MONTERREY, Mexico – Executives with Mexican convenience-store company OXXO say they are anxious to expand into Texas and have been eyeing the Lone Star State for some time, according to a report by WOAI Radio.
"OXXO is prepared to make a major investment all across Texas," they recently told a Texas House committee. "We plan to open 900 stores in the next 10 years … investing more than $850 million and creating more than 6,000 jobs”
They continued, "The overall business friendly climate in the state along with the strong economy and many consumers who are already familiar with the OXXO brand, make it extremely attractive for the expansion of our stores.”
OXXO opened one “proof-of-concept” c-store in Eagle Pass, Texas, in May 2014, but denied it was anything other than a lone prototype.
The chain operates approximately 12,400 c-stores in Mexico and Central America. OXXO is part of FEMSA Group (Fomento Económico Mexicano SAB de CV), the largest beverage company in Mexico. It is the largest independent Coca-Cola bottler in the world and an investor holding the second largest equity stake in brewer Heineken.
The hitch? The company’s leaders are asking the state legislature to repeal a law that prohibits retailers from being owned by firms with ties to the liquor industry, a law that is blocking OXXO from making a major move into Texas.
In September, a Texas appeals court upheld a decision barring the OXXO from obtaining a state license to sell alcohol, ruling its corporate parent’s indirect and partial ownership of Heineken violates cross-ownership rules, said a report by Law360.
The decision from the Austin Court of Appeals said broadly written statutes preclude the same company from owning both an alcohol manufacturer and retailer, despite multiple layers of corporate separation and even when there is no evidence one entity can exert any control over the other.
The ruling bars a permit for OXXO’s Texas subsidiary, Cadena Commercial USA Corp., because OXXO is owned by FEMSA, and FEMSA in turn has an indirect stake in the parent company of Heineken brewers, which hold a Texas manufacturer’s permit.
The court rejected OXXO’s argument that the law requires a common owner to have a controlling interest in multiple tiers—retail, distribution and manufacturing—to be barred from a permit, and said FEMSA’s ownership interest in both OXXO and Heineken is significant.
The measure to repeal the current law was not voted on by the committee, said the report.
SAN FRANCISCO — Let’s take a trip to crazy town, shall we, and pretend for a moment that we are in a precarious tech industry bubble. Imagine, for the sake of argument and not because this could possibly be true, that the rising valuations of the largest start-ups are unsustainable. O.K., now consider the following: If we are in a bubble, which of today’s start-ups is the modern-day Webvan or Pets.com? A decade from now, which company will we look back on and wonder, what on earth were we thinking?
One top candidate might be Instacart, a company that uses smartphones to deploy a battalion of personal shoppers to buy and deliver groceries to people’s homes. Instacart shows great promise — its founders and investors believe it could provide employment to tens of thousands of workers, improve the reach and financial prospects of small and large physical grocery stores, and eliminate what many people consider the drudgery of grocery shopping.
Yet its success may rest on some unproven assumptions about the market: that delivering groceries can be done efficiently enough to sustain its low prices; that it can be done in sprawling suburbs as well as dense cities; and that, if it takes off, it will add to, rather than siphon off, business from large grocery chains.
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Instacart uses smartphones to deploy a battalion of personal shoppers to buy and deliver groceries to people’s homes.CreditPeter DaSilva for The New York Times
I first wrote about Instacart’s potential to change the grocery business a year ago, and have been checking in with Apoorva Mehta, Instacart’s founder and chief executive, occasionally since. Last week, I stopped by the company’s headquarters in San Francisco to discuss Instacart’s growth and sustainability as well as how operations have changed during a high-flying year.
Mr. Mehta was willing to answer some, but not all, of my inquiries. I also spoke to several of Instacart’s grocery partners, many of which pay the start-up a cut of each order. Some divulged details about their sales through Instacart, and the information suggested the start-up was doing well. Growth, from what I could gather, may be in the double digits.
But deep questions remain, particularly whether Instacart can make enough money from each order to justify its valuation, and whether the sales gains that retailers say they’re experiencing through the service can be sustained. Instacart looks like a great idea — and, still, a very big bet.
