Retail Rap: The Grocery Evolution
There has been a lot of discussion in the last several years about the strength of the grocery sector. I think it’s clear that a big reason behind that success has been the evolution of different formats and the explosive growth of a new generation of grocery concepts that represent a significant departure from the traditional grocery model.
I’ve been thinking quite a bit about this lately — specifically about what it is that has worked for new grocery brands, and how grocery industry changes are affecting the traditional grocery chains: those traditional chains have typically maintained the highest market share in the business. These are the large store formats that offer strong mix of perishable items from meats, bakery and produce to non-perishable items such as canned foods, paper towels and frozen products: brands like Kroger, Weis Markets and Giant Food.
Remember, as recently as the 1980s, traditional grocery stores were all there really was in the grocery space. In the 1990s and 2000s, Walmart, Target, and even Kmart burst onto the scene, with new discount grocery options. While there are no more Super Ks, Target has a mix of stores that offer a full grocery selection, and Walmart is even more heavily invested: of the 4,177 Walmart locations today, 3,275 of those are Walmart Supercenters.
In the last decade or so we have seen the latest grocery concept added into the mix: the proliferation of specialty food stores and higher end market-style options. Some of those concepts established their own brands like Whole Foods, Trader Joe’s and The Fresh Market, but others are more farmer’s market oriented like Sprouts and Fresh Thyme.
That historical backdrop is all well and good, however, the big question is what does this mean for the grocery sector today — and what does it mean for the grocery sector tomorrow.
Frankly, these changes have resulted in a very fragmented industry today. And that’s not necessarily a bad thing. In fact, in many ways I think it’s clearly quite a good thing. It is, however, very different than what the industry looked like 30 years ago. As a result of this fragmentation and diversity, the customer picks and chooses much more so than at any time in recent history. Today, fewer shoppers go to just one store to satisfy all their grocery needs. It’s not uncommon for today’s grocery shopper to go to two stores, three stores or more each week. They may go to Walmart, Target or Costco for price and quantity, to a store like Trader Joes for a specific selection of products, and to a Whole Foods or The Fresh Market type of grocery for high-end perishable products or prepared foods. Sprouts or Fresh Thyme are increasingly popular destinations for fruits and vegetables as well as vitamins and supplements.
Consequently, there is an erosion of brand loyalty in the supermarket business. Consumers shopping different stores for different reasons and spreading their food dollars around at many different stores makes advertising tougher, and chains have a much harder time getting a handle on their customers’ preferences and priorities.
In terms of how these changes have affected location strategy, it’s actually quite interesting. We are now starting to see what may seem like some surprising co-tenancy choices, such as Whole Foods and Trader Joe’s co-tenanting the same center. In my experience, these two brands do very well together. They have come to understand that their customers do a lot of cross shopping, and it makes sense to keep the stores together instead of losing traffic to another space across the street. Grocery diversification has also contributed to more variation in store sizes, both on the smaller end of the scale with brands like The Fresh Market, Whole Foods and Trader Joes, and with the bigger mega-stores like the Costcos and Walmarts of the world.
The biggest impact of these new grocery categories, however, has been to erode the market share of the traditional grocers. In this brave new grocery world, the traditional concepts are struggling to differentiate themselves or provide a compelling value proposition. They don’t have the lowest prices, or the largest variety, or the high-end luxury or specialty items. It’s a challenging situation for them. One possible solution is to find a sweet spot with a hybrid concept — such as the model so successfully deployed by Wegman’s. The Rochester, New York-based grocery chain currently has 85 stores across the Mid-Atlantic and New England. Wegman’s is a store that really transcends categories: it is a traditional grocer with elements of the innovative features that have made other concepts successful, especially with regard to prepared foods. Kroger is trying to roll out a Wegman’s type of store with its Kroger Marketplace, but it remains to be seen how successful that concept will be.
Looking ahead to what’s next in the grocery world, I think it makes sense to keep an eye on that ever-present brick-and-mortar retail challenger: the internet. The internet is now responsible for 1% of all food store sales, but some estimates have that number expected to increase to as high as 7% within the next decade. That figure seems very high to me — as the nature of the business will likely always make food shopping a literally hands-on experience for most shoppers — but it’s definitely something to watch going forward. It certainly wouldn’t be the first time that online influence has surprised retail analysts.
