Monday, July 31, 2017

Supermarkets Face a Growing Problem: Too Much Space

6hr

A massive build-out by retailers has left the country piled up with grocery shelves as consumers shift from big weekly shopping trips to more snacking and to-go meals.

Heather Haddon and

Julie Jargon

Never before in America has so much retail square footage been devoted to selling food—and it is too much.

A massive build-out by retailers has left the country piled up with grocery shelves as consumers are shifting from big weekly shopping trips to more snacking and to-go meals. The mismatch has flattened retail sales and leaves the industry vulnerable to a wave of closures that some executives, bankers and industry experts think is coming soon.

Commercial square footage of retail food space per capita last year set a record, with 4.15 square feet of food retail per person, according to CoStar Group , a commercial real-estate firm, nearly 30 times the amount of space allocated to groceries at major chains in 1950.

To be sure, major grocery chains weren’t as numerous decades ago, with many Americans shopping for food at mom and pop stores.

But the growth in groceries have extended across many types of retailers in recent years. Part of the expansion comes from grocers, who accelerated their store openings as a way to drive sales growth after the 2008 recession. At the same time, club chains, dollar stores, pharmacies—and even gas stations—increased their fresh food offerings to drive traffic and boost profits.

“Everybody is getting into the grocery business,” said David Hirz, chief executive of Smart & Final Stores Inc., a California-based warehouse grocer.

Latest Change Hitting Food Industry: Cooking Has Become a Lost Art

While shopper loyalty to conventional chains lifted same-store sales for food retailers by at least 3% annually since 2013, that metric was flat in 2016 and is projected to remain static this year as competition grows, according to FactSet. “There’s only so much food we can buy,” said Suzanne Mulvee, director of research for CoStar.

The food-retail sector has become even more saturated at a time when competition is only getting fiercer, particularly at the two ends of the shopping spectrum. Growing European deep-discounters Aldi and Lidl are vying for U.S. market share, hoping their prices will win over the budget-conscious shopper while internet companies like Amazon.com Inc. are trying to lure higher-income grocery shoppers online. Regional supermarkets and conventional ones such as Kroger Co. and Albertsons Cos. are the most likely to get squeezed in the process, according to analysts.

“We’ve hit that critical moment where traditional supermarkets have realized they can’t keep opening new stores to solve their problems,” Kantar Retail analyst Diana Sheehan said.

Some grocers have already started to retrench, similar to the way the broader retail market has reduced square footage of brick-and-mortar stores as e-commerce drew away customers.

Kroger, the nation’s largest traditional supermarket chain by stores and sales, is reducing its new-store openings this year to 55 from 100, a nearly billion-dollar drop in capital expenditures, and its chief financial officer, Michael Schlotman, recently said that the company expects to continue to invest less in bricks and mortar. Smart & Final plans to build 19 stores this year after opening 37 in 2016.

Wal-Mart Stores Inc. plans to build 55 supercenters and smaller-format stores in its 2018 fiscal year, down from the 132 it opened in the 12-month period ending in January. That has helped the nation’s largest food seller by sales to spend billions of dollars renovating its stores and offer more online-order pickup, a company spokesman said.

There has been consolidation in the sector, too. Kroger and Supervalu Inc. have scooped up stores and wholesale businesses after two Midwest regional chains, Marsh Supermarkets LLC and Central Grocers Inc., declared bankruptcy this year.

But enduring changes in eating and food-shopping habits toward cheaper and more convenient options means consumers will increasingly spread their dollars among a variety of retailers. Food retailers are also chasing a shrinking pool of consumers. Not only is U.S. population growth slowing, America’s largest demographic groups—milliennials and baby boomers—aren’t at their food-buying peaks.

Lunch should be a break, but that doesn’t always happen. So here are a few expert suggestions for your office lunch. Photo: Jeff Bush

“I don’t have the energy to work full-time and make my own food,” said Leah Steinberg, a 32-year-old unemployed software engineer who recently moved back in with her parents in St. Paul, Minn. Ms. Steinberg struggled to make healthy meals for herself while working, and now relies on her family to shop and cook while she searches for a new job.

