Hard times for Whole Foods: 'People say it's for pretentious people. I can see why'

The upscale grocery chain is valued at almost $12bn, but six straight quarters of declining sales have led to speculation of a takeover bid. What went wrong?

 

 

Whole Foods’ share price has dropped by almost half since October 2013. Investors are petitioning the company to move faster with reforms. Photograph: Bloomberg via Getty Images

Saturday 29 April 2017 07.00 EDTLast modified on Saturday 29 April 2017 11.02 EDT

Lunchtime customers at Whole Foods in Manhattan’s Union Square had little trouble expressing the shortcomings that have led the once high-flying, organic-focused retailer to become linked with a takeover.

“I love the sushi, but I wouldn’t shop here except maybe for a special ingredient,” said Argentinian software designer Benjamin Vinas. “People say Whole Foods is for pretentious people, and I can see why. It’s too expensive. I don’t have the budget.”

Vinas was not the only customer to express a similar point of view. Others said that for their groceries they went several blocks north and west to lower-cost rival Trader Joe’s, where products may not be so exquisitely selected but are, in general, more uniformly discounted.

Maria Johnson, a postgraduate student, said Whole Foods’ pricing, with some items marked competitively and other expensive, was inconvenient.

“I only buy body lotion and lunch here. And maybe spices,” Johnson said. “There are so many different price points you feel like you are missing out on the more fun, expensive things – and when you are shopping for the cheaper, more affordable things, you’re reminded of the things you can’t afford.”

But the views of Manhattan’s grocery shoppers point to only part of the problem for Whole Foods, sometimes called Whole Paycheck, which has been facing a backlash from consumers.

Founded in Austin, Texas, in 1980, Whole Foods Market, to give it its official name, has about 462 locations and a market value of almost $12bn. The chain helped make health food and organic food mainstream, and in its boom years shook up the food retail industry. Whole Foods had grand plans for a UK expansion too, opening its first outpost in Kensington in 2004 with plans for 40 more. But Whole Foods has stalled: like much of the retail sector, it faces economic headwinds including razor-thin margins, competition from other retailers offering organic food, and increasingly price-conscious consumers.

In February, the company announced it would close nine stores: in Chicago, New Mexico, Utah, Arizona, and Georgia, and two each in Colorado and California. The closures, which followed six straight quarters of sales declines, represented the first downsizing since 2008. Founder and chief executive John Mackey explained that the business had changed because “the more conventional, mainstream supermarkets have upped their game. The world is very different today than it was five years ago.”

One rival chain, Sprouts Farmers Market, was found to be on average 19% cheaper than Whole Foods. Other rivals, including Kroger, picked up Whole Foods customers. Last month, Barclays advised that Whole Foods had experienced a “staggering” decline in foot traffic that it estimated at 3%, or roughly 14 million customers.

Whole Foods has long been the butt of jokes for its prices – although it disputes it is more expensive than it rivals – and its bougie products. Comedian John Oliver is particularly fond of its asparagus water.

The difficult transition from expensive behemoth to a more nimble grocery store is reflected in its share price, which has dropped by almost half since October 2013. Investors are increasingly petitioning the company to move faster with reforms.

An acquisition would underscore the consolidation of the US food retail industry as the sector prepares to compete against online retailers including Amazon, stores like Walmart and discount chains such as Aldi.

Earlier this week, the Financial Times reported that Cerberus Capital Management, the New York private equity firm that owns Albertsons and Safeway, had initiated talks with bankers about making a bid.

Other potential suitors include Jana Partners, an activist investor group that has amassed a 9% stake. In a regulatory filing, Jana said it wanted Whole Foods to “improve its technology and operations to better compete with larger rivals, shake up its board, and explore how much potential bidders might be willing to pay”.

Jana has proposed nominees to the Whole Foods board, including Glenn Murphy, a former Gap chief executive, and former New York Times food journalist Mark Bittman, who has argued that the chain needs simplifying.

Jana is run by 58-year-old yoga and health food devotee Barry Rosenstein. He has said he wants Whole Foods to learn from national chains while staying true to its mission.

Whole Foods’ own efforts at reform include the expansion of 365 smaller stores offering lower-priced products. The stores will stock about 7,000 items, far fewer than the 35,000 to 52,000 at a typical Whole Foods location.

Outside Trader Joe’s, Brooklyn homemaker Eva Lev said she rarely visits Whole Foods nowadays. “It’s like that Jim Gaffigan joke – Whole Foods on Sunday is just a refugee camp for people with too much money.” Lev added she prefers Trader Joe’s “because it seems like an everyman’s place, and you can still get organic”.

