The Kroger-Albertsons deal, if it goes through, and I believe it will, will have huge impact on the grocery landscape.
This is the final in a series of columns that report on the 30th annual The Lempert Report Trend Forecast; its focus is on the most important issues the retail and food industries face. Today, it’s all about some of the eminent changes that are about to happen at retail.
Our grocery retail crystal ball this year is more like a snow globe. The Kroger-Albertsons deal, if it goes through, and I believe it will, will have huge impact on the grocery landscape. There will be upwards of 1,000 stores that will be divested, many here in California, which will spur the growth of existing and new retailers who acquire those stores. I’m watching Amazon carefully as they have the cash and the desire to be in food retail - as Andy Jassy Amazon CEO underscored in last month’s annual shareholder letter by writing that, “We aspire to serve more of our customers’ grocery needs than we do today,” and that in order to do that they need a broader physical store footprint in brick and mortar. He also wrote that Amazon must find a mass grocery format that they believe is worth expanding broadly. Grocery Outlet is also a potential player not only in California but throughout the Kroger-Albertson’s trading areas as their structure is built on individual families owning a single store that is deep-set in their communities. The Grocery Outlet play will be more about cherry-picking stores and one-offs, and it could accelerate the chain’s roll out through the nation. The other player to watch is Walmart (more on that in a bit) as they look for prime locations to add more Neighborhood Markets. The Kroger-Albertsons stores are typically too large for an ALDI, Lidl or Trader Joe’s, so it’s doubtful they will gain any brick & mortar locations when this deal consummates. The Haagen debacle a few years ago will likely ensure that smaller retail chains are unlikely to get in the game. The divestitures will be high-low – those chains (and Amazon) who with over 300 stores will pick up some stores as well as the independent single store operators. In certain markets look for a round of price wars as these newcomers try to get market share as the name on the front door changes to attract consumer attention and visits.
Walmart announced shuttering three Neighborhood Markets and one Supercenter in Chicago as they reevaluate the profitability of stores around the nation – expect more Walmart banners to close as this process begins. Whole Foods has closed their San Francisco flagship store after just one year citing employee safety concerns. As we continue to see violence – whether it be looting, grab and run or gun violence, grocery retailers have concerns. Walmart put in place a new Workplace Mental Health course to train leaders and managers to identify employees struggling with mental health challenges. Other retailers across the nation, including Hy-Vee, have added in-store armed guards outfitted with police level protective gear. Employee and customer safety are top of mind for grocery retailers’ C-suite; especially as they try to attract new workers to their stores. The situation is overwhelming and will cause store closures in those areas where the chain feels that they cannot attract (and protect) workers, and it is too dangerous to operate.
In New York, Attorney General Letitia James has proposed rules to protect consumers from dynamic pricing. Capterra’s new research, 2023 Dynamic Pricing in Restaurants Survey, found that 34% of consumers think dynamic pricing is good while 42% would order less frequently from a restaurant if they used dynamic pricing. Dynamic Pricing is what many call surge pricing, demand pricing or time-based pricing. It’s how Uber operates as example – depending on the busyness at the time, your ride may be more or less expensive – to go the same distance in the same car. We’ve seen restaurants experiment with the same concept – charging higher prices when the restaurant is busier and lower prices to entice customers when business is slow. Grocery retailers have also been testing the concept, initially developed by IBM, where shelf pricing is digital and depending on the time of day and quantities available of items, they can adjust prices accordingly. This practice does not reinforce trust with shoppers.
It may be the time for supermarkets to reopen their grocerants, as restaurants with dynamic pricing experience a backlash from customers. Grocerant formats were put on hold during the pandemic, but it’s time to reimagine them. One that I’m watching closely is in a nearby Ralphs right across the street from UCLA medical. They added Kitchen United to their store. It’s a common kitchen that makes and serves food from five different menus – pizza, Chinese food, BBQ and so on. A shopper goes to the counter and can see all the menus on a touch screen and then orders off one menu or can make individual selections from different menus. One could order pizza, egg rolls and spicy chicken wings from three different menus; have them all presented at the same time, and then bring them to the seating area to enjoy. On every visit to the store, Ralph’s grocerant has been jammed with students, Drs and nurses, patients and neighbors.
Another grocery store format that supermarkets should explore is one where foodservice leaders are leading the way, and potentially stealing supermarket customers. Aramark replaced a closed campus Walmart with a grocery-style warehouse, P.O.D. Warehouse on the Arizona State University campus which includes groceries as well as prepared foods. Sodexo is rolling out eat>NOW autonomous grocery stores that are about 1,000 square feet. Chartwells is opening 100 autonomous retail stores to university campuses. This isn’t a new idea – in fact, Lisa Sedlar who started Green Zebra in Portland, opened a similar type of store on the Portland State University campus right before the pandemic. Unfortunately, the pandemic and its outcomes forced Green Zebra to close. It’s a good idea worth exploring before we lose these customers to foodservice operators turning to grocery.
The topline is that 2023 will continue to be a year of change in grocery retail. The question is whether those leading our retail chains will focus on the consumer – or on their own stockholder value and profits.
Be sure to read all seven 2023 Food Trends Report columns right here on Forbes.com