Grocery executives say they have survived competition on thin margins in the past, and that they conduct detailed studies before building new stores. “We’re comfortable with the amount of square footage there is [in] the market at the moment,” said Andrew Nadin, chief marketing officer for Schnuck Markets Inc., a St. Louis-based chain of around 100 stores.

Food, beverages and other consumables account for about a third of transactions at pharmacies. Fresh fruit for sale at a Walgreens in New York.Photo: Mark Lennihan/Associated Press

But consumers are increasingly turning to nontraditional options. While about 37% of sales of consumable items such as food and beverages still take place at traditional supermarkets, with the sector posting more than $440 billion in sales last year, it was a 6% drop from 2015, according to Inmar Willard Bishop Analytics.

Meanwhile, convenience stores sold $73 billion worth of prepared foods, beverages and other food service last year, up 72% from 2010, according to the National Association of Convenience Stores. Two-thirds of sales at dollar stores come from food, beverages and other consumables, while they account for about a third of transactions at pharmacies.

Brick-and-mortar supermarket locations also compete for consumers choosing to shop online. For instance, Bill Garrett, a 55-year-old home health-care company officer from Wilmette, Ill., said he sliced about a third off his weekly grocery bill of $150 by shopping on Amazon. Amazon made a $13.7 billion bid for Whole Foods Market Inc. in June, a move analysts say could further acclimate shoppers to the concept of online grocery shopping.

Supermarket chains operating in dense areas where shoppers have more online grocery options are particularly vulnerable to future consolidation, according to Barclays Capital Inc., which said that 38 of the top 50 grocery markets in the U.S. are already too saturated by food retail per capita or are on track to be so by next year.

“Everybody should stop growing,” said Barclays analyst Karen Short. “It would make the whole industry much healthier.”

The Amazon Effect: Retail Bankruptcies Surge 110% In First Half Of The Year

by Tyler Durden

Jul 31, 2017 5:58 AMAs Amazon flirts with a $500 billion market cap, letting Jeff Bezos try on the title of world's richest man on for size if only for a few hours, for Amazon's competitors it's "everything must go" day everyday, as the bad news in the retail sector continue to pile up with the latest Fitch report that the default rate for distressed retailers spiked again in July.

According to the rating agency, the trailing 12-month high-yield default rate among U.S. retailers rose to 2.9% in mid-July from 1.8% at the end of June, after J. Crew completed a $566 million distressed-debt exchange. Meanwhile, with the shale sector flooded with Wall Street's easy money, the overall high-yield default rate tumbled to 1.9% in the same period from 2.2% at the end of June as $4.7 billion of defaulted debt - mostly in the energy sector - rolled out of the default universe.

In a note, Fitch levfin sr. director Eric Rosenthal, said that “even with energy prices languishing in the mid $40s, a likely iHeart bankruptcy and retail remaining the sector of concern, the broader default environment remains benign."

He's right: after the energy sector dominated bankruptcies in the first half of 2016, accounting for 21% of Chapter 11 cases, in H1 2017 the worst two sectors for bankruptcies are financials and consumer discretionary.

And if recent trends are an indication, the latter will only get worse as Fitch expects Claire’s, Sears Holdings and Nine West all to default by the end of the year, pushing the default rate to 9%. "The timing on Sears and Claire’s is more uncertain, and our retail forecast would end the year at 5% absent these filings," Rosenthal wrote.

Putting the retail sector woes in context, Reorg First Day has calculated that retail bankruptcies soared 110% in the first half from the year-earlier period, accounting for $6 billion in debt.

The list includes name brands such as Gymboree, Payless, rue 21 and the Limited, all of which cited the Amazon affect as a contributor to their downfall.

“Many retailers have echoed the familiar cries of those that filed before them—the proliferation of online shopping, rapidly deteriorating brick-and-mortar retail, the rise of fast fashion, hefty lease obligations and shifting consumer preferences,” Reorg First Day said in a midyear review.

While it is far from empirically, and certainly scientifically established, every incremental retail bankruptcy should add approximately $5-10 billion to AMZN's market cap, further cementing Jeff Bezos as the world's richest monopolist man.

