The food retail environment has evolved and changed from thirty years ago when folks would go to the local supermarket once a week and do their shopping. They rarely considered other options. There was no Internet or very little competition. This is no longer the case. In the 21st century, an increasing number of channels offering a wide variety of food options to consumers raised the level of competition for sales among retailers. They are forced to conceive of new ways to attract shoppers. What are these channels? According to a study in 2010 by Symphony IRI, traditional grocery stores still have over 50% of consumers; mass/supercenters such as Walmart and Target have 18.5%; convenience stores at 13.5%; club stores at 9.1%; drug stores at 2.67% and dollar stores at 2.5%. Farmers markets continue to steadily increase and provide greater accessibility to shopping for SNAP recipients. According to IRI, consumers now shop 2.2 times a week on average in nine to ten channels a month to serve their food purchase needs. While the greatest increase to watch is shoppers’ trips to drug and dollar stores, the most success will come to the retailers who differentiate themselves with the highest quality of products, competitive pricing and noteworthy customer service.
Why is this happening?
At the time the FMI’s 2012 U.S. Grocery Shopper Trends report was released, despite the improvement of the economy, 42% of consumers remained convinced that it is getting worse. Further data shows that shoppers go to small format stores instead of more traditional stores for three primary reasons: price or value, assortment, and convenience. In other words, if a consumer goes to CVS to get their prescription and needs milk, OJ and butter, CVS gets the food sale. The consumer avoids a second stop and may often pay under supermarket prices. This equation, though, factors in the other direction. A consumer goes to Stop and Shop to get milk, and in the Health and Beauty aisle they see the mascara they need for cheaper or a competitive price. Stop and Shop gets the sale. Hentges commentary Also, walls are down for the millennial generation. They don’t see the difference between a store they can drive to and a store on line. They’re willing to go to different channels for an adventure and to save money. In its Millennial Shoppers: Tapping into the Next Growth Segment report, released this summer, SymphonyIRI Group said: “During the past 18 months, millennial shoppers have demonstrated more volatility and less fiscal confidence versus the average shopper. This is having a profound impact on daily rituals and associated CPG-related purchase attitudes and behaviors.”
The Survival of the Traditional Supermarket
Grocery stores like Vons, Giant, Martins and Safeway are offering gas reward points for shopping dollars to bring in consumers. Circulars are online for supermarkets such as Ralphs, offered by zip code. The front of the circular tells consumers to “Get real low prices and fast checkout,” underneath the reminder that Ralphs has been serving Southern California since 1873. Northeast store chain Hannaford Supermarkets launches a mobile app calling it ‘one of the most comprehensive mobile web sites offered by a major supermarket in this country.’ Rather than downsize, Wegmans’ store sizes are increasing to support wide ranges of both food and non-food merchandise. By editing certain foods and adding beauty products, supermarkets look to stop the erosion. If they can’t bring in more customers, they can increase the basket size and keep the shopper in the store longer. The question to ask is, can that be a successful model? Or is it driving shoppers to other channels? According to Jim Hertel of Willard Bishop, “There is no one particular ‘bear in the room.’ Food to drive traffic has been twenty years in the making. Traditional supermarkets need to invest in the quality of what they bring in and the service components of what goes into the store.” Read whole interview here Peter Larkin of the National Grocers Association echoes this point. “The independent grocers that NGA represents know that their best defense is a good offense. Shoppers say the most important attributes in making their store choice are: high quality fruits and vegetables, a clean neat store, high quality meats, accurate shelf tags and courteous, friendly employees.” Larkin commentary
How do other channels differentiate themselves?
Dollar stores mix up their merchandise every week to make it fun to go into a dollar store and find something new. Walmart Express stores are focusing on convenience store offerings in cities that don’t have the population to support a full size store. CVS, Walgreens and Rite Aid among other drug stores are expanding their food departments as well as their wellness centers for health. Walgreens’ CEO Gregory Wassen spoke to shareholders about the new Well Experience concept, purposely blurring the channels of drug store and food store, with a Hollywood store, and soon hundreds more stores, selling smoothies and sushi. Bed Bath and Beyond enters the food business with offerings such as salsa to go with the beach chair and umbrella, and Ikea has extensive unique food offerings. Office supply chains even offer food. While Staples (who owns specialty chains Cost Plus/World Market) caters these snacks to the office environment, they’re taking away a percentage of the market share from Smart & Final and Costco. Specialty independent grocers such as Trader Joe’s entice customers with their Fearless flier; a fun read enticing customers to try new products. Shoppers also know these products could disappear at any given notice due to Trader Joe’s contracts with third parties, and that adds a sense of urgency. Whole Foods “caters to affluent shoppers with its array of natural and organic offerings.” Its Whole Body department continues to grow, bringing in more consumers and helping to sell food. This brand can stand alone and add more customers.
Using the Internet for food
You can research prices at multiple stores online before you go grocery shopping, and you can research products in a store while shopping, but you can also buy food at sites like Amazon. Their bread and bakery section alone has 339 pages of products. If a customer is an Amazon Prime member ($79/year), they get unlimited free two-day shipping on all their orders, or certain products are eligible for Super Saver free Shipping. They also have Amazon Student and Amazon Mom free 3-6 month memberships. On top of that, some products offer free samples along with the purchase, as well as Amazon offering 50% off grocery and personal care liquidations. According to the Future of Food Retailing Report by Willard Bishop, non-traditional grocery channel sales increased 5.9% to $410.3 billion, with a 0.4 point increase in market share to 38.2%. Non-traditional food outlets are taking market share away from more traditional grocery and convenience stores as shoppers turn to new types of retailers in search of low prices. NY-based Fresh Direct offers online ordering, and you can pick it up yourself or pay a $5.99 fee to have it delivered. But Fresh Direct’s virtual stores allow them to also know a lot more about their customer and use that information to further connect with customers. Peapod is also a successful online ordering service serving the East Coast, Chicago and Indianapolis. While over 75% of online shoppers are male, Peapod appealed to career women who cared for their home but also had limited time to shop at the local supermarket.
How does this impact the food world and its consumer?
There will continue to be more and varied competition for the traditional supermarket, offering shoppers a plethora of choices in more places. Food retailers have the opportunity to attract shoppers with foods and beverages that their competition does not have available. Trader Joe's frozen offerings are a perfect example. The key for food retail success, whatever the channel is, will be customer satisfaction.With the continued concern about the economy, and shoppers continuing to find ways and locations to save money on their food purchases, customer satisfaction becomes even more important, especially if they choose to settle for less service or atmosphere to save money. A good example of failing to do so rests with Fresh & Easy who offers only self-check, which resulted in shoppers being more frustrated and annoyed than satisfied. According to the LA Times, the chain “offered the same merchandise regardless of neighborhood and customer base.” The Times’ online survey showed 64% had shopped at a Fresh & Easy. The chain had attracted shoppers, got them in the stores, and then lost them.
Short term, over the next two years, we expect more change as the "new" SuperValu continues to change the landscape, more consolidation, and the imminent sale of Fresh & Easy. Much has been written about the emerging dollar store channel, which seems to be experiencing stalled growth prompting Family Dollar and Dollar General to address the food desert issue in urban areas. Dollar General is now positioning itself as the “new general store.”Long term, looking ten years into the future, there will no doubt be more hand held and in-home technologies that will change the way people acquire their foods and beverages. But one fact will remain true - regardless of where people buy food, they want their purveyor (bricks & mortar or on-line) to know their needs and desires, offer ways to ease their shopping burden, deliver on good value, provide a terrific shopping experience and respect their customers.