See How A Family Farmer And New Holland Use Smart Tech To Make Better Farms 

Jennifer Kite-Powell , 

Image courtesy Emily Buck

Emily Buck, Ph.D., who farms nearly 1,000 acres of corn and soybeans and raises Southdown sheep at her farm near Columbus, Ohio. Buck is one of USFRA’s Faces of Farming & Ranching.

The focus on sustainability in farming and food production is critical now and for future generations. According to a report in 2016 by the World Bank, 800 million people go to bed hungry each night which creates a growing need for a sustainable food system for global food provisions. Technology - sensors, drones, robotics and artificial intelligence (AI) - are playing an increasingly pivotal role in new agriculture.

Take family farmer, Emily Buck who's been using smart farming practices to sustain the water, land and air, while growing and growing soybeans, corn and wheat and raising Southdown sheep on her 1,000 acre farm in Ohio. Buck's farm uses a number of smart tech tools, everything from GPS technology to grid and monitor their lots, aerial applications and planting to field monitoring via drones and mobile apps for information on seeds and crop growth.

Because of the farm's proximity to Lake Erie and the Mississippi River watersheds that surround her fields, Buck set aside 38 acres of wetlands as part of the Conservation Reserve Program (CRP) which is a land conservation program focused on improving water quality and soil erosion prevention. Buck's CRP land fosters a healthy wildlife and natural pollinators habitat and acts as a refuge for river overflow. In 2009, Buck's farm became a national model for sustainability and was awarded a National Conservation Award by the American Soybean Association. In 2013, Buck was awarded the Excellence in Agriculture Award by the Ohio Farm Bureau.

 

But sustainability doesn't happen over night and technology plays a big role. Buck says her farm uses GPS technology on every tractor which monitors the precise use of water and other elements down to each acre.

"Most farmers look at two to three acres when they use fertilizers and pesticides," said Buck.  " We use grid soil sampling down to the acre in an effort to only use what we have to where we have to on our fields."

 

Buck's farm grows cover crops and GMO corn and soybeans, while using no-till practices to cultivate healthy soil. In their soil protection practices, Buck has used aerial applications of pesticides and aerial planting of cover crops.

"It is important to us that we cross the fields with our equipment as little as we can to avoid soil compaction," said Buck. " We have a drone that we use over the field to monitor crops over the summer. We try and dabble in apps too, we even use a seed app.

But on the other side of a family farmer like Buck, is the legacy agriculture company, New Holland. The company has been making agriculture machinery since 1895.

Today the company also has a software component and is working with DroneDeploy to create the new data offering called PLM Drone Data Management. The offering is designed to help farmers collect real-time aerial data mapping of their crops and fields. The aerial imagery helps expose opportunity in fields such as identification of heavy compaction areas, mitigation of crop health issues and improvement of yields.

Image courtesy of CNH Industrial America LLC

Drone technology powered by New Holland's drone data system.

Drones in particular have the potential to spray crops more efficiently or bolster pollination.Drones can fly at different heights for improved accuracy in crop spraying which means better application of fertilizers. According to the Federal Aviation (FAA) Department, there's been an uptake of drone registation, 100,000 in the past three months and in the past 15 months, around 770,000 drone owners have registered to fly with the FAA.

 

Maps from these drones show a variety of crop and soil situations and can detect health plant problems, compile automated plant count reports of entire fields, annotated crop health maps which help farmers with insurance requests and recoup crop losses and natural disaster assessment and clean up.

“New Holland has always been driven to provide its customers with the tools they need to be successful. The addition of drones is an integral part of our Precision Land Management solution, and now, with our PLM Drone Data offering, customers can take full advantage of same-day data collection and analysis,” said Bret Lieberman, VP, New Holland North America. “This up-to-date information allows customers to make the best decisions possible while also providing a quick ROI."

 

As consumers, we've been quick to use our mobile devices and smart tech to live a healther, safer and more connected lifestyle - monitoring our thermosats, securing our homes and tracking our health. The migration of these technologies we use in our everyday lives as tools for farmers to grow crops more efficiently and create sustainable farms is the model for a new generation of farmers.

“Just as we use cell phones and smart cars to communicate more effectively and live better, smart farming technologies enable farmers to produce crops more sustainably, with less inputs and less impact on the environment,"said Buck. "This allows us to farm in a way that is immensely better for the world than our grandparents did 50 years ago.”

10 demographic trends shaping the U.S. and the world in 2017

BY ANTHONY CILLUFFO AND D’VERA COHN2 COMMENTS

(John Stillwell/PA Images via Getty Images)

As demographers convene in Chicago for the Population Association of America’s annual meeting, here is a look at 10 of Pew Research Center’s recent findings on demographic trends, ranging from global refugee and migrant flows to changes to family life and living arrangements. They show how demographic forces are driving population change and reshaping the lives of people around the world.