Instacart certainly smacks of the bubble: In two large funding rounds over the last year, its valuation has risen more than tenfold. In January, some of Silicon Valley’s best-known venture capitalists invested $220 million, collectively appraising Instacart at around $2 billion.
The company has used its new money to fund expansion. Last year, it grew from serving just a few markets to 15 cities, and this year, it plans to expand to even more. A year ago, the company had about 50 full-time employees. Today, it employs around 200, and by the end of the year, it will have around 500, Mr. Mehta said. That does not include thousands of contractors who pick and deliver groceries.
“I come in to work now and there are all these people and I don’t know their names,” Mr. Mehta said. “It’s a weird feeling.”
Instacart’s rising valuation is based partly on ballooning sales. In December, Mr. Mehta told me the company’s gross revenue grew by more than 10 times in 2014, to more than $100 million for the year. Last week, he declined to divulge more current information about growth, including whether it had picked up or slowed down since we’d last spoken. He also declined to discuss whether the company was profitable, and its current costs.
In theory, Instacart’s costs should be relatively low. Rather than invest vast sums into warehouses and refrigerated trucks — like many older, unsuccessful grocery delivery companies, notably Webvan — Instacart uses resources that are already built up. Like Uber, it contracts with workers who use their own cars to deliver groceries to customers, and its products are bought from stores in your own neighborhood.
Instacart’s potential to improve grocery sales has led to a new relationship with some of the country’s largest supermarket chains. In its earliest days, Instacart had few formal ties with supermarkets; its shoppers would just go to stores and buy stuff, and stores either didn’t know or didn’t care. The company made all of its money from consumers through a delivery fee of around $3.99 an order, in addition to a markup of around 10 to 20 percent on most items in the store.
Last summer, Mr. Mehta realized that the model was limiting. Customers didn’t like the marked-up prices, and stores didn’t like that they had little say in Instacart’s operations, including its prices.
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Apoorva Mehta, Instacart’s founder and chief executive, at one of Instacart's affiliated shopping locations, Rainbow Grocery in San Francisco.CreditPeter DaSilva for The New York Times
So Instacart began restructuring. In deals with more than a dozen supermarket chains, the company formalized a new pricing relationship in which stores would pay Instacart a cut of each order. With Instacart now receiving money from retailers, it could eliminate markups for customers in many stores. Last week, the company announced a new “pricing transparency” feature on its site that shows which locations have higher prices than you’ll find on a store shelf, and which ones have the same prices. Most items on Instacart, the company says, are now selling for the same prices as in stores.
Retailers were willing to pay Instacart on the theory that they’d gain more business, because Instacart would let a single store serve people across a wider geography. “Instacart was adding so much more volume and new dollars to the store that it made sense for them to partner with us,” Mr. Mehta said.
He cited data: Instacart has determined that 52 to 78 percent of its orders to a grocery store are “incremental” — meaning they are orders that the store wouldn’t have had without Instacart. What’s more, orders through the service are two and a half to four times as large as orders made inside physical stores, Mr. Mehta said.
Signing deals with stores also let Instacart improve efficiency. In its most popular stores, it now has dedicated pickers who only shop, then store the groceries in Instacart shelves and refrigerators for delivery workers to pick up. Stores also set aside a cash register for Instacart’s use, allowing its shoppers to avoid lines. Instacart has also built software for retailers to integrate with its online system, and it is working on what Mr. Mehta called machine-learning tools to predict inventory shortfalls and the number of staff members it will need in each store throughout the day.
Trey Hall, chief marketing officer of Natural Grocers, a chain of 95 stores across the western United States, echoed those thoughts. Instacart is available in three of the company’s stores, and in those locations, there has been “a nice bump” in the number and size of orders. Natural Grocers is monitoring performance to determine how quickly to introduce Instacart in more locations. “We feel like we are making up at least some of the money we are paying out,” Ms. Manganaro said. But “it’s still a very, very small percentage of our overall sales.”Retailers told me they’ve noticed gains, though the numbers are small. Yvonne Manganaro, senior director of marketing at Gelson’s Markets, which operates 18 high-end grocery stores in Southern California, said that since signing up with Instacart in the summer, the company has had a small but noticeable uptick in orders in at least one of its stores. Also, since Thanksgiving, the number of Instacart orders at Gelson’s has grown by 50 percent.