That’s my grocery list — but what about your grocery shopping habits? I’d love to hear about how they have changed (or not changed) over the years. Are you still going to one store for all your food shopping needs, or are you taking advantage of the grocery sector’s new diversity by branching out and changing your shopping patterns?
I’ve been thinking quite a bit about this lately — specifically about what it is that has worked for new grocery brands, and how grocery industry changes are affecting the traditional grocery chains: those traditional chains have typically maintained the highest market share in the business. These are the large store formats that offer strong mix of perishable items from meats, bakery and produce to non-perishable items such as canned foods, paper towels and frozen products: brands like Kroger, Weis Markets and Giant Food.
Remember, as recently as the 1980s, traditional grocery stores were all there really was in the grocery space. In the 1990s and 2000s, Walmart, Target, and even Kmart burst onto the scene, with new discount grocery options. While there are no more Super Ks, Target has a mix of stores that offer a full grocery selection, and Walmart is even more heavily invested: of the 4,177 Walmart locations today, 3,275 of those are Walmart Supercenters.
In the last decade or so we have seen the latest grocery concept added into the mix: the proliferation of specialty food stores and higher end market-style options. Some of those concepts established their own brands like Whole Foods, Trader Joe’s and The Fresh Market, but others are more farmer’s market oriented like Sprouts and Fresh Thyme.
That historical backdrop is all well and good, however, the big question is what does this mean for the grocery sector today — and what does it mean for the grocery sector tomorrow.
Frankly, these changes have resulted in a very fragmented industry today. And that’s not necessarily a bad thing. In fact, in many ways I think it’s clearly quite a good thing. It is, however, very different than what the industry looked like 30 years ago. As a result of this fragmentation and diversity, the customer picks and chooses much more so than at any time in recent history. Today, fewer shoppers go to just one store to satisfy all their grocery needs. It’s not uncommon for today’s grocery shopper to go to two stores, three stores or more each week. They may go to Walmart, Target or Costco for price and quantity, to a store like Trader Joes for a specific selection of products, and to a Whole Foods or The Fresh Market type of grocery for high-end perishable products or prepared foods. Sprouts or Fresh Thyme are increasingly popular destinations for fruits and vegetables as well as vitamins and supplements.
Consequently, there is an erosion of brand loyalty in the supermarket business. Consumers shopping different stores for different reasons and spreading their food dollars around at many different stores makes advertising tougher, and chains have a much harder time getting a handle on their customers’ preferences and priorities.
In terms of how these changes have affected location strategy, it’s actually quite interesting. We are now starting to see what may seem like some surprising co-tenancy choices, such as Whole Foods and Trader Joe’s co-tenanting the same center. In my experience, these two brands do very well together. They have come to understand that their customers do a lot of cross shopping, and it makes sense to keep the stores together instead of losing traffic to another space across the street. Grocery diversification has also contributed to more variation in store sizes, both on the smaller end of the scale with brands like The Fresh Market, Whole Foods and Trader Joes, and with the bigger mega-stores like the Costcos and Walmarts of the world.
The biggest impact of these new grocery categories, however, has been to erode the market share of the traditional grocers. In this brave new grocery world, the traditional concepts are struggling to differentiate themselves or provide a compelling value proposition. They don’t have the lowest prices, or the largest variety, or the high-end luxury or specialty items. It’s a challenging situation for them. One possible solution is to find a sweet spot with a hybrid concept — such as the model so successfully deployed by Wegman’s. The Rochester, New York-based grocery chain currently has 85 stores across the Mid-Atlantic and New England. Wegman’s is a store that really transcends categories: it is a traditional grocer with elements of the innovative features that have made other concepts successful, especially with regard to prepared foods. Kroger is trying to roll out a Wegman’s type of store with its Kroger Marketplace, but it remains to be seen how successful that concept will be.
Looking ahead to what’s next in the grocery world, I think it makes sense to keep an eye on that ever-present brick-and-mortar retail challenger: the internet. The internet is now responsible for 1% of all food store sales, but some estimates have that number expected to increase to as high as 7% within the next decade. That figure seems very high to me — as the nature of the business will likely always make food shopping a literally hands-on experience for most shoppers — but it’s definitely something to watch going forward. It certainly wouldn’t be the first time that online influence has surprised retail analysts.
That’s my grocery list — but what about your grocery shopping habits? I’d love to hear about how they have changed (or not changed) over the years. Are you still going to one store for all your food shopping needs, or are you taking advantage of the grocery sector’s new diversity by branching out and changing your shopping patterns?
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