1Millennials are the United States’ largest living generation. In 2016, there were an estimated 79.8 million Millennials (ages 18 to 35 in that year) compared with 74.1 million Baby Boomers (ages 52 to 70). The Millennial population is expected to continue growing until 2036 as a result of immigration.

By some measures, Millennials have very different lives than earlier generations did when they were young. They’re slow to adopt many of the traditional markers of adulthood. For the first time in more than 130 years, young adults are more likely to be living in their parents’ home than in any other living arrangement. In fact, a larger share of them are living with their parents than with a romantic partner – marking a significant historical shift. More broadly, young adult geographic mobility is at its lowest level in 50 years, even though today’s young adults are less likely than previous generations of young adults to be married, to own a home or to be parents, all of which are traditional obstacles to moving.

2Americans’ lives at home are changing. Following a decades-long trend, just half of U.S. adults were married in 2015, down from 70% in 1950. As marriage has declined, the number in cohabiting relationships (living with an unmarried partner) rose 29% between 2007 and 2016, from 14 million to 18 million. The increase was especially large among those ages 50 and older: 75% in the same period. The “gray divorce” rate – divorces among those 50 and older – roughly doubled between 1990 and 2015.

Also, a record number of Americans (nearly 61 million in 2014) were living in multigenerational households, that is, households that include two or more adult generations or grandparents and grandchildren. Growing racial and ethnic diversity in the U.S. helps explain some of the rise in multigenerational living. The Asian and Hispanic populations overall are growing more rapidly than the white population, and those groups are more likely than whites to live in multigenerational family households.

3Women may never make up half of the U.S. labor force. Women accounted for 46.8% of the U.S. labor force in 2015, similar to the share in the European Union. Although women comprised a much larger share of the labor force in 2015 than in 1950 (29.6%), the Bureau of Labor Statistics projected the share of women in the workforce will peak at 47.1% in 2025 before tapering off.

For those women who do work, the gender pay gap has narrowed. Women earned $0.83 for every $1 a man earned in 2015, compared with $0.64 in 1980. The pay gap has narrowed even more among young adults ages 25 to 34: Working women in that age range made 90% of what their male counterparts made in 2015. At the same time, women continue to be underrepresented in leadership positions in the U.S. In 2017, women make up 19% of the U.S. Congress and about a quarter of state legislatures; some 8% of U.S. governors and 5% of Fortune 500 CEOs are female.

4Immigrants are driving overall workforce growth in the U.S. As the Baby Boom generation heads toward retirement, growth in the nation’s working-age population (those ages 25 to 64) will be driven by immigrants and the U.S.-born children of immigrants, at least through 2035. Without immigrants, there would be an estimated 18 million fewer working-age adults in the country in 2035 because of the dearth of U.S.-born children with U.S.-born parents. However, immigrants do not form a majority of workers in any industry or occupational group, though they form large shares of private household workers (45%) and farming, fishing, and forestry occupations (46%).

Public opinion has turned more positive when it comes to immigrants’ impact on the U.S. workforce. The share of Americans saying that the growing number of immigrants working in the country helps American workers increased 14 percentage points in the last 10 years, from 28% in 2006 to 42% in 2016.

5The U.S. unauthorized immigrant population fell in 2015 to below recession levels, and the share of Mexicans within this population declined. There were 11 million unauthorized immigrants living in the U.S. in 2015, lower than the estimated 11.3 million in 2009, the last year of the Great Recession, according to new Pew Research Center estimates. The Center’s preliminary estimate of the unauthorized immigrant population in 2016 is 11.3 million, which is statistically no different from the 2009 or 2015 estimates (and comes from a different data source with a smaller sample size and larger margin of error). The 2016 preliminary estimate is inconclusive as to whether the total unauthorized immigrant population stayed the same or changed in one direction or the other. Mexicans remain the largest origin group of unauthorized immigrants, but their numbers have recently declined and their share of the 2016 preliminary data fell to 50%, the first time since at least 2005 that Mexicans did not account for a majority of this population. As the number of Mexicans decreased, the number of unauthorized immigrants from other parts of the world increased.

An estimated 8 million unauthorized immigrants were working or looking for work in 2014, making up 5% of the civilian labor force. The number was unchanged from previous years and the share was down slightly since 2009. Although the estimated number of unauthorized immigrant workers was stable at the national level from 2009 to 2014, 15 U.S. states had increases or decreases.

6The share of births outside of marriage declined for immigrant women from 2008 to 2014, but held steady for U.S.-born women. Immigrant women play an important role in overall U.S. fertility trends. Between 1970 and 2014, the increase in the annual number of U.S. births was driven entirely by immigrant women, while births to U.S.-born women fell. The important role of immigrant women in driving U.S. births stems from both the growth in the foreign-born population and the fact that immigrant women have, on average, more children than U.S.-born women.

