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Grocery Store Trends

More retailers finding specialization is key to survival in crowded market.

by Amy Bauer

Just as they do with flowers and plants, today’s consumers have more options than ever when it comes to outlets for their grocery purchases. This crowded marketplace is pushing food retailers to redefine their focuses in order to appeal to customers.

“Shifting consumer behaviors and attitudes, shorter product lifecycles, new store concepts and competitive pressures from a broad range of retail formats are driving a fundamental change in the way food retail companies do business,” Food Marketing Institute (FMI) Senior Vice President Michael Sansolo says in a news release accompanying a recent study. “There is no longer a ‘one-format-fits-all’ supermarket. Understanding the specific needs of your targeted consumers and delivering what they need are essential for success.”

food outlets multiply
In less than two decades, the grocery retail landscape has changed dramatically. Traditional grocers’ share of food sales has fallen from 89.6 percent in 1988 to 52.0 percent in 2004, according to the Future of Food Retailing study by Willard Bishop, a retail consulting firm in Barrington, Ill. General merchandise stores that have added groceries have increased from 2.5 percent to 31.9 percent of food sales over the same period.

Looking forward, Willard Bishop predicts these two grocery retail formats will trade places in 2012, with traditional grocers accounting for 41.6 percent of sales versus general merchandise stores’ 42.3 percent. (See chart below.)

“There are a lot of folks that we would think of as—we call them general-merchandise-focused retailers—nontraditional food outlets who are incorporating food into their merchandise offerings as a way to drive traffic, frequency of visits and ring, or the total transaction size,” says Jim Hertel, senior vice president at Willard Bishop.

Target Corp., for example, is doing just that. The company told analysts in February that it will expand by up to 50 percent the amount of space for food in its stores in order to draw more shoppers and better compete with Wal-Mart Stores, Inc., according to a Feb. 21 online article from Progressive Grocer. Target says it also will incorporate more ready-to-eat foods and deli-style options into its SuperTargets, which have large grocery departments.

Mr. Hertel notes that the growth of food sales in outlets where floral has not been prominent, such as discount, dollar and drug stores, does have the potential to decrease supermarket floral sales by taking away foot traffic. “I can see how that would have an accelerated impact on the floral department,” he says.

niche markets
However, as stores look for ways to set themselves apart from the competition with niche sales and specialty orientations, floral is among the departments that could benefit most, retail-watchers say. Today, 76.1 percent of food-retailing companies offer flower and plant shops, according to FMI’s 2005 Facts About Store Development study. (See chart below.)

While supermarket floral departments largely represent more impulse buys than destination purchases, they can play a role in making food retailers stand out, says Stan Pohmer, founder and CEO of Pohmer Consulting Group in Minnetonka, Minn., and executive director of the Flower Promotion Organization. “You’ve got to give them a reason for coming to you,” Mr. Pohmer says. “The floral department could be one of those differentiating points in a supermarket environment.”

Phil Lempert, editor of Supermarket Guru and Xtreme Retail23™, says health and wellness are concepts foremost in consumers’ minds that are driving many of the trends in food retailing. “As we get closer to understanding how our bodies work, we also get closer to nature and understand that,” he says. “Over the next couple years, those retailers who are smart, who really understand their consumers, will profit from floral by not trying to promote the product just for special occasions or as gifts but rather for ‘me.’ That I’m going to buy flowers to make me feel good, to bring a natural aromatherapy into my home. And I think making that mind-body connection through floral is a huge opportunity.”

Of the 77 companies responding to FMI’s Facts About Store Development study, representing 4,208 stores, half had natural/organic store offerings. The “green” focus may be partially a response to the success of natural and organic grocer Whole Foods Market. The company had sales of $4.7 billion in fiscal year 2005 and has 183 stores in the United States, Canada and the United Kingdom. Its goal, stated in its first-quarter 2006 earnings release, is to reach $12 billion in sales by 2010. The company made headlines in January when it said it would purchase wind energy credits to offset 100 percent of the electricity it uses.

