Supermarkets continue to give ground to other channels
The term channel-blurring has taken on almost nostalgic quality these days. It’s been many years since it was first identified that consumers were going to a variety of retailers to buy products that once were almost exclusively purchased at one particular type of store, primarily supermarkets. But, quaintness aside, the migration of consumers from one channel to another continues as evidenced by results from a recently published survey of more than 1,200 consumers by King Retail Solutions and the University of Arizona’s Terry J. Lundgren Center for Retailing.
According to the research, 77 percent of Boomers, Gen X and Millennials purchased groceries from stores other than a supermarket last year and 96 percent plan to buy more from non-grocers this year. Interestingly, the wealthier the consumer, the more likely they are to buy groceries from a club, dollar store, supercenter, or other alternative to traditional grocers.
Not surprisingly, big box alternatives are the most likely places for consumers to spend their grocery dollars. The top 20 favorite places for consumers to buy groceries outside of the grocery channel, according to the survery, are:
1. Target
2. Walmart
3. Walgreens
4. CVS
5. Costco
6. Dollar General
7. Farmers Markets
8. Dollar Tree
9. 7-Eleven
10. Kmart
11. Sam’s Club
12. Rite Aid
13. Family Dollar
14. Starbucks
15. Kwik Trip
16. Big Lots
17. Cost Plus World Market
18. Wawa
19. Circle K
20. BJ’s Wholesale Club
Discussion Questions
Do you see supermarkets finding ways to fight back against losses to other channels? Does the increased focus on groceries have a downside for any of the non-grocers chasing the customer traffic that comes with this business?
Okay, you can purchase groceries at Target and at very good prices, but they are mostly items like detergent, dog food, personal care, cereal, frozen items and even yogurt and coffee and we do. For real food, like the kind you actually cook and that are healthy and nutritious, you need to get your butt into a supermarket like a Whole Foods, Kroger, A&P Fresh etc.
America does not need to buy more processed foods and hopefully for most of us, we don’t want to at the expense of real food. Supermarkets should “own” this and help the busy shopper with meal solutions that are quick but nutritious, not junk. Yes, you can stock up at Costco and Sam’s Club and you can of course, buy everything at Walmart, but your local supermarket should be and still has the opportunity to be the place to go for your “real” food shopping.
Another topic that hits home, and is no surprise to anyone what is happening today. When I started working many years ago, my father built the first self serve supermarket in the early ’50s with his uncle. They did a ton of business, and eventually he built another one in our current location in 1965. The small corner mom & pop stores, and little bakeries fell by the wayside, as supermarkets dominated the landscape, with healthy bottom lines.
I won’t bore you with the decades of transition, but today, we are perceived as the pesky mom & pop store that is hanging around waiting for the grim reaper to come calling. It is sad in some ways, but the Big Box stores and clubs have put a hurting on many retail stores, due to some circumstances beyond my control.
The so called level playing field is a joke, as CPG companies have shifted their dollars in special deals offered exclusively to big chains, which makes it difficult to compete on center-store value.
The other issue is pure economics, and again the big chains know that the majority of consumers are nearly broke, and crazy low prices on staples has become the norm. Everyone who sells groceries has suffered on the bottom line, but the door buster prices must continue to keep them coming in.
What can we as independents do? We have to build alliances with the best regional suppliers to work the system on in and out deals that will attract customers to our doors every single week. Outstanding perishable departments are a must, along with great values will bring them in as well. Customer service is an advantage we have always had, and it is even more important than ever before.
After attending NGA, we are going into some extra social media, and phone applications to help us with the new media promotions that we have been missing.
There will be more casualties in our business as truthfully speaking, there are some lousy operators out there, and will have to close their doors. The ones who want to stay must adjust inventory levels, eliminate some SKU categories in the center-store, and build a tremendous perishable perimeter to have a chance at a future. Not easy to do, and oh yeah, pay their bills on time, or no one will serve your stores.
If you add in the ACA, and general inflation, it is not just the little guy that may close, as mid-range regional chains are struggling with all the insane mandates we must offer that destroy the bottom line.
I think I have said enough, and good luck to all the guys like me who are willing to stick around till the last dime is in the account. Build new or existing relationships with the wholesalers who can help you, and don’t live in the past. Have a great day!