PRESS RELEASE

BUSINESS RESOURCES>RETAIL AND DISTRIBUTION

How all those men in the grocery store shop

Eighty-four percent of men now serve as the primary household grocery shopper. Here's what they do before they get to the store and once they enter the aisles.

Jul 21, 2017

According to the latest research from Men’s Health, men are taking more control over grocery shopping and cooking than ever before, with 84 percent of them saying they're the primary grocery shoppers in their households (a 19 percentage point increase over the past decade). The Rodale Inc. brand today released the fourth iteration of "How Men Shop for Food," a study it has conducted online with Harris Poll among U.S. adult men to measure their attitudes and behaviors regarding shopping for groceries, eating healthy, preparing meals for themselves and others, and influence over purchasing decisions.

“The study’s results continue to challenge many gender stereotypes related to food shopping and cooking,” says Men’s Health V.P./Publisher Chris Peel. “Men have an active role in each stage of the food purchasing process—before getting to the store, while there, and when cooking the food they’ve bought. Food retailers are uniquely positioned to appeal to men throughout this cycle and to evolve their marketing plans based on this compelling data.”

This infographic highlights the findings.

SPEAK UP AND EAT! SALESFUEL’S FRESH 2017 AUDIENCESCAN SURVEY SHOWS HOW VOICE-ACTIVATED ASSISTANTS LIKE SIRI, CORTANA, ALEXA AND GOOGLE HOME ARE CHANGING HOW AMERICA EATS

SalesFuel announces the release of its 2017 AudienceSCAN survey results, delivering vital purchase intent and psychographic data for consumer marketers and sales forces across all industries. Now in its 8th year, this in-depth analysis of more than 18,000 U.S. adult (18+) consumers gives you the exclusive insight to better understand what’s in the hearts and minds of your account’s best customers.

One emerging category identified in this year’s survey is voice-activated assistants, such as Alexa, Cortana, Google Home/Assistant, or Apple’s Siri. Thirteen percent of American adults have used one of these in the past 30 days and SalesFuel has found that users of these devices tend to eat out more frequently and have different grocery habits than the average adult. In fact, SalesFuel forecasts that, “the growth of the voice-activated assistants category will change the way people eat from now on,” says SalesFuel CEO C. Lee Smith. “The rise in use and adoption of these new devices is playing out in this space.”

SalesFuel stresses the opportunity for grocers on the forefront to take advantage of this and change the space. “There seems to be a significant correlation between specialty grocery stores and voice-activated assistant users in particular,” says SalesFuel Vice President of Research Kathy Crosett. “Certain grocery brands are seeing more engagement from these customers.”

Some fresh statistics from the AudienceSCAN survey related to voice-activated assistant users include:

Whole Foods is huge with voice-activated assistant users 15.4% have shopped there in the past month, compared with just 9% of average Americans (18+).
Trader Joe’s also is popular with these users. 17.1% visited in the past month, compared to 11.1% of average Americans.
In contrast, 22% of users shopped at Kroger in the past month vs. 18.9% of average Americans, showing a smaller gap between users and average Americans.
6% of voice-activated assistant users had groceries delivered to them in the past year, compared to 9.5% of average Americans.
Voice-activated assistant users are 13% more likely than the average American to have eaten at a restaurant or ordered takeout 3 or more times per week.
Users are 20% more likely to have eaten fast food 3 or more times per week than the average American.

“The growing use of grocery delivery services and the rise in frequent diners suggests an exciting opportunity between grocery stores and restaurants and ride-share services. Take for instance, McDonald’s partnership with UberEATS, showing the popularity of ride-share food delivery,” notes Smith.

The AudienceSCAN survey results report that 55.6% of Uber users and 57.4% Lyft passengers used their mobile devices to order food in the past 6 months. Smith adds, “Ride-sharing users are already ordering food online, so the next logical step is to deliver it to them.”

We can’t wait to see how voice-activated assistants super-size this behavior.