Instacart’s largest retail partner is Whole Foods Market, which reported in a February earnings call that, on average, it was selling more than $1 million a week online. But Whole Foods’ total annual sales top $14 billion, making online sales less than half of 1 percent of its revenue.
Sure, those numbers are likely to grow. But the long-term danger for Instacart may be that as it grows, a declining number of sales will be incremental to physical stores — and, instead, will come at the expense of people going to the store, a situation that may put off retailers from working with the company.
“You can only eat so much,” said Darren Seifer, who analyzes the food and beverage market for NPD Group, a market research firm. “As they permeate throughout a market, the market will saturate, and it would seem to become more cannibalistic.”
Instacart’s future may depend on figuring out how to prevent that from happening.
Friday, May 1, 2015
Flourishing Specialty Food Industry Hits $109B with 22% Growth [Infographic]
Total retail and foodservice sales of specialty foods swelled to nearly $109 billion in 2014, a growth of 22 percent since 2012, marking a banner year for the industry.
The Specialty Food Association and Mintel International presented the findings of the 2015 State of the Specialty Food Industry in a live webinar Wednesday, painting a promising picture of the growth and sustainability of specialty foods.
Additionally, 15 segments within the industry saw sales exceeding $1 billion. Presenters noted the report does not include sales information from notoriously private Whole Foods Market and Trader Joe’s; were those companies’ data included in the study, it is estimated that sales numbers would be markedly higher.
Top Performers
Among the best-selling categories within the industry, cheese and cheese alternatives continued to represent the largest segment with $3.7 billion in sales. Coffee, coffee substitutes, and cocoa jumped to the No. 2 spot with 21.5 percent growth since 2012.
Frozen/refrigerated meat, poultry, and seafood had the third-largest share of sales, thanks in part to the growing popularity of deli and charcuterie.
Refrigerated pasta was the fastest-growing segment in 2014, with 78 percent growth since 2012. Other refrigerated items like pizza sauce are growing rapidly, which Ron Tanner, vice president of philanthropy, government, and industry relations for the Specialty Food Association, attributed to a consumer desire to buy more fresh products.
Shelf-stable, functional beverages are also gaining sales as consumers are looking for soda alternatives that carry a health benefit.
Specialty foods are beginning to make significant strides against traditional products, Tanner noted. In the case of refrigerated salsas and dips, 62 percent of all refrigerated salsas and dips sold in the United States at retail are specialty products.
Additionally, specialty products make up 57 percent of all energy bars and gels and more than half of all teas sold in the U.S.
All in all, specialty food products represent nearly 15 percent of the total market share of all foods sold domestically at retail. When the Specialty Food Association began its annual research about 12 years ago, Tanner said, that market share was only 4 percent. The association anticipates reaching 20 percent market share within the next five years.
“Over the years, specialty food has certainly taken a lot of market share away from the mass-market products, and they’re beginning to make substantial inroads,” Tanner said. “As consumers are buying more specialty foods, retailers will be stocking more of them and this should continue to increase.”
Industry Perspective
Across the specialty food supply chain, all segments reported a relatively strong year in 2014. Denise Purcell, head of content for the association and editor of Specialty Food Magazine, noted a majority of industry members reported about 10 percent growth year-over-year in 2014.
Many also reported a stable or slightly declining number of SKUs since 2007. “That suggests that the supply chain is really focused on getting the right number of SKUs that they need to grow sales without going overboard and risking carrying a surplus of inventory,” Purcell said.
For manufacturers, average annual sales in 2014 were $2.9 billion, with 48 percent showing growth of 20 percent or more for that year. Nearly two-thirds of those manufacturers are co-packing private-label items for retailers.