In the trend toward organic offerings, Publix Super Markets Inc., for example, plans to expand its GreenWise Markets from in-store natural- and organic-focused departments to
stand-alone stores with the same moniker, according to an April article in the South Florida Sun-Sentinel. A free monthly magazine reinforces the focus, offering articles on a wide variety of healthy-living topics such as beating blue moods and enjoying raw foods, complete with recipes and coupons.

Other niches also are gaining importance. Gourmet/specialty is a format offered by 66.7 percent of respondents, and 25 percent focused on ethnic store offerings, according to the FMI study. Publix is among those with such targeted stores. It has two locations dedicated to a Hispanic market, branded Publix Sabor, in Florida. Ads and product information are in English and Spanish, and the stores include a variety of Caribbean and Central and South American products.

The FMI study notes 72 percent of new stores include space for cooking demonstrations, and 53.7 percent of respondents had a coffee bar in at least one store. Other trends in the aisles appear to be on the decline, such as the addition of low-carb foods—49.4 percent had sections devoted to these.

‘fresh’ taking hold
Mr. Hertel observes that one of the trends Willard Bishop has started tracking is the emergence of “fresh format” retailers. While still representing a small segment—a preliminary estimate of 0.7 percent in 2005 according to the Future of Food Retailing report—that share is expected to continue growing.

Willard Bishop includes Whole Foods and Wild Oats in this category, and also HEB Central Markets, Wegmans Food Markets and similar food retailers. Mr. Hertel says such stores promote “the quality of the produce, locally grown produce, those kind of things, not just natural and organic products but really celebrating the whole fresh orientation.”

“I would think that would be a positive trend from a floral standpoint,” he relates. Inclusion of strong floral departments readily would signal to consumers such a “fresh” orientation, he explains.

luxury a target
Retailers also are trying to tap into the segment of consumers with more disposable dollars to spend—the upscale crowd. Even noted low-price discounter Wal-Mart is seeking to carve out its part of this business. The retailer in March opened a concept store in Plano, Texas, that includes 500 kinds of organic produce and 2,000 “premium” items not available in its other stores. A sushi bar, coffee shop featuring Wi-Fi access, baggers at the cash registers and checkout areas in the clothing department are among features aimed at bringing in more shoppers and persuading them to spend on more than staples.

New supercenters also will feature a more refined look, with brick on the storefronts and wood floors in some departments. Skylights, upgraded restrooms and wider aisles will be among the features. The company also plans to beef up its organic offerings. More than 400 stock-keeping units (SKUs) are to be added in its fresh and grocery departments. The company also has revamped its advertising, rolling out the tagline “Look beyond the basics.”

For the past two years, Safeway Inc. has been developing its “Lifestyle” format, which also is aimed at higher-end consumers and focuses on experience rather than price. The associated tagline is “Ingredients for Life.” The stores include softer lighting, wood flooring, earth-tone tile and expanded floral sections. Sample stations for its private-label soups and meats, made-to-order deli items, and sushi preparation tables are among other offerings. Safeway also has introduced its O Organics™ line of foods.

new players
Ownership changes in the grocery business also are sure to change the face of food retailing. Supervalu Inc. is to complete its acquisition of about 1,100 Albertsons, Inc. locations, with another 700 going to drug-store chain CVS Corp. and 655 to an investor group led by Cerberus Capital Management. The Federal Trade Commission has approved the sale, and shareholder approval was the final hurdle. Supervalu would replace Albertsons as the second-largest grocery-focused retailer behind Kroger Co. Wal-Mart moves to first place and Costco Wholesale Corp. to third when general merchandise stores that sell groceries are included in the list.

Top British grocer Tesco PLC in February announced plans to enter the U.S. market in 2007 starting on the West Coast. The stores are to be a new convenience format based on the company’s “Tesco Express” model, which has more than 800 stores in five countries. These small-format stores of up to 3,000 square feet sell fresh produce, wine and spirits and have in-store bakeries.