Be sure and check out these infographics on voice-activated assistant users’ demographic breakout and their grocery and restaurant habits.Twitter

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Path to Purchase Institute Launches TransparencyIQ

New event to highlight how CPG brands, retailers can boost customer loyalty

July 28, 2017, 01:17 pm

TransparencyIQ, the retail industry’s first event to address the desires of consumers to know what’s in the products they use and consume, is scheduled for Oct. 17-18 in Rosemont, Ill.

The event will be hosted by the Path to Purchase Institute, part of EnsembleIQ, parent company of Progressive Grocer.

The "Label Insight 2016 Transparency ROI Study" reports that 94 percent of consumers say it's important that brands and manufacturers are transparent about what's in their food and how it's made. In addition, 73 percent of consumers are willing to pay more for a product that offers complete transparency.

Many CPG brands and retailers are responding to customer demand for information by adopting a philosophy of transparency.

“Transparency is emerging as a critical consideration on the shopper's path to purchase. While ingredient information is vital, it's only part of the honest and authentic relationship shoppers want to have with the products and services they purchase,” said Michael McMahon, president and executive director of the Chicago-based Path to Purchase Institute. “In a highly competitive market, transparency is a successful strategy for winning consumer loyalty.”

Since transparency affects many facets of the retail industry, from supply chain to regulatory specialists to marketers, the conference will engage executives from a variety of disciplines. It will address best practices for strategic marketing with transparency, the value of transparency, and tangible applications for building stronger consumer connections.

The program includes case studies, information on using shopper data to drive decisions, how the shopper path to purchase should influence marketing strategy and how retailers can own health and wellness.

Industry leaders from PepsiCo, Topco, Unilever, GS1 US, Cognizant and the University of North Carolina have joined founding sponsor Label Insight on the TransparencyIQ Advisory Board. The board will provide insights and perspectives as sessions and speakers are selected.

For more information, visit www.transparency-iq.com or contact Pat Payne at PPayne@ensembleiq.com.

Lucky's Market opening four more Central Florida stores

Kyle ArnoldContact ReporterOrlando Sentinel

Lucky’s Market is opening four new stores in Central Florida, bringing its “organic for the rest of us” motto to Hunter’s Creek, Winter Park, Clermont and the SoDo district south of downtown Orlando.

The Boulder, Colo.-based niche grocer also said it plans to open another four stores in the area and is in negotiations on leases for those sites.

The Winter Park store is at 7542 University Boulevard and should open in winter 2018. The Clermont store at 1500 E. Highway 50 should also open at the end of 2018.

The Hunter’s Creek/Kissimmee store at 4161 Town Center Boulevard in Kissimmee is slated to open in the fourth quarter of this year. The store south of downtown is at the corner of South Orange and Pineloch Street and should open in the spring or summer of next year.

Lucky’s has one store in Central Florida at 11750 E. Colonial Drive, which opened in June 2016. The stores specialize in organic and natural meats and produce, but also sells a variety of standard non-perishable goods too, such as soda, chips and cereal.

The four unannounced stores should also open by the end of 2018.

The new stores will be similar to the company’s eastern Orange County location. But the new spots will include some new features, such as a ramen bar, said Lucky’s spokesman Ben Friedland.

“We’re always trying to try to make each new store our best new store yet,” Friedland said.

Lucky’s is one of a handful of niche grocers expanding in the state. Earth Fare is opening its first store in Orlando, discount-grocer Aldi is opening new stores in the area and Sprouts, another low-price natural grocer, opened its first store last year in the Tampa area.

Lucky’s stores also have juice bars and bulk goods as well as large cheese, beer and wine departments. Customers are also able to grab a glass of beer or wine and browse the stores.

“We’re trying to make that natural food stores feel more accessible,” Friedland said.

The new stores will range in size from 30,000 to 37,000 square feet, he said.

The store at 7542 University Boulevard, at the corner of Goldenrod Road, is replacing a Winn-Dixie store that closed in fall 2016.

The SoDo-district store is opening in a new development.

Wednesday, July 19, 2017

McCormick to acquire French’s, Frank’s for $4.2B

Reckitt sale brings “red hot” condiment position

Jon Springer | Jul 19, 2017

McCormick & Co. said Wednesday that it has agreed to acquire the food division of Reckitt Benckiser for $4.2 billion, the latest in a string of big consumer packaged goods mergers.