7Globally, babies born to Muslim mothers will outnumber babies born to Christian mothers by 2035 – largely driven by different fertility rates.The number of babies born to Christian mothers (223 million) far outnumbered the number of births to Muslim mothers (213 million) between 2010 and 2015. However, an aging Christian population – especially in Europe and North America – and high fertility rates among Muslim women is rapidly changing the global religious landscape. The number of births to Muslim women is projected to exceed births to Christian women by 2030-2035, with the disparity growing to 6 million by 2055-2060.

Between 2010 and 2050, the global Muslim population is projected to grow 73%, while the Christian population will grow just 35%, about the rate of overall global population growth. In contrast, people who do not identify with a religion (“nones”) account for 16% of the world’s population, but only 10% of the babies born between 2010 and 2015, meaning that their projected share of the world’s population will decline.

8The shares of adults living in middle-income households fell in several countries in Western Europe. In seven of 11 Western European countries examined, the share of adults in middle-income households fell between 1991 and 2010. The share of the adult population that is middle income decreased in Finland, Germany, Italy, Luxembourg, Norway and Spain (as it did in the U.S.), but increased in France, Ireland, the Netherlands, and the United Kingdom. The largest shares of the adult population in middle-income households in 2010 were found in Denmark (80%), Norway (80%), and the Netherlands (79%), while the smallest shares were found in Italy (67%), the UK (67%) and Spain (64%). Each of the Western European countries studied had a larger share of adults in middle-income households than the U.S. (59%).

9European countries received a near-record 1.2 million first-time asylum applications in 2016. Some of these applicants may have applied for asylum in multiple countries or arrived in 2015, raising the total number of applications across Europe. The number of asylum applications was down only slightly from the record-setting 1.3 million applications in 2015. Syria, Afghanistan and Iraq were the most common countries of origin for first-time asylum applications in 2015 and 2016, together accounting for over half of the total. Germany was the most common destination country in Europe, having received 45% of applications.

10The U.S. admitted 84,995 refugees in fiscal year 2016, the most since 1999. More than half resettled in one of just 10 states, with the largest numbers going to California and Texas. Nebraska, North Dakota and Idaho ranked near the top for the most refugees resettled per capita, with rates over two-and-a-half times the national average. And almost half (46%) of the fiscal 2016 refugees were Muslim, the highest number for any year since refugees’ self-reported religious affiliation became publicly available in 2002.

TOPICS: DEMOGRAPHICS, GENERATIONS AND AGE, IMMIGRATION, IMMIGRATION TRENDS, INCOME, MIGRATION, RELIGION AND SOCIETY, WESTERN EUROPE, WORK AND EMPLOYMENT

Harris Teeter launches free-from shelf labeling

AUTHOR

Keith Loria@Freelancekeith

PUBLISHED

April 28, 2017

Dive Brief:

• Harris Teeter has launched Free From 101, a new program that looks to encourage customers to make healthy food choices by identifying items that are free from preservatives, additives, antibiotics, artificial colors and sweeteners, according to the Shelby Report.
• The items will be identified with blue explanatory bib tags on shelves throughout the store, making it easy for shoppers to find free-from products without having to read every product ingredient label.
• Shoppers can also view the full list of 101 ingredients that the program tests for online.

Dive Insight:

Today's health-conscious consumers demand transparency from their grocery retailers, and are even willing to switch to a different store that they feel is more honest about its products. Harris Teeter's new Free From 101 program meets this need and saves customers time by clearly tagging free-from products on store shelves, a move that should capture shopper attention and strengthen brand loyalty. 

This initiative is somewhat similar to Giant’s implementation of HowGood ratings. HowGood researches and rates products based on sustainablity as well as fair wages for employees, ethical animal treatment and environmental impact. The creators of HowGood estimate that if their ratings were included in every one of the more than 6,000 Ahold-Delhaize stores in the U.S., it could effectively promote 18 million more sustainable products every week, and shift 8% of America’s food stream toward better buying practices.

The jury is still out on how much consumers really are paying attention to labels, however. An Innova report showed that 75% of U.S. consumers said they read the nutritional and ingredient labels of food products and 91% say food and beverage options with recognizable ingredients are healthier. Still, much research has been done on consumer psychology, which has shown that nutritional labeling gives the organization “compelling reasons to be pessimistic” about how much it impacts purchases.

Still, these shelf tags would be much easier to "read" than actual labels on the back of product packaging, and shoppers will likely appreciate this investment in transparency. It will be interesting to see if other grocers invest in similar in-store programs, and if these rating systems will negatively impact sales of traditionally unhealthy products.

I recently attended a Brick Meets Click webinar sponsored by Unata on the 2017 Online Shopping Forecast. The panel from Unata and Brick Meets Click reviewed their finding from a survey of 500 consumers to understand industry trends and predict what we’ll see in the upcoming year.

