A funny thing happened on the way to the supermarket post-recession: Shoppers seemed to cleave along the same economic lines that spawned the Occupy movement.
“Cost-conscious shoppers continue to seek extreme value and acceptable quality or better at low prices. Other shoppers less affected by the downturn have returned to upper-tier food retailers,” says the latest “The Future of Food Retailing” report from Chicago-area consultant Willard Bishop.
Translated into real numbers, the so-called limited-assortment stores — Aldi, Price Rite and Save-A-Lot, which offer low-price basics and no frills — saw sales rise 5.6 percent last year. At the higher-end “fresh format” stores, such as Whole Foods and The Fresh Market, sales jumped 11.4 percent.
Meantime, “Retailers who cater to the middle are finding their positions more challenging to maintain,” says the report, which pegged last year’s sales increase among so-called traditional supermarkets — a category that includes Price Chopper, Hannaford and ShopRite — at 4.4 percent.
To be sure, the latter are still the behemoths in the grocery game, having the greatest number of stores and the largest dollar share of the $1 trillion market. But by 2016, Willard Bishop predicts, annual sales at traditional supermarkets will drift lower while they will continue to grow at a rapid clip at the limited-assortment and fresh-format stores.
(And nipping at the heels of all of the grocers will be convenience stores, drugstores, “dollar” stores and chains like Walmart and Target that sell food.)
In a webinar that took a closer look at the Willard Bishop report, partner Jim Hertel explained that the lasting effects of the recession are stagnant household income and “persistently high unemployment.” Combined with a report last fall from the Congressional Budget Office that showed only the top 20 percent of households saw income growth between 1979 and 2007, it means that the mass market that traditional grocers have served “has gotten flattened,” he said.
Consumers gut-punched by the recession are unwilling or unable to pay higher shelf prices that crept in over the last couple of years, creating what Hertel called “The Waterfall”: shoppers trading down from steak to ground beef, then from red meat to white meat, then from fresh products to processed products, then from name brands to private labels. Finally, they leave the traditional supermarket for the extreme value, or limited-assortment, store.
But while this creates a “challenging environment” for the traditional grocer, it doesn’t mean “an impossible environment to succeed in,” Hertel said.
What will be required, though, is outside-the-box thinking, which “is not in the DNA of traditional supermarket operators,” he said.
Earlier this week, Hertel elaborated on that point in a telephone interview, saying traditional grocers no longer can erect cookie-cutter stores. Instead, he told me, they’ll have to start thinking “store by store on a much more targeted basis.”
So in wealthier neighborhoods — where the top 20 percent live — traditional grocers will need to stock products and offer services that can compete with the likes of Whole Foods and Fresh Market. He cited a Wegmans store “helping people become phenomenal cooks” by offering not only recipes and ingredients but also top-of-the-line cookware.
In less affluent neighborhoods, the grocers may need to experiment with smaller stores and a wider assortment of private labels to counter Aldi and Save-A-Lot.
“It’s a complex, sophisticated maneuver,” Hertel said, but the one-size-fits-all days “are rapidly coming to a close.”