The deal will bring iconic brands including Frank’s RedHot and French’s Mustard to McCormick’s stable of condiments, moving it from No. 10 worldwide to a leading position in that category, where Frank’s and French’s are the respective top brands in the U.S. and Canada, Sparks, Md.-based McCormick said.

McCormick CEO Lawrence Kurzius had made little secret of his intention to expand the condiment business, telling analysts earlier this year that category was “core to its business,” although recent reports suggested Unilever and Hormel may have also been suitors.

The agreement also continues a string of high-profile moves among CPG giants as they seek scale, specialization and brand strength to meet ongoing challenges of slowing growth in center store. United Kingdom-based Reckitt was looking to sell its food business in part to fund its own recent acquisition of Mead Johnson Nutrition as Reckitt stakes out a position in health and hygiene, Rakesh Kapoor, CEO, said.

Strategic Resource Group Managing Director Burt P. Flickinger III called the deal a “masterstroke” for McCormick and predicted retailers would also benefit as McCormick capitalizes on its ability to drive condiment growth in association with its stable of spices and seasonings, providing a new challenge to Kraft Heinz.

Investors appeared to be wary of the price in the meantime as McCormick stock was down by more than 5% early Wednesday.

“Everyone’s saying they’re paying a premium price, but Lawrence Kurzius is such a genius at marketing, merchandising, brand-building and developing new categories,” Flickinger said. “He can take a category like French’s mustard that has been under-marketed and undersold for a century and turn it into a brand powerhouse. Instead of a routine category he will make it a destination category across condiments, spices and snacks.

“Instead of making this a Memorial Day to Labor Day, hotdogs and hamburgers story, McCormick will make French’s and Frank’s and the complementary products relevant every week of the year and really dive profitable sales growth for retailers,” Flickinger added.

The deal also brings with it McCormick Cattlemen’s barbeque sauce, a leading foodservice brand that will increase the company’s U.S. and Canada foodservice sales by 50%.

Publix begins Richmond rally

Market in flux as Lidl also arrives, Martin’s departs

Jon Springer | Jul 18, 2017

Publix Super Markets over the weekend opened its first store in the Richmond, Va., market and will have three stores there by early next month as Virginia’s capital city experiences a high-speed grocery overhaul.

The new store, on Wyndham Forest Drive in Glen Allen, was built from the ground up. Additional Publix stores scheduled to open July 29 (Laburnum Avenue in Richmond) and Aug. 5 (Staples Mill Road in Glen Allen) will be the first of 10 future Publix sites formerly belonging to Ahold’s Martin chain. Publix acquired those stores a year ago when Ahold divested them in advance of its merger with Delhaize. Those sites, including four more Richmond-area stores expected to open this year, have been closed since Publix acquired them.

The Martin’s stores that did not sell in the meantime are on their way out: Two closed this week, and five more will go dark Aug. 2, concluding the brand’s presence in Richmond and throwing thousands of additional customers up for grabs.

Publix has plenty of competition for those shoppers, as Wegmans opened two megastores in Richmond over the last year and Lidl is readying four Richmond-area stores for grand opening July 27.

“We are excited to bring Publix’s premier service, quality and value to customers in greater Richmond and are looking forward to being a part of such a great community,” Kim Reynolds, media and community relations manager for Publix, said in a release detailing last weekend’s opening in Glen Allen.

The 50,000-square-foot store at the newly opened Nuckols Place shopping center is within a three-mile radius of nearly 50,000 shoppers whose average household income is more than $123,000, according to developer Peterson Cos.

The new store resembles the newer units Publix has opened as it expanded from its Florida base into North Carolina in recent years, including a Starbucks counter; an emphasis on deli, bakery and prepared foods; service meat and fish counters; an Aprons Simple Meals cooking demonstration area; and a drive-thru pharmacy. Online ordering and delivery is available through Instacart.

Ahold Delhaize’s Food Lion chain earlier this year said it would commence its Easy Fresh & Affordable renovations throughout its 71 stores in the market.