In 2016 one in five shoppers had an online purchase, that will likely increase to one in three this year. For traditional retailers that can seem worrisome but online shoppers aren’t abandoning stores, their digital purchases are value adds to their typical shopping trip. Additionally, shopping online can create a new type of loyal customer, 80% of online shoppers are repeat consumers. The online shopper spans many demographics and can represent a significant increase in sales for your store.

While we expect continued growth in the upcoming year online shopping is still a differentiator and stores offering the service are better poised for success with changing consumer trends. As a differentiator we will see customers willing to change their preferred shopping location to one with online capabilities. As with any new service offering it is imperative to tell your consumers if you offer online shopping. 41% of shoppers surveyed didn’t know if their stores offered online shopping. When you build your marketing strategy think outside of your typical promotion methods by including information on your website, social media, direct-to-consumer emails, and especially through educating your employees. Your employees being able to explain the features and benefits of an online shopping program can personally encourage shoppers to try the new system.  Getting customers to your online shopping site is the first step, you have to delight them with the experience from beginning to end. 68% of shoppers would switch providers for a better experience. The key here is treating your online shopping site exactly like your brick & mortar store, craft the customer experience with the same level of care.

When developing your program, understand what your customers want:

• Easy to find products and deals
• Personalized offers, sales, product suggestions
• Inclusion of your weekly ad
• Access to digital coupons
• Timeframes that meet their needs like same day pick up

As with any addition to the services you offer your customer spend time understanding their needs and how you can best meet them. Digital shoppers are impatient and delivering on the experience is key, ensure you have the time and resources to devote to the project to make it successful. Online shopping brings in incremental value in basket size but the value it brings in customer satisfaction is truly immeasurable.

Marks & Spencer is getting into online groceries

• A customer shops in the food hall at a Marks & Spencer shop in central London May 21, 2013. British retailer Marks & Spencer posted its lowest annual profit since 2009 on Tuesday as a struggling general merchandise division dragged on growth in food sales.REUTERS/Suzanne Plunkett

LONDON (Reuters) - British retailer Marks & Spencer is to trial an online grocery shopping service this year, it said on Thursday, conceding it could no longer ignore the fastest growing segment of the market.

For years M&S has resisted giving its customers the option of ordering food online for home delivery, saying it did not make economic sense for its offering, which is focused on the "food for tonight" market and tends to be small basket sizes.

But with Britain's online food market expected to nearly double to £17.2 billion ($22.2 billion) in the five years to 2020, according to industry research group IGD, M&S has now had a change of heart.

“We continue to review food online carefully. It has not cost us anything over the last five years by not being online with food. Our customers haven’t moved yet, but they will and we need to ensure that we are ready with the right response," said Steve Rowe, M&S' group chief executive, who used to run its food business.

"There are unanswered questions over what this means for M&S and we have a team looking at this now with a view to undertaking a soft trial in the autumn," he said in comments first reported by The Guardian newspaper.

Rowe signalled that M&S would carry out extensive trialling before any roll-out of an online grocery service.

"The economics of food online are not straightforward and it is not something that we are going to rush into until we have substantial customer insight and a better understanding of what is right for M&S and right for our customers.”

While M&S's clothing business has struggled in recent years its food business has thrived.

In November, Rowe detailed plans to close about 30 UK stores selling clothing, homewares and food and downsize or convert another 45 into food stores over five years.

Garber Bros. Shuts Down Operations, Leaving C-Store Customers Scrambling

Posted by Kristen Cloud

Date: April 26, 2017

by Mike Berger/editor-Northeast

Garber Bros., a greater Boston convenience store distributor, abruptly closed its doors on April 10 and has ceased operations. Calls and emails to the business and its president, Amy Garber, have gone unreturned.

A security force now patrols the Stoughton, Massachusetts, headquarters building. The company’s website remains online. Sources say the company is liquidating its assets and that another major New England c-distributor may be taking over customer accounts.

The sudden closing has put people out of work and left manufacturers without answers on inventory and c-store customers searching for new distributors. One executive of a distributing company said, “Customers are scrambling to find a new supplier.”

Teamsters Local 653 filed a court complaint against Garber Bros. for a WARN (Worker Adjustment and Retaining Notification) Act violation. Employers are required to provide notice 60 days in advance of covered plant closings and mass layoffs. The notice must be provided to either affected workers or a labor union.

The closing comes after Citizens Bank announced on Jan. 3 a $20 million credit facility to Garber Bros. to continue capital operations. Garber Bros. distributes cigarettes, tobacco, health and beauty, and grocery products to convenience stores located primarily in the Northeast.

The company dates back 70 years when, in 1947, Harold and Paul Garber started a candy and tobacco wholesaling company out of the top floor of their father’s Blue Bird Beverage Co. Focusing on small retail businesses, the company became known as Garber Bros.

