strategy and chief merchandising officer, at Hy-Vee, Inc. "That's where most traditional grocery store food service had oppurtunity."
Gosch says creating an in-house restaurant, different ambiance and different lighting were important to draw in diners. "I think we're capturing business that we didn't have before in our food service department," he says.
While people are looking for more options in prepared foods, the traditional center of the store, with cans of beans and boxes of cereal, has had to make room. That means space on the shelf is becoming more competitive.
"As ... we continue to roll out into existing stores some food service updates and expansion, especially on meals to go for consumption at home, I think you'll see a little bit of that compression," Gosch says. That could mean a future with only one size and brand of canned tomatoes on the shelf.
A large part of this shift is thanks to millennials, like Hunt and Hadlow, who are more likely to dine out than older generations. More than half of millennials surveyed by financial services firm Morgan Stanley said they had eaten out in the past week, compared to 43 percent of previous generations.
Today, groceraunts are featuring seasonal menus and hiring graduates of the Culinary Institute of America as chefs. Food industry analyst Phil Lempert says this appeals to millennials, too.
"What these groceraunts can do is give them a convenient location where they can meet their friends, where they can have great food, and have it at a great value," he says. "That becomes a terrific formula to attract this generation."
Millennials are also turning away from slumping restaurant chains, like Chili's or Applebee's, which plans to close up to 60 locations this year.
That's forcing some restaurant chains to look toward grocery stores as potential partners. Think of Starbucks and Caribou coffee kiosks in grocery stores, except in this case, Wolfgang Puck wants his cafe to become the in-house restaurant, says Lempert.
"Now these restaurateurs want their space in the supermarket as well, because they know that it's more convenient for people, it's more of a one-stop-shop, and it's hurting their traditional restaurants," he says.
The next step for grocery stores may be to add home meal-delivery options, Lempert says, as digital orders ramp up with tech-savvy, young adults. Market analysts are looking at the Amazon-Whole Foods merger and expect both more restaurants to be added to grocery stores, and more people to order their groceries and dinner together online.
"This is a trend that's going to continue to grow," Lemeprt says. "Grocers are putting more money and more effort in this. They see it as their culinary mark, if you would, on society. So this is here to stay."
Southeast snow, nationwide cold front could be a welcome blast
This post is part of the 10 Items or Less blog.
As the first week of the new year brought more lousy news for grocery – weakening demand sinking sales in December, and pessimistic forecasts for some of the industry’s biggest stocks – it likely comes as a relief to grocery retailers that a temporary solution was literally falling from the sky by week’s end.
And while the forecast snowstorm in the Southeast U.S. was sparking what looked to be enormous spikes in grocery store traffic for the obligatory bread-and-milk runs, things were actually improving all over as a nationwide cold front is motivating shoppers to seek “need-based” items in an otherwise quiet period for shopping, said Evan Gold, EVP of global service for Planalytics, the Berwyn, Pa.-based firm that forecasts demand based on weather.
“I think this is overall good news for grocery as the entire U.S. is facing below-normal temperatures this week,” Gold said Friday morning. “We’re in a post-holiday, post-gift-giving period where people are spending only on what they need. When the weather is like this, we see needs for items like hot drinks, rock salt, wiper blades and snow shovels go up.”
An Instagram photo of a busy pre-storm Kroger store in Atlanta.
Like the haircut, the snow shovel tends to be one of those purchases that can stand up to the threat of online retail. “People just don’t buy them until they absolutely need them and by then is often too late to order it online,” Gold noted. “It’s an item people wind up going to the store for.”
Gold said the grocery rush ahead of a storm tends to redistribute the pattern of traffic more than bring new customers to a store, so the opportunity for retailers in that space — in addition to managing labor and supply chains — is to grow the categories that accompany the weather.
This week, for example, Planalytics is forecasting ice melt sales up 63% vs. the same period last year; snow shovels will spike by 39%; and firelogs and hot chocolate will each see a 4% increase, nationwide. Retailers in Charlotte, N.C., can expect ice melt sales to jump by 200%. Atlanta grocery stores should see hot chocolate up by 17% this week, Gold added.
But even places like New York, where we awoke Friday to see an inch of snow had fallen overnight, should get a boost, he said. “A dusting is good because it’s not enough to keep you inside, but still enough to spark some demand.”
Attention Kmart shoppers
It’s hard to believe today, but there was a time when there was some debate about whether Wal-Mart or Kmart would win the supercenter war.
