SIX TRENDS IMPACTING THE GROCERS

About 83 percent of Americans prefer shopping at full-line grocers with aisles stocked with thousands of products. But there’s a rumble that full-line stores can’t ignore: Many consumers are opening their wallets at smaller stores, such as ethnic grocers and specialty stores that cater to specific food needs and current market trends. Hungry shoppers are smart, and they find the essentials at their local full-line grocer, but also hunt down specialty products at other stores.

Let’s review six layers of the modern grocery landscape.

  1. Full-line grocers are strong anchors in neighborhood shopping centers. In many shopping centers, the traditional grocer is the most visible and frequented store by residents within a three-mile radius. These full-line grocers attract shoppers week after week (and often for more than once a week) thanks to their selection – stocking more than 40,000 items – and competitive pricing. To stay profitable and retain market share in the era of cheap food prices, full-line traditional grocers are focusing on constantly improving these offerings and efficiencies. According to our research, conventional supermarkets still represent the majority of sales among grocers, accounting for upwards of $2 million in sales per unit.
  1. Consumers love specialty stores. The specialty grocer market is getting crowded, but demand remains high. Specialty stores like Whole Foods Market, Trader Joe’s, Fresh Thyme Farmers Market, Sprouts Farmers Market, and The Fresh Market all have loyal customer bases because of the alluring private-label goods and high-quality produce, meats, and cheeses they offer. These stores excel at satisfying current tastes and trends, and some make for a unique experience. Gaining popularity and shoppers, this subset of the grocery industry has a lot of momentum.
  1. Ethnic grocers provide the rare items consumers need. Ethnic grocers could be considered a niche in the larger grocer market, but they’re viewed as complements to full-line grocers. These stores stock in-demand products that are difficult to source online or in the traditional grocer. While full-line grocers attract large swaths of the population because of their selection, ethnic grocers cater to smaller chunks of a community, and shoppers visit ethnic grocers multiple times per week. Popular ethnic grocers include 99 Ranch Market (Taiwan), Hong Kong Supermarket (China), the HK, Galleria, and H-Mart chains (Korea), and Seafood City (Philippines).
  1. Grocers adapt to online services and options. The ease of online shopping and the growing U.S. urban population is forcing grocers to develop an omni-channel strategy. Despite online grocery shopping being a small fraction of brick and mortar grocery shopping with just 4.5 percent of shoppers using the internet to buy groceries six or more times a year, grocers don’t want to miss out on any competitive challenges and are partnering with some of these new services. Whole Foods Market has partnered with Instacart, Amazon is working with select Sprouts Farmers Market stores to deliver groceries to local residents who live in “food deserts” in the Dallas area. Some have embraced the convenience of meal-delivery kits such as Blue Apron and others. It wouldn’t be surprising if a large grocery chain purchased one of the popular subscription services to provide this service to their customers.
  1. Discount grocers grow their following. Discount grocers are poised to collect market share in the U.S. These stores offer private-label goods at reduced prices thanks to low stocking costs, a somewhat limited selection, and minimal design. The discount grocer model attracts shoppers of all income levels, and because the bulk of their offerings are private-label, chains can trim costs while maintaining quality. ALDI, a long-time U.S. hard discount grocer with German roots, has more than 1,500 stores nationwide and is expanding into new local markets, and another German grocer, Lidl, is planning to open locations in the U.S., too and is expected to be very competitive as they have proven to be in Europe.
  1. We all want an experience. For many consumers, grocery shopping has evolved into an enjoyable experience. Similar to the shoppers who frequent retail brands, such as T.J.Maxx and Marshalls, on a mission to find new merchandise, shoppers in the grocer aisle want to find that new, unique, or limited time offering. A typical day of grocery shopping might include purchasing bulk items at a full-line grocery store, samples of beers or artisanal cheeses at a specialty market, picking up a family-favorite foodstuff at a discount store, and a hunt for the hard-to-find imported food from the ethnic store. All along the way, consumers are engaging with local grocers through social media and smartphone apps. Shopping doesn’t need to be a chore any more, but a fun day out.

An expanding pie

Competition between grocers is growing and so is the entire pie. Grocery/supermarket sales rose by $29 billion over the previous two years to a total of $649 billion. Recent figures from the Commerce Department show that inflation-adjusted consumer spending for groceries rose at an annualized pace of 7.5 percent in Q2 2016, the most since the same three months in 1984. Sales are expected to continue to increase with a growing population of about 2 million per year in the U.S., despite the shorter-term impact of food deflation. The result of consumers expanding their food preferences and tastes is that many shoppers are frequenting more than one grocer during their shopping trips. While a traditional grocer might fulfill most of a shopper’s basic needs, ethnic, specialty, discount, and ”treasure-hunting” grocers can fill a customer’s shopping bag with other upscale, unique, and hard-to-find goods.