Garber Bros. continued as a family-owned company, operated by Harold, Amy and Jody Garber. At its height, Garber Bros. was a more than $600 million company, featuring a state-of-the-art conveyor system in its warehouse and a 200,000-s.f. headquarters facility, with more than 280 employees.

Garber Bros. took a hit, however, when its largest customer, Tedeschi Food Shops, was sold to 7-Eleven.

Distribution competition is alive in New England and includes major distributors J. Polep Distribution, Core-Mark New England, Associated Grocers of New England, Harold Levinson Associates as well as McLane Northeast. Last year, Core-Mark New England purchased a convenience distribution portion of the Pine State Trading Co. in Maine.

How Generation Z is transforming the shopping experience

The next wave of consumers has come of age. Generation Z doesn’t know a world without the internet or mobile phones — and yet they’re all about people. Here's how to reach them.

AUTHOR

Daphne Howland@daphnehowland

PUBLISHED

March 29, 2017

Millennials are growing up, if not exactly growing old. Although it’s unlikely that publications like The New York Times are done issuing think pieces about the millennial generation, we are in the final season of HBO’s "Girls," and hoverboards are no longer a favorite after too many literally caught fire (millennials are increasingly trading them in for safe, sensible cars with baby seats in the back, anyway). 

Retail marketers are responding by turning their attention to Generation Z, the cohort that follows millennials. Figuring this group out is not the smoothest task: Calculating what or who makes up a generation involves arguments about sociology and numbers (it’s an artificial construct, after all), so there’s no strict agreement on who falls in the Gen Z grouping (also known as "post-millennials," "the iGeneration," "plurals" or the "Homeland generation," depending on whom you ask, though “Z” is what’s caught on). But more or less, their birth dates fall somewhere between 1995 and 2014, meaning the oldest members are graduating college and entering their careers, and the youngest are not even yet in kindergarten.

And there are a lot of them. Most marketers have heard how huge the millennial generation is — bigger than their parents, the baby boomers — but Gen Z is even larger by most measures, coming in at about 2.6 billion members globally. About 60 million members of Gen Z reside in the U.S., a million more than millennials, according to demographic data firm Social Explorer researcher Susan Weber, and their ranks are diverse: 55% of Generation Z members nationwide are non-Hispanic Caucasians, 24% are Hispanic, 14% are African-American, 4% are Asian, and 4% are multiracial or other, according to marketing consultancy Frank N. Magid Associates. 

One thing all members of Generation Z have in common: None has lived in a world without the internet or mobile phones. Given that they expect ready access to the web via the machines in their pockets, you might think that Gen Z is poised to turbo charge e-commerce. But recent studies show that while their smartphones keep them very well informed, they're are not keeping Gen Z out of brick-and-mortar stores.

"Mobile is the number one device that they use — they’re connected all the time. They literally have the phone on their fingertips, and that definitely makes them more impatient. They expect things to be there when they need it,” Jane Cheung, Global Leader for Consumer Products for the IBM Institute for Business Value and leader of an IBM study on Gen Z for the National Retail Federation, told Retail Dive. "But makeup, clothes, shoes — they still want to go to the store to check the product out. And if they try an outfit on, they want to take it home. They want the satisfaction of trying it on, and having it then and there.”

Informed experiences

Much has been made of millennials’ preference for experiencing instead of accumulating things, which could be related to the fact that the events of Sept. 11, 2001 and two recessions (first in 2000, and then a Great one in 2008) rattled their sense of security and made them think about contentment on a budget.

Gen Z, by contrast, is somewhat less price-conscious. About 43% of Gen Z-ers are likely to compare prices, for example, compared to 49% of millennials and 51% of baby boomers, according to research from Euclid Analytics. They’re aware of the Great Recession-era struggles of their mostly Gen X parents (that individualistic generation that few marketers have much cared about over the years), according to research from Altitude, the product design and innovation unit of Accenture, so they’re less likely to think up get-rich-quick disruption schemes and more likely to consider financially stable careers.

Shelley E. Kohan, vice president of retail consulting at store analytics firm RetailNext, says Generation Z is even more attuned than millennials to issues like sustainability, and believes in its own power to make a difference. "Gen Z is going to have a tough time with this constant shopping," she told Retail Dive. "Fast fashion is going to turn to slow fashion, because they’re not going to see the need to spend money. They’re not going to be so quick to spend a dollar when they have something that’s already useful to them."

Still, these young consumers have access to $44 billion in buying power, with 75% saying they spend more than half of the money available to them each month, according to the IBM/NRF study. They’re very willing to switch brands, and they’re demanding rather than fickle: IBM found 52% will transfer loyalty from one brand to another if quality is not up to par. And while the old folks have fretted about the effect this generation’s constant, mobile connectedness has on its attention span, Z-ers actually feel very much in control of their devices, Cheung says.

