Grocers Need to Avoid Getting Caught in the Middle

"Supermarket competitors are in a very challenged state," and need to differentiate themselves from the middle market, noted Jim Hertel, Managing Partner, of WILLARD BISHOP, who discussed the difficult times supermarket have found themselves in, along with Craig Rosenblum of the firm, at the June 20 Future of Food Retailing webinar, presented by THE FOOD INSTITUTE.

“Supermarket competitors are in a very challenged state,” and need to differentiate themselves from the middle market, noted Jim Hertel, Managing Partner, of WILLARD BISHOP, who