Food and Beverage's Changing Retail Landscape

Where people shop has changed dramatically; have your retail strategies kept up?

By Dave Fusaro, Editor in Chief

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grocery storeThree decades ago, if you needed groceries, you went to your neighborhood grocery store. Now, you’re just as likely to grab tonight’s dinner, or at least some staples, while you’re picking up some plywood or a prescription.

As recently as 1988, the traditional grocery store, the supermarket, commanded 90 percent of grocery products sales. But competing formats had been planted a decade earlier: the first Aldi in 1976 and Whole Foods in 1978 (and Trader Joe’s traces its roots back to 1966). Then came the club stores (the first Costco and Sam’s Club opened in 1983). While the first dollar store, Family Dollar, opened in 1959, the format exploded in the 1990s and became a major retailer of food.

Now the “traditional” grocery store (Willard Bishop consulting defines that as supermarkets, fresh format stores, limited assortment stores, super warehouses and other/small groceries) commands half its previous share (see Figure 2). Non-traditional grocery (wholesale clubs, supercenters & mass merchandisers, dollar stores, drug stores and military bases) account for 39 percent, and other formats – primarily convenience stores and eCommerce – claim the remainder.

Fig2 Channel TrendsThen there’s the Internet and smartphones. Menard’s, a Midwest chain of huge home improvement stores, devotes several aisles to nonperishable foods. Even Uber has begun delivering groceries in some cities.

Add it all up and you have one of the newest buzzwords: omnichannel. Omnichannel means different things to different companies, but it generally requires a multichannel approach to sales that seeks to provide the customer with a seamless shopping experience, whether she is shopping online (from a computer or a mobile device) by telephone or in a bricks-and-mortar store – and sometimes all of the above.

If you think consolidation has wreaked havoc on the food and beverage processing business, pity your poor customer – if he’s still around. While the top four players accounted for 17 percent of total grocery sales in 1992, they accounted for more than 35 percent of sales in 2013. That top four being (in order) Walmart, Kroger, Safeway and Publix Super Markets, according to Market Realist and Progressive Grocer.

Just 20 years ago, it was unthinkable that the leading seller of groceries in this country would be Walmart (it became the No. 1 grocer in 2001 when its grocery sales reached $56 billion). Perhaps just as unthinkable was its 2014 huge commitment to organic foods.

Lest competitors think the big store has the Midas touch, even Walmart is hitting a rough patch. The company said it will close 269 stores in 2016, about half of them in the U.S. and two-thirds of those being the smaller Walmart Express, which have more of an emphasis on food than the big-box stores.

Fig1 Retail LandscapeEverybody wants to sell food!

Despite talk of its demise, the supermarket appears to be holding its own. In Willard Bishop’s “The Future of Food Retailing Report,” based on 2014 figures, the supermarket eked out a 0.3 percent increase in dollar share to stay above 46 percent (Figure 1, top). “The traditional grocery channel continues to maintain its leadership position, and is likely to do so for decades,” the report concludes.

At the Food Marketing Institute’s January Midwinter Conference, a panel pronounced the grocery store “alive and well,” in the words of Thom Blischok, PricewaterhouseCoopers’ chief retail strategist. “Click will not surpass brick” was the theme.

“Ten years ago, the question was how big can you get, now it’s how small can you get,” said Blischok in a post-show report in Progressive Grocer magazine. “The real question is how relevant can you get – what size will best service your community?”

While much of the discussion turned to the Internet, the panel agreed online sales will not overtake in-store sales in the grocery industry. But retailers will have to figure out how to deal with, how to deliver, “the omnichannel experience,” at least for some shoppers.

The panel did believe it’s a sure bet there will be fewer traditional grocery stores in the future, and many will be doing as much Internet order fulfillment – “click-and-collect” – as browsing-the-aisles selling.

How are you food and beverage companies dealing with these newcomers, and what kind of changes are they forcing on you? (Think: cleaner labels, less processing and different package sizes).

Whither the No. 3 brand

In simpler times of fewer SKUs, there was plenty of room at the grocery for several brands in each category. Now there just isn’t enough room, as new and niche products in other aisles and categories crowd out the number of brands of traditional staples stores carry.

In the ketchup aisle, Heinz will be there and maybe Hunt’s too, but try finding Del Monte. The remaining space allocated to the condiment will likely include the retailer’s brand and perhaps an organic brand or something exotic (sriracha ketchup?), maybe a local favorite.

“The consolidation of the retailers is giving the survivors more leverage,” says Lance Layman, vice president of business development at SugarCreek, a Fairfield, Ohio-based processor of bacon and more recently of sous vide products. “Smaller stores are going to carry fewer SKUs. That probably means they’ll carry the national brand leader and one other, either a niche product or their store brand.

“They’re also becoming incredibly savvy about marketing their own brands,” he continues. “When you look at the products Kroger and Safeway have, they’re very good and put a lot of pressure on the national brands.”

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