“They don’t think about ‘on’ or ‘off,’" she explained. "But according to our data, this generation is very smart. Their top three criteria in order to feel comfortable giving personal information is they need to know the data is protected, they want to know the terms and conditions and they want to know how retailers are collecting the information. Somehow they’ve learned to be smart about this — maybe from reading the news or talking among themselves.”

Connected — to humans

This digital savvy makes for an extremely well-informed customer walking through the door — and a whopping 98% of Gen Z is very much walking into stores to find what they’re looking for, with some 67% shopping in physical stores “most of the time,” and another 31% doing business there “sometimes,” IBM found.

The reasons, according to Euclid: They desire the curation that stores offer, and they want to talk to associates. In fact, 28% of Gen Z shoppers are likely to ask a store associate for advice, compared to an average of 21% across all other demographics, Euclid says.

Sure, social media takes up a lot of Gen Z's time, though according to the IBM study, 73% said that's mainly spent connecting to family or friends they also hang out with in real life. Many also are willing to interact with brands, though: 36% would create digital content for a brand, 42% would participate in an online game for a campaign and 43% would participate in a product review. But it has to be a worthwhile relationship, Cheung says.

"For a brand or a retailer to have meaningful engagement with them, they really need to be a part of their life. If your information is irrelevant, they’ll block you," she said. "A few years back, brands were big on location and personalization. Now with Gen Z, it’s more than shopping. How you advertise with them must resonate. Like those brands with videos that are not even trying to sell you something, videos that have meaning, that inspire. It's way more comprehensive than engagement only for shopping services."

They're also less swayed by traditional marketing techniques, like harnessing celebrity power, Kohan said. "Gen Z’s celebrities are not blockbuster celebrities. It’s the YouTube guy who reconfigures toys, or a beauty makeup artist," she explained. "We’ve gone from blockbuster celebrities to unlikely role models. A lot of companies need to make sure they’re using social media channels and YouTube. That’s how [Gen Z] finds answers to something — they go to YouTube."

In case you haven't already figured it out, Wi-Fi is important, too. More than half of Gen Z consumers (53%) mightily appreciate Wi-Fi access in stores, compared to 41% of millennials, according to Euclid. IBM found 62% won't use apps or websites that are difficult to navigate and 60% won't use them if they're slow to load. But apps aren't all that: Less than a third (30%) of Gen Z respondents like retail apps that allow them to order products online and pick them up in the store, compared to 40% of millennials, Euclid says. And just a quarter of both groups care about scan-as-you-shop gadgets or free charging stations.

“This is not a generation that is mobile-digital-phone only,” Euclid CEO Brent Franson told Retail Dive. “The narrative around wanting and seeking experiences in physical locations isn’t going away. But the proliferation of information and the ease of accessing information — the ability to be highly sophisticated in your buying decisions — that bar is lower than it’s ever been.”

Meeting the challenge

With their smartphones as basic to them as their socks and shoes, Gen Z believes retailers exist on their phones and on the street at once. That means that retailers must be there for them in those spaces, too. For one thing, the associates that Gen Z customers want to connect with better be helpful, and at least as informed as they are about the store's products and services.

“You don’t have to look much further than Apple to see what really good retailers are doing," Franson said, citing Best Buy as another retailer that is particularly good at meeting the challenge. "You can order online to deliver to my home, you have the beauty of the research online, pick up in store, you can go to the store and have it delivered. You’ve got the product playground that is the physical experience, supplemented by human beings that can answer questions — all done by the umbrella of a single ‘Apple ID.’ As Apple consumers we don’t think of 'Apple dotcom.' It’s a seamless and integrated experience.”

So much so, says Kohan, that the logistics of e-commerce doesn't occur to them as consumers. "They’re used to the UPS guy dropping stuff off at their house," she said. "They think ‘Isn’t that how everyone gets their stuff?’... Their whole shopping mentality is different, and they’re going to want that deep connection with the brands they do business with."

Franson agrees that personalization is key here, but says that it's a sort of Gen Z twist on the old "Give the lady what she wants," which involves a brand knowing and appreciating the customer as much as the customer knowing the brand. "You need me to opt in and you need me to trust you," he said. "If you treat me well, give me value, I'm happy for you to know my identity."

But a word of caution: Gen Z isn't going to resurrect failing retailers or failing stores. In fact, the truism that America is over-stored is not going away, says Franson — it’s just changing. Clues to what those changes should be are found in the attitudes and behaviors of this rising contingent of consumers. The future is here.

"The king or queen of retail will master both online and offline — online is the efficiency, offline is building the experience," Franson said. "You still see a lot of retailers where the online teams and the store teams are separated, which is an unrealistic way of doing business because the store is just a touchpoint in the conversion cycle. We expected Gen Z to be more online heavy than they were — they still really value physical experiences. I think they will be the most sophisticated consumers in the history of consumerism."