Among importers, a majority of sales gains were in the 1 percent to 19 percent range. For distributors, mean annual sales were $7.2 million, and 46 percent said they grew sales 20 percent or more last year. Brokers reported higher average sales and SKU counts in 2014 than in previous years.
Specialty food retailers also had a good year in 2014, with the average square footage of specialty stores growing to 6,072 square feet. “I think that’s because they’re getting more business and they’re putting in more departments than they have been in the past,” Tanner said.
Asked about their thoughts on emerging food and market trends, retailers called out smoked flavors, pickled foods, gluten-free items, seaweed, more good-for-you ingredients, sustainability, whole grains, humane food production, ethical sourcing, smaller stores, and greater delivery options.
Manufacturers, brokers, distributors, and retailers all agreed that locally made or sourced products is most important to consumers today. Offering predictions for the next big claim three years from now, manufacturers, importers, and brokers all predicted the non-GMO claim would top the list.
The Future of Specialty Food
David Browne, market research and retail analyst for Mintel, said one of the most important aspects of the specialty food market is that it will continue to become more mainstream. About 82 percent of specialty food sales are in conventional outlets such as big-box retailers and convenience stores, meaning consumer exposure is greater than ever.
Online sales across all segments are expected to boom in coming years, with millennials representing the biggest buyers. “It’s something the industry as a whole should be paying great attention to and building out services to support that,” Browne noted.
The free-from movement, particularly non-GMO and gluten-free items, is expected to continue to surge. Convenience food and beverages will be a hot sector in the next few years, with consumers setting their sights on easy, good quality, portable food and drink.
The specialty foodservice segment is building up steam, Browne said, growing 50 percent faster than retail. That growth signals a continuing rise in the availability of specialty foods in restaurants, food trucks, and national food chains.
“Today’s specialty consumer is a very committed consumer,” Browne said. “Specialty food is very much like the natural and organic food industry, which is overlaying this industry very closely. These consumers tend to see it as a lifestyle and not an occasional indulgence. That’s very good news for the industry as a whole."
Writer/Editor/Event Moderator, Conde Nast; Penguin Random House
Conscious co-founders Lucy Muellner and Erin Johnson opened Fork & Anchor to bring simply prepared foods to their local, seaside community.
APRIL 28, 2015
Over the past several years, countless books and films have documented the moral and ecological dilemmas presented by today's industrial food chain, giving many pause about where our food comes from. For Lucy Muellner, it prompted a business idea.
The movement, Muellner says, “opened my eyes to the fact that the feeding and treatment of an animal, including the distance it has to travel for slaughter, is reflected in its taste. I knew from experience that the chicken and beef I ate in France tasted better than most of what I've had in this country."
It was important to us to maintain the customer base that had frequented the store for years, and at the same time, pique the interest of those who'd never stepped foot in the store with our new range of products.
That led Muellner, a former fashion stylist and culinary school graduate, along with longtime friend and fellow Brooklyn transplant Erin Johnson, to start East Marion's Fork & Anchor general store in 2011.
Fork & Anchor co-founders Erin Johnson and Lucy Muellner
The store offers takeout and catering menus featuring simply prepared food, incorporating local ingredients whenever possible. It also preserves the concept of a “general store," with a wide range of offerings such as housewares, toiletries, packaged foods and beverages, including beer. “It was our goal to keep this kind of store alive but make it something more, something that people remembered more for the food than for anything else," Johnson says.
Fork & Anchor's financing came from a combination of friends and family, as well as a bank loan. “We weren't in a position financially to get a space in Brooklyn, nor was it really what we had envisioned," Muellner says. "We starting looking in the South Fork first, but realized that real estate prices were too high. Erin came out to NoFo for the weekend and urged my husband and me to join her immediately. We got there and instantly felt a connection and everything sort of fell into place after that."
The duo transitioned to living and working on the North Fork, 80 miles east of Manhattan, by trying to meet as many people in their new community as possible. Following a regular Saturday yoga class, the now-35-year-old women hit the Greenport Farmers Market to shop stands of biodynamic fruits and vegetables, locally baked breads and pastured chickens and eggs.