Kmart’s latest round of store closings include three casualties in its so-called “K-fresh” store test group: Roseville, Mich., Chillicoth, Ohio, and Uniontown, Pa. All of those stores were one-time Super Kmarts with full-blown grocery stores inside that were downsized in recent years to a smattering of fresh and staple items in a manner not unlike Target’s “p-fresh” stores. Liquidation sales begin Saturday. read more
For Immediate Release: March 30, 2016
Monthly distribution dates for Supplemental Nutrition Assistance Program increase from 15 to 28 days starting April 1; FRF’s success in supporting this legislation will lead to expanded food selection for consumers, and better inventory control for retailers
TALLAHASSEE, FL – The Florida Retail Federation (FRF), the state’s premier trade association representing retailers for over 75 years, and its Florida Grocers Association (FGA) division, remind retailers and SNAP recipients that the monthly distribution dates for the program increase from 15 days to 28 days effective April 1. FRF & FGA were very involved in pushing for this legislation, which took place during the 2015 Legislative Session but takes effect this year, and will significantly benefit both customers and retailers by allowing for better selection, inventory control and customer service. SNAP is the Supplemental Nutrition Assistance Program with 3.6 million Florida recipients representing close to $5.5 billion in economic impact to the state’s economy.
“This extension of SNAP benefits means recipients will have more access to healthy food and fewer of those important items out of stock by allowing retailers to better spread out their inventory over the 28 days, as opposed to the previous rush that would occur when the schedule was just 15 days,” said FRF President/CEO Randy Miller. “We want to thank Speaker Pro Tempore Matt Hudson for his hard work in recognizing the negative impact this issue had on both consumers and business owners by creating this important legislation and making a positive impact on our communities. We also want to recognize the Department of Children and Families for the seamless implementation of these distribution dates throughout the state.”
Enhanced SNAP distribution increases the number of days SNAP benefits are distributed throughout the state from the current 15 days to 28 days, effective April 1. This will lead to:
FRF looks forward to the positive impact this legislation will have on residents and business owners going forward.
ABOUT THE FLORIDA RETAIL FEDERATION
The Florida Retail Federation is the statewide trade association representing retailers -- the businesses that sell directly to consumers. Florida retailers provide one out of every five jobs in the state, pay more than $49 billion in wages annually, and collect and remit more than $20 billion in sales taxes for Florida’s government each year. For more information, visit the FRF website, and follow FRF on Facebook and Twitter.
For Immediate Release: March 22, 2016
Florida Retail Federation’s Josie Legido Correa to take reigns as Executive Director, and serve as lead advocate for the needs of Florida’s $45 billion grocery industry
TALLAHASSEE, FL – The Florida Grocers Association (FGA), a division of the Florida Retail Federation (FRF) and the state’s lead advocate for its $45 billion grocery industry, announced that Josie Legido Correa will take over as Executive Director, replacing longtime grocery veteran Tom Jackson who will remain as a consultant to FRF. Correa’s official date leading the organization is effective March 21.
“Josie has extensive experience meeting the diverse needs of FRF’s members and serving as a successful advocate for Florida’s retailers, including grocers, and announcing her as new Executive Director is a natural fit,” said FRF President/CEO Randy Miller. “I want to thank Tom Jackson for his incredible leadership and dedication to launching FGA last year and positioning it as the premier organization and voice for the Sunshine State’s grocery industry. I look forward to Josie expanding on the foundation that Tom has built and ensuring FGA becomes the powerful and impactful voice the industry needs.”
Josie has served as FRF’s South Florida Regional Director since 2013, and has significantly grown the organization’s membership in that area by showcasing the benefits of FRF membership, hosting networking and educational events and working with local and state officials on behalf of FRF members regarding issues impacting their business. In preparation for her new role as FGA Executive Director, Correa has been working with local and statewide grocers under the guidance of Jackson, who spent 35 years leading a state’s grocery industry, to better understand their needs and those issues important to them.
“This is a great opportunity to grow an organization which serves such an important and diverse sector of Florida’s economy, and I am thankful for the opportunity,” said Correa. “Tom’s insight has been invaluable to me and he has left FGA in an incredible position for me to take to the next level. I’m excited about what the future holds for Florida’s grocers and I look forward to advocating for them at the local, state and national level.”
Florida has not had a statewide grocers association for 20 years. FGA was launched last year to provide a voice and identity to the state’s $45 billion grocery industry. Correa will look to continue expanding FGA’s membership while also serving the needs of the more than 2,300 grocery stores and their industry partners statewide.
For more information about the Florida Grocers Association, please visit flgrocers.org.
ABOUT THE FLORIDA RETAIL FEDERATION
Founded in 1937, the Florida Retail Federation is the statewide trade association representing retailers -- the businesses that sell directly to consumers. Florida retailers provide three out of every four jobs in the state, pay more than $49 billion in wages annually, and collect and remit more than $20 billion in sales taxes for Florida’s government each year. In fact, more than three out of four of Florida’s budget dollars come from retail-related activity. For more information, visit the FRF website, and follow FRF on Facebook and Twitter.