A recent Wall Street Journal article concluded that traditional supermarkets have to find a point of differentiation fast or they’ll continue to lose ground to more price-driven competitors.
Jinjoo Lee, the WSJ’s Heard on the Street columnist, noted that according to the U.S. Department of Agriculture, supermarkets and smaller-format grocers accounted for about a quarter of Americans’ total food spending in 2022, down from about 37% of Americans’ total food spending in 1997.
Warehouse clubs and supercenters gained significant grocery dollars over that period. In recent years, aggressive share gains have been captured by discount grocers, such as Aldi, and dollar stores that emphasize value, as well as online players like Amazon that play up convenience.
Lee noted that traditional grocers have long struggled in center aisle categories where they compete directly on price against the same brands sold by their larger competitors. Meanwhile, Walmart, Costco, Aldi, and Dollar General have all elevated their fresh assortments in recent years. Lee concluded that supermarket chains need “clear differentiators, not incremental ones.”
Walmart controlled 25.2% of U.S. grocery share in 2022, followed in the top five by Costco (7.1%), Kroger (5.6%), Sam’s Club (4.7%), and Publix (4.4%), according to Chain Store Guide.
Walmart and Costco are seen benefiting from one-stop shopping appeal as well as low prices.
Club retailers like Sam’s Club, Costco, and BJ’s are also positioned to gain grocery share in part due to their membership model, according to a report by CFRA Research analyst Arun Sundaram, reported Winsight Grocery Business. Sundaram wrote in the report, “The membership model at warehouse clubs fosters strong customer loyalty, which is challenging for traditional grocers to replicate when competing with numerous other traditional grocers in the same area.”
Discount grocers such as Aldi, Lidl, and Grocery Outlet are expected to outpace the grocery growth overall due to their compelling private labels and aggressive expansion plans, according to a report from Coresight Research. The Coresight report suggests that traditional grocers offer discounts to loyal customers, invest in their own private labels, and lean into online offerings.