"After a few visits to the Browder's Birds farm stand and some chats with one of the owners, Holly, I asked her if they ever needed volunteers," Muellner says. She began volunteering there the next week.
“Because my experience at Browder's Birds made me feel more bonded to the land, I felt that I had a responsibility to serve local, sustainable food to the community," Muellner says. "At Fork & Anchor, we brought in produce from local farms and organic deli meats and began serving it without a big conversation. We let the food speak for itself, and people noted the difference."
Formerly known as Angel's Country store, Fork & Anchor is located on East Marion's main drag, alongside the small town's volunteer fire station and post office. A 19th-century barn on their leased property provides storage space and serves as a weekly distribution center for Fork & Anchor CSA, or community-supported agriculture. From late May through October, people who buy a $695 seasonal share in Deep Roots Farm, located in the neighboring town of Southold, pick up boxes of freshly harvested heirloom vegetables and fruit, along with organic herbs and add-on shares of New York state cheeses and poultry and pork.
In a tribute to Fork & Anchor, voted "Food or Beverage Shop Local Hero 2014" by community members, Edible East End wrote, "These women haven't been out here long, but their dedication to serving deliciously prepared local food and reliance on our farmers has made us feel like they've been around forever." Regulars show love by dropping off buckets of clams and freshly hunted venison for the shop owners' home cooking, along with gifts for Johnson's four-month-old daughter, Greta, born out of a fairy tale meeting on Fork & Anchor's opening day, when local resident Mike Johnson walked in, saw Erin, and proposed marriage a year later.
All year round, seven days a week, the 800-square-foot shop opens its doors to locals who come in for a sunrise coffee, newspaper, egg sandwich or cigarette fix. Weekends and summers bring "city people" refreshed to find a broad selection of local and imported foods, Greenport Brewery growlers, glossy magazines, picnic boxes for vineyard and boat excursions, and a catering menu with inspired offerings like asparagus tips with arugula, Pecorino Romano and lemon vinaigrette.
During the months leading up to the transition from Angel's to Fork & Anchor, Johnson and Muellner sat on a bench outside the country store to observe the habits and preferences of their soon-to-be clientele. They wanted to be sensitive in continuing to serve as a humble convenience store while, at the same time, raising the quality of offerings. In introducing locally roasted, small-batch coffee and organic sliced meats and cheeses, they lost some customers as prices went up, but they also attracted people who had never before stepped foot on the property.
And because they bought an existing business, they already had customers walking in the door on day one. “Our tactic was to keep the store running—business as usual, working through the inventory we bought through the business purchase, while slowly, over the course of a year, phasing out things we weren't interested in carrying and introducing new products and a new menu," Johnson says. "It was important to us to maintain the customer base that had frequented the store for years, and at the same time, pique the interest of those who'd never stepped foot in the store with our new range of products." The pair worked on the store's website and created new signage, but didn't start advertising until the second year, when Fork & Anchor was closer to the original vision.
Fork & Anchor's ongoing challenge centers on the delicate balance between small-town values and overall local resistance to change and the desire to serve visitors who provide most of their revenue.Sales can jump 300 percent from winter to summer, and training and staffing up to 10 employees for a seasonal business proves difficult. As soon as a reliable worker learns the ropes, it's September—time to go back to college.
While the shop is growing, challenges remain. "We did $100,000 more in sales in 2014 than in 2013, and sales have gone up every year since 2011," Johnson says. "That said, so have our costs—costs of goods sold, payroll, equipment repairs, reinvestment back into the business for projects such as launch of product line. We feel good about the direction we're headed in, but we do see the need to do more catering in order to capitalize on summertime volume that can hold us over the winter."
Fork & Anchor's brand extension also includes a product line of condiments. Their first offering—apple-raisin chutney made with local Wickham's Farm fruit and served on Fork & Anchor's signature turkey sandwich—launched in January 2015 and is sold for $11 for nine ounces at their store and at local farm stands. They plan to create two more chutneys and other shelf-stable condiments by the end of this year.