Tesco says it will invest $436 million into the venture and expects to break even within a year. One retail analyst estimated in a article in late February that this investment could pay for 100 to 150 stores.

technology takes hold
Not just where but the way people shop is undergoing a shift. Biometric payment systems are further taking hold in the grocery industry. Leading manufacturer Pay By Touch in April added Harris Teeter, Inc. to its list of clients. The grocer plans to add the company’s technology to the checkouts at its 145 stores in the southeast United States. Jewel-Osco in March had contracted with Pay By Touch to add the scanners to its 204 stores in the Midwest. The Piggly Wiggly Carolina Co. was another early adopter of the technology, adding the system to all of its corporate-owned stores in spring 2005.

Pay By Touch and other biometric payment systems work by linking customers’ unique fingerprints to a credit card or checking account. Transactions are completed at checkout without cash but with the touch of a finger rather than the swipe of a credit or debit card.

Mr. Lempert, of Supermarket Guru and Xtreme Retail23™, says this technology is being driven by customer demand. “We’re all so fearful of identity theft and credit card theft and we’ve all had that phone call from Visa or Mastercard that says, ‘Did you just buy eight flat-screen TVs for $20,000?’” he says. “I think that pay-by-touch will do well because of our fear of identity theft.”

The tech-heavy Bloom concept, by Food Lion, LLC, is expanding from its five-store testing ground in the Charlotte, N.C., area to Washington, D.C., and northwest South Carolina, the company announced in late January. These stores, introduced in 2004, include personal scanners, meat and seafood recipe and wine kiosks, product locators, and optional self-checkouts.

supermarket of the future
On the horizon, Mr. Lempert sees other new advancements changing the way consumers shop. Scan-by-phone, for example, could allow consumers to access volumes of product information simply by swiping a product bar code with their cell phones or similar devices.

“So when it comes to floral, I would look at a plant, I would scan the bar code on the plant, and on my cell phone it would tell me what kind of environment that plant would be better in,” Mr. Lempert explains, “and then I can decide whether or not—if my apartment is sunny or dark or whatever else—this is the right plant for me.”

Stop & Shop Supermarket Company is using infrared technology to give shoppers such real-time information with its Shopping Buddy at four Massachusetts stores. The device tracks consumers’ habits, and an on-cart computer holds a customer’s shopping list and produces targeted coupons. It also can place remote orders at the deli to avoid waiting in line. And it can scan items as a customer shops, for quicker checkout.

Loyalty cards and self-checkouts are other widespread but still growing technologies. By contrast, however, Mr. Lempert characterizes these as primarily being pushed by retailers rather than clamored for by consumers. He says loyalty cards, while accepted by shoppers, also haven’t reached their potential to drive sales, functioning more as paperless coupons than true incentives.

“There is a lot of consumer resentment, matter of fact, toward them because they feel that they’re not really getting anything—unlike the airline programs where you build miles,” he says. “So I’m not sure that that program has developed the way it should.” Similarly, he notes that self-checkouts may be perceived as a labor-cost-saving measure by consumers. And he points out that self-checkouts cater to small-purchase shoppers.

“We are rewarding consumers with great service, but these consumers are the people that we lose the most money on,” he says, contrasting that with the time and trouble the mother and two children with the cart full of hundreds of dollars worth of groceries must go through. “We need technologies that are driven by consumer needs, not that are driven by operational needs or money,” Mr. Lempert emphasizes.

assessing the options
Just as no one format fits all supermarkets, consumers are finding myriad outlets to meet their needs. Retailers that can provide clear differentiation and benefit to their consumers will keep customers coming back. For many traditional food retailers, that will mean focusing on a particular niche, such as a “fresh” orientation, a gourmet market or an ethnic specialty. “All things to all people is really nothing to anybody anymore,” Mr. Hertel observes. “I think that’s exactly what we’re seeing.”

You can reach Amy Bauer at or by phone at (800) 355-8086.

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