The days of once a week shopping trips for the family groceries have morphed into something more complex according to analysts with Willard Bishop, a marketing and research firm for retailers and suppliers.
The theme for grocers today is “ready, set, change,” as the Millennial generation, armed with smartphones and limited budgets continue to disrupt the status quo in traditional grocery that has served the past two generations.
Willard Bishop reports that the overall traditional grocery segment raked in $522.8 billion in sales last year, an increase of about 1% in total revenue with a slight dip in market share to 46%.
Traditional supermarkets like Kroger and Publix saw their sales slide 0.4% in 2013, with a cumulative revenue of $444.2 billion and a 39.1% market share. This format experienced the largest dip in market share as more consumers – 39% of the food spending market – spread their spending among Dollar Stores, supercenters and e-commerce, according to the study. Convenience stores and other quick stop stores accounted for 15% of food spending in 2013, unchanged from 2009 and down from 16% in 2006.
A bright spot in the grocery segment are the fresh formats which as a group saw a 10.4% growth in sales to $14 billion last year. The study notes that this format added 1,000 new stores last year with Sprouts, Whole Foods, The Fresh Market each posting double-digit sales growth from the prior year.
Limited assortment stores such as Aldi continued to grow at a steady pace of 4.1% last year with sales of $31.1 billion. Willard Bishop said Aldi is the leader in this category, with plans to add 650 new stores in the U.S. over the next five years.
Supercenter sales grew at 4% last year to reach $200.3 billion, and the store count rose 3.2% to more than 3,800 stores. Willard Bishop notes that Wal-Mart, Target and Kmart all had declining same store sales in 2013.
Craig Rosenblum, partner at Willard Bishop, said Wal-Mart’s move to expand its smaller formats will continue to put pressure on traditional supermarkets. He said food is everywhere today, with even Ace Hardware is selling drinks and snacks.
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The traditional shopping experience is evolving partly because four out of five consumers are carrying a smartphone. Jim Hertel, managing partner with Willard Bishop, said e-commerce is not optional for grocery retailers, it’s now essential.
“It will have to become part of all grocers’ strategy going forward,” he said. “As store format change is daunting, it’s essential for retailers to connect with Millennials for future growth opportunities.”
Hertel said mobile is the Millennial’s best friend, and retailers that can figure out home delivery and integrate it into their strategy will be the biggest winners.
Capturing the attention of world “gone mobile” is no easy task. Hertel said 70% of all mobile searches result in action in less than an hour. He said the average person responds to email in 90 minutes, but it takes them just 90 seconds to answer a text. This “want-it-now” society is forcing commerce to at warp speed, he added.
Hertel said e-commerce now accounts for one nickel out of every $1 spent, which demonstrates a huge potential going forward.
Willard Bishop reports the race for the subscription dollar is on among retailers such as Amazon with Prime Pantry, and Sam’s Club’s with My Subscription. Target and Wal-Mart also are testing subscription ideas.
Rosenblum said site-to-store programs which allow shoppers to order groceries online and retrieve the picked order curbside or at a depot are also gaining momentum. But he adds that the consumer has yet to cast a vote on these services because they are not mainstream.
He suggests that retailers with underperforming stores take a look at possibly turning them into fulfillment centers for online orders, especially if they are open 24 hours a day and already staffed and stocked.
Hertel said price is critically important for everyone whether they are the high-end shopper at Whole Foods or the budget conscious Aldi, Wal-Mart and Dollar Store consumer. He predicts that those two diverse ends will perhaps intersect with Wal-Mart’s new Wild Oats Organic line that is bringing premium prices downward.
“Price comparisons are easier than ever and research indicates 59% of shoppers use their phones to check prices when they are in the store. Some 38% have stopped an in-store purchase because they found it cheaper via price checking with their mobile phone,” Hertel said.
Willard Bishop reports that Kroger abandoned its double coupons in an effort to lower prices across the store and better compete with Wal-Mart and other low cost retailers.
Hertel said Wal-Mart’s new Savings Catcher will bring even more transparency in pricing among local competitors. He said it’s important for grocers to win consumer trust with consistent pricing, because they will know when prices are too high and will likely be offended.