Johnson and Muellner are also waiting on approval for a mobile kiosk at Greenport's nearby Brewer Yacht Yards this summer. The quilted metal trailer, if green-lit, will sell sandwiches, snacks, drinks, newspapers and small provisions that boaters might forget, like sunscreen and soap. "We have a great relationship with the marina," Johnson says. "They appreciate what we've done and approached us to be on-site so that members docking from long sails don't need to be transported into town every hour."
The North Fork community adopted by Johnson and Muellner, like any seasonal seaside outpost, is subject to cresting and falling waves of population. Not long after the railroad to the East End of Long Island was completed in the mid-1800s, allowing farmers access to city markets, the structure that houses their new store was built. It was their vision for the landmark building that inspired their business, rich in history. Progress meets tradition, city meets country. For Fork & Anchor, it's about the delicate balance of constant chang
More than 2,000 new products will be introduced this year, and most will see their way into distribution through a retailer’s “one-in, one-out” mandate. The practice of de-listing one of the manufacturer’s SKUs in order to take on another happens nearly 98% of the time, meaning that of the 2,000+ new items introduced, only 40 or so will result in net distribution gains.
The “one-in, one-out” approach is not without merit, since new items typically face long odds of success. Retailers often use these SKU trade-outs, as well as slotting, to mitigate their risks when onboarding a new item. However, this practice impedes true innovation and it’s the shared consumer that ultimately bears the brunt of this trading partner dynamic.
Innovative, disruptive products outperform line extensions by more than 10 to 1
Line extensions are unquestionably a safer bet even though they may not offer as much upside potential as disruptive new products. However, in a recent study, Willard Bishop found that disruptively innovative products attracted new shoppers to the category at a rate that was ten times more than bottom tier new items. (Note: the bottom tier was largely comprised of line extensions.)
We also discovered that:
Half of the buyers of disruptive products had not purchased in the respective category within the prior twelve months
Disruptive new products increased the spend-rate of existing category buyers by as much as 50%
Spend-rates of existing buyers continued to increase for as long as 12 months beyond the new item’s initial rollout
Even the lowest performing new items added some value, although disproportionately less than disruptive items
A case in point
Last year Musco Family Olive Company introduced Olives To Go! This novel product, with high retail relevancy, attracted new buyers to the category and increased the spending of existing category buyers. (Content published with permissions from the Musco Family Olive Company; source: Willard Bishop Total Store SuperStudy.)
Specifically, the Olives To Go! introduction:
Brought 33% new users to the category
Increased spend-rates for existing category buyers by 20%
Appealed to smaller households and children
Increased consumption by extending olives from a predominantly ingredient-based product to a healthy, alternative snack
Benchmarking new item performance
The number of new items is nearing record levels; therefore, retail relevancy is more critical than ever. New products delivering mutual gain (retailer, manufacturer and consumer) will provide exponential growth for both trading partners, while providing another platform for retailer-manufacturer collaboration.
Moving forward, manufacturers should align their cycles of discovery and innovation with the retailer’s performance metrics. Specifically, they should ensure that their new items deliver on one or more of the following:
Brings new buyers to the category
Increases the spend-rate of existing category buyers
Encourages consumers to shop the total store
New items, those steeped in retail relevancy, will capture disproportionate growth for manufacturers and retailers, while bringing innovation and convenience to the shopper.
![Flourishing Specialty Food Industry Hits $109B with 22% Growth [Infographic]](https://www.specialtyfood.com/media/cache/12/dd/12dd6256ec3b56d3cbec542ac4816c94.png)
efrigerated pasta was the fastest-growing segment in 2014, with 78 percent growth since 2012. Other refrigerated items like pizza sauce are growing rapidly, which Ron Tanner, vice president of philanthropy, government, and industry relations for the Specialty Food Association, attributed to a consumer desire to buy more fresh products.
Many also reported a stable or slightly declining number of SKUs since 2007. “That suggests that the supply chain is really focused on getting the right number of SKUs that they need to grow sales without going overboard and risking carrying a surplus of inventory,” Purcell said.