Supermarkets have done more than their fair share of grabbing business from other channels. They put the milkman out of business 40+ years ago, started giving department stores a run for their money with makeup going back to the 70s and have been battling with the drug channel over pharmacies for almost as long. More recently, they’ve been trying to grab share of stomach from the foodservice channel with all sorts of programs. So they can’t cry foul. In fact, that may be a strategy some supermarket retailers take – pushing into new channels or emphasizing ones they recently expanded, like foodservice.
BTW, I’m pleasantly surprised that Farmers Markets is on that list. Also, it will be interesting to see when an online seller makes it.
I’ve seen supermarkets placing more emphasis on locally grown products and organics. They work harder at customer services such as taking your groceries to your car. However, in terms of CPGs, they have stiff competition.
Grocery needs to accommodate shifting populations and demographics.
First, shoppers are going urban. The Brookings Institute has reported that Americans are moving into cities at a prodigious rate not seen in over a century. Urbanization changes shopping habits – consumers buy fewer items, more often. Further, these urbanites find hyper-local, smaller footprint retailers convenient and appealing. Grocery must change or expire.
Second, the Pew Foundation reports that since 1970, every year has set a new record LOW for marriages. Consider how we have changed in the last 50 years. In 1960, nearly 60% of young adults (ages 18 – 29) were married, compared to only 20% today.
What does this mean for grocery? The era of big stock up trips are coming to a close. The way to make money moving forward is more like a Grocer-ant — high margins on small baskets, selling finished foods to urban singles.
Grocers are on this issue. They are experiencing nothing new, but just more options being offered to the shopper. Grocers are tuning their store formats and their assortments by category, along with their promotion techniques to keep or make their stores in the shoppers “top of mind.” Recently, the push on Wednesday as the promo insert day made the news. This shifts their promo strategy and is another tool to use against their competitors.
In the end, it will be about how the shopper is treated at the store that determines who wins. Shopper care vs price? No way! Everyone wants price deals! Not really – people are going to shift to care vs price…watch for this.
Tom…caring, really….
What are the things that the supermarket can do really well for their consumers, e.g., cooking classes, easy to create meals, how to use ingredients or tools, etc.? Back to the first article — what can they do to be innovative, to attract their customer base, to provide something interesting to those people?
We’ve been talking about channel blurring and how supermarkets can fight back for a long time and will continue to the foreseeable future.
Supermarkets don’t come in only one size: Sprouts, Whole Foods, and Trader Joe’s are expanding, and there are some regional players that have done well to not only protect but also expand their business. The key is to redefine the role of the supermarket in the mind of the food shopper.
What can a supermarket deliver that others cannot? it certainly isn’t on mainstream packaged goods and paper products which can be had elsewhere. So, its core competency has to be on delivering fresh, nutritious meal ideas: the “perimeter” has to come to life and be fun to shop! These fresh departments have to pull in the shoppers. Remember the mega demographic trends are pushing for desired healthier lifestyle and the faster supermarkets figure out how to integrate themselves into the lives of their customers, the quicker they can reduce or even eliminate the perennial blurring of channels in the consumer’s mind.
As to non-grocers chasing customer traffic with increased focus on groceries, the main downside is that this drives up their top line revenue (better same store comps), but these come at razor-thin margins.
I read an article in Forbes that covered this survey with a tone of “surprise” at most of the results. Most amusing, or absurd, depending on your point of view, was this quote, “Why, then, are grocery shoppers increasingly making the choice to buy their fruit and vegetables at Wal-Mart versus Whole Foods and its ilk?” And get this, “it seems that price, convenience, and quality were the factors upon which consumers made their choice.”
The blending of store concepts will continue as consumers preferences change. Yes, grocery stores (Kroger/Safeway/Albertsons, all the regionals and independents, etc.) that haven’t already will offer additional non-grocery items to gain sales and fight back the competition. Downside to non-grocers? Give up shelf space to lower-margin grocery items in an effort to lure more customers is a risk that will reward some and give others something to defend in quarterly investor conference calls.
I’d be more comfortable if we addressed the outlook for “conventional” supermarkets in this context. Certainly, operators who cling to a decades-old business model of undifferentiated assortment and vague positioning are under assault from all sorts of competitors.
But retailers who stand for something in their shoppers’ lives seem to thrive. Sufficient examples have been cited in this discussion to prove this point. Stay out of the “big middle” if you can, and remain a vital resource for your shoppers.
If you already own a conventional supermarket in a neighborhood surrounded by excellent dollar stores, drugstores, c-stores, super-centers and healthier food markets, then maybe the best game available is to try to stem share loss and control your costs.
Or maybe, get obsessive about shopper experience. If you can’t be their exclusive store, at least be the one they prefer to visit most of the time.
The supermarket evolved by adding higher margin categories, but never did they own these categories. Supermarkets own the fresh meat and fresh produce departments. To own a category requires at least 50% or more of the total market sales. Supermarkets only own 60 of the 123 categories typically found in the store. What supermarkets need to do is own more categories.
True, many of the alternative channels have taken business away from supermarkets. But a lot of that business has been general merchandise, health and beauty care products, pet care and non-edible grocery items. That is not to say that alternative channels have not siphoned off food as well. They have, but that is largely driven by price.
What supermarket retailers need to do is to focus on real food that is attractive, colorful, engaging and nutritious. Walk into Stew Leonard’s. It is a Disneyland of food. Look at Giant Eagle’s Market District with its appeal to foodies.
Food needs to be the star of the show with samplings, cooking demos and lessons, and the like. The supermarket needs to be the stage for food and not merely a distribution point for groceries.
I am in agreement with Tony. After all, who can know more about the battle than the battler.
I have to admit I have shopped at five on the list George gave us. There are two I don’t plan to return to. Sometimes we learn lessons the hard way.
Two thoughts here:
1) Surveys that ask questions in the manner of “do you EVER …” exaggerate numbers and offer little (other than feeding headlines); market share is still – or at least should be – measured the old-fashioned way: (aggregate) sales;
2) But if we assume (“traditional”) supermarket’s share of grocery, et al sales really IS declining – i.e. my complaint from #1 notwithstanding – my question becomes “what does it matter?” If the list of top sellers changes from – say, hypothetically – Kroger, Safeway, Supervalu to Walmart, Target, Costco – and someday to XXX, YYY, ZZZ, how has this impacted consumers, or companies outside the grocery industry? The change from smaller, mom & pop stores (with high-levels of service, limited selections, and higher prices) to supermarkets, was a change for everyone, as in was a transformation at every level…this just seems like one big company replacing another.
Did the survey ask why? That is the only question that matters – nothing else can drive action quite like the truthful answer to why. That said, not sure a survey is the best way to get the real answers. When the brain makes emotional decisions it has no “voice” to speak of that. There’s a lot more going on subconsciously in consumer decision making that we need to take the time to pay attention to in order to make any sound decisions in the insights-to-action world!
Where have we been people? This ship sailed decades ago!
We ALL need to stop prattling on about channels and face facts. It isn’t about channels and their relative appeal or lack thereof, it’s about transactional facility. Punta — end of story.
If supermarkets want the business back, they are going to have to learn to migrate from brand centric push marketing to customer centric pull marketing. If they can’t — they’re doomed.
Interestingly, though people talk service and fresh, 4 of the top 6 and 5 of the top 8 are stealing business based on lower pricing than supers, and if you are an ad shopper, all 8 of the top 8 are doing so.
On one level, this is nonsense. Well run large chain supermarkets began gaining share back at least on a channel level about 2 years ago. Walmart has been underperforming since the recession, losing trips and basket, as much to dollar stores as to others. If this is news at all, it was about 7 or 8 years ago.
Drugstores are only moderately competent here so far, Target is an opportunity loss but hardly a major force in destination and stock up shopping outside California.
We track every retailer and have for decades. This is not very accurate reporting. If I buy a candy bar in 7-Eleven, does that herald the end of supermarket retailing? Give me a break. Consumers don’t migrate as much as they graze.
On the other hand, I feel Tony’s pain, because the large chains certainly outperform the independents, and the playing field is certainly not level at all when it comes to price, programs, support, labor and execution, or a ton of other things.
The farmers markets and the organic segment have grown faster than market, and so have dollar stores, and clubs. BJ’s has a field day against competition that will not or cannot compete on price. There are about 12 different stories embedded in here and none of them point to anything like the “death of supermarkets” as a whole.
Good operators win. Differentiated operators win. Quality operators win. High service wins. Sharp price wins. Good food wins. I’ll be happy to bet on Kroger and Wegmans and Mariano’s and Raley’s, and Roche Brothers, and Demoulas and Publix and…..
Supermarkets need to differentiate with share of stomach strategies around food, whatever it is – ready to eat, fruits and vegetables, or packaged processed food. Supermarkets will need to adapt in formats and supply chain to continue to stay relevant. You can buy supply-type replenishment shopping from mass merchants, but you don’t really do full meal, either ready to eat or to cook – that’s where supermarkets are still relevant.