We have always liked the Star Tribune, especially since the editors solicited an op-ed from the Pundit that was published under the title, Who’s Guarding our Commerce?
Now John Ewoldt has written a piece for the Star Tribune about shopping behavior, and we are reminded of a piece we wrote in Pundit sister publication, PRODUCE BUSINESS, a decade ago titled Death By A Thousand Cuts:
The nature of the competitive challenge posed to the contemporary supermarket produce department has changed. Not all that long ago, the main concern was that another supermarket chain was opening in town and that the new stores would drive the existing chain out of business or at least take substantial market share. This was a dangerous situation, but at least the threat was clear. A new direct competitor is on its way and stores need to fight back. New stores must be built, remodels performed, pricing must be aggressive.
But today the situation is different. It is the exception that the major competitive threat is a new supermarket chain coming into town, anxious to take major market share. More typical is that supermarkets and their produce departments face death by a thousand cuts — death not from one new chain seizing 40% of the market, but instead from a plethora of new formats, each one seizing a few percentages of the business.
So the wholesale clubs come into town and grab 4% of produce sales. A Whole Foods chain, emphasizing a “back to the earth” atmosphere, opens and takes 6%. Fast food restaurants open their drive-through windows at 7:00 a.m. so workers can pick up a salad for lunch on the way to work — another 1% of business is lost. A supermarket chain opens specializing in small stores with limited variety and low prices, taking 6% of the market with them. Then we have gourmet stores, farmer’s markets, flea markets, U-Pick operations, supercenters, hypermarkets, home delivery services and more.
What it all boils down to is that it is increasingly hard to compete if your goal remains to be the broad-based supermarket attractive to 95% of the people in the community. Instead the trend is to the development of niche operations, each one dedicated not towards capturing the entire market, but instead dedicated to doing a great job serving a specific consumer segment.
The Star Tribune piece is titled, Changing Shopping Habits Challenge Traditional Grocers:
Like increasing numbers of grocery shoppers, Ty Rushmeyer doesn’t have a regular store.
The 28-year-old and his wife go to Rainbow once a week, but they also stock up their pantry at Target. Then there are “fun runs” for unique products at Trader Joe’s, Whole Foods, an Asian market, the Wedge Co-op and, in season, the farmers market.
“We’re looking for healthier options,” Rushmeyer said. “But we’re also deal seekers. We know which store has the best price for each item.”
Welcome to the new grocery landscape, in which traditional grocers like Cub Foods and Rainbow are less able to count on loyal customers who buy everything they need in one visit. Instead, shoppers are spreading their money around and constantly looking for deals.
It’s a dynamic that complicates a competitive landscape for Cub Foods, the grocery market leader in the Twin Cities. Supervalu, Cub’s parent company, is leaning on the Cub brand to help revive its fortunes after it recently sold several major chains but kept Cub. Just last week, Eden Prairie-based Supervalu said it was cutting 1,100 corporate jobs to get its head count more in line with the company’s reduced size.
But Cub and primary rival Rainbow are getting squeezed, not only by Target and Wal-Mart, but also by co-ops, farmers markets, specialty gourmet stores, Aldi, dollar and drugstores. Rainbow recently closed its Forest Lake store and soon will shutter locations in Robbinsdale and Plymouth.
…The increased range of shopping options is changing the grocery business in many ways. Square footage allocated to groceries grew 5.7 percent from 2005 to 2011, according to the Food Marketing Institute, but the increase was at supercenters, convenience and dollar stores, warehouse clubs and discounters/liquidators. Traditional supermarkets decreased their space allotment.
Menards, for example, now devotes about six aisles to groceries as well as a refrigerated section with pizza, milk, cheese and eggs. At Walgreens, food and beverage items now make up 20 percent of the merchandise with plans to allot more space, said Jim Jensen, divisional vice president. “Food, along with beauty and health items, gets customers to visit the store more often and buy more,” he said.
The quote by the Walgreen’s executive, Mr. Jensen, is telling: “Food, along with beauty and health items, gets customers to visit the store more often and buy more.” This is the key to understanding what is going on.
Consumers visit grocery stores about ten times a month. They visit general merchandise and drug stores about once a month, so if these stores can get some food business, especially perishable food, they are likely to increase shopper frequency substantially.
This, of course, makes them very tough competitors as they have an alternative motivation for selling food. A Target that adds a PFresh concept, a dollar store that adds a fresh foods offer, a drug store that puts in a nice fresh assortment… these stores often see substantial same-store sales growth, much of it from increased sales of non-fresh items to customers who were drawn in by the fresh offering.
None of this is new; supermarkets were petrified at Wal-Mart’s entry into the food business precisely because it was theorized that Wal-Mart could happily sell food for no profit and then make a profit when the customers drawn in by the food offering bought high margin general merchandise at the same time.
One of the things that is crystalizing and that the Star Tribune piece emphasizes is that not only have retailers fragmented but consumers are themselves no longer demonstrating much loyalty.
In other words, it is not that there is a Costco customer, a Whole Foods customer, a Trader Joe’s customer and an Aldi customer, etc. Instead, many of the customers shop at many venues at various moments in their lives.
In fact, the market is becoming so fragmented that it may not make sense to go after a specific type of consumer. Instead retailers may need to pursue certain types of consumers at certain moments of their lives. In other words, retailers need to think of their stores as “buying dinner for a big date” outlets or “running in to pick up a quick dinner for the kids” outlets or “stock up for a big traditional holiday dinner” outlets, etc.
This likely means editing one’s assortment as one edits the customer experiences for which a given retailer chooses to compete. It means giving up on being everything to everybody — still a big challenge for many grocers who have always thought of themselves as a neighborhood’s grocery store.
With the growth of the internet, communities of like interest form more easily, and this tends to devalue the communities of propinquity that were the traditional core.
Equally, the multi-format retail world inevitably devalues the community grocery store. This poses challenges for many not yet ready to accept the necessity of Focus.