New rival taking on Kroger on its home turf

Apr 26, 2017, 2:52pm EDT Updated Apr 27, 2017, 3:58pm EDT 

 

Kroger Co. will be facing some new competition in Greater Cincinnati as a German discount grocer is scouting for numerous locations to open local stores.

Lidl, a store chain that has taken Europe by storm and is entering the U.S. this summer, is looking for numerous store sites in Greater Cincinnati and Dayton, according to multiple retail real estate sources. A Lidl spokesman confirmed the company has started looking at sites in Ohio, although he wouldn't give specifics.

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Lidl, Europe's largest discount grocery chain, is looking for sites to expand into… more

German-based Lidl operates smaller, no-frills stores featuring discount pricing. It’s similar to another German deep-discounter, Aldi, that already operates in the U.S. Lidl is a major player in Europe. It has 10,000 stores in 27 countries and expects to expand steadily across the U.S. in future years.

“It does show some confidence that they’re willing to do this in Kroger’s backyard,” Rick Shea, who tracks the food retailing business as president of Minneapolis-based Shea Food Consultants, told me.

Lidl said in February that it would open the first 20 of its U.S. stores this summer as part of 100 planned openings within a year. Lidl has said it’s looking for store locations along the Eastern seaboard from Pennsylvania and New Jersey south to Georgia. It hadn’t given any indications it’s looking specifically in Greater Cincinnati until now.

At the same time, Aldi plans to expand its 1,600 U.S. stores to 2,000 by the end of 2018. It already has about 10 Greater Cincinnati stores.

Lidl is looking for 4-acre sites to house a 36,000-square-foot store and parking spaces for at least 180 cars. That’s about double the size of a typical Aldi store, but it’s far smaller than Kroger stores. Many Kroger Marketplace stores now top 100,000 square feet. The Kroger Marketplace store in Oakley covers 145,000 square feet, which is four times the size of a Lidl store.

Chris Nachtrab, managing director with Newmark Grubb Knight Frank, said he knows the retailer is looking at sites in Cincinnati. He’s shopped at Lidl stores in France.

“I was impressed,” Nachtrab said. “They’re going to be some real competition in this market.”

Other retail brokers said Lidl is looking at buying sites and building new stores in the region.

Cincinnati-based Kroger (NYSE: KR), the nation’s largest operator of traditional supermarkets, dominates the local grocery market. It had a market share in the high-50 percent range as of a year and a half ago and there's no indication that share has declined.

But Shea said Kroger’s dominance in Greater Cincinnati might be a reason Lidl is targeting the area. Prices in the region are likely a bit higher than in more competitive markets, he said.

“Part of Lidl’s strategy might be (entering Cincinnati) because they see Kroger is so dominant,” Shea said.

But he pointed out that Kroger has invested in offering lower prices the past few years, partly because it’s battling Wal-Mart.

“I’m not sure this is a big red flag,” Shea said. “I don’t think it’ll be dramatic.”

Lidl is likely to have an impact when it enters the Cincinnati market, Jim Hertel, senior vice president at Long Grove, Ill.-based food retail consultant Willard Bishop, an Inmar Analytics company, told me.

“It’ll take a little bit from everybody,” Hertel said. “The impact on Kroger is there, but it’s subtle and hard to detect. I call it being nibbled to death by ducks. But given enough ducks, they can do some real damage.”

He said if Lidl’s finances are similar to Aldi’s, each store might generate $125,000 a week or so. A typical Kroger store ranges from $700,000 to $1 million, so a Lidl store might take $60,000 or so from a nearby Kroger location. That’s not a huge chunk, but it’s still important.

“Kroger has been among the best over the last 15 to 20 years in responding to what’s going on in food retailing,” Hertel said. “But it’s not going to be immune. I have no doubt Lidl can succeed.”

Kroger has been facing a number of pressures lately from price-cutting wars with Wal-Mart to food price deflation. It had a 13-year streak of consecutive quarters posting same-store sales growth snapped in its fourth fiscal quarter.

Lidl’s U.S. expansion is an indication of the grocery market becoming segmented. Traditional supermarkets like Kroger are battling premium stores such as Whole Foods and Fresh Thyme as well as discounters like Aldi and Lidl, Shea said.

“Lidl sees an opportunity there,” Shea said.

Lidl’s strategy is to offer high quality but low prices.

“Customers are being forced to choose between quality, price and convenience, and this is a compromise they shouldn’t have to make,” Lidl U.S. president Brendan Proctor said in a statement in Feburary. “At Lidl, we are committed to delivering outstanding quality goods to our customers at market leading prices. We are carefully curating our selection to ensure every choice in our stores is a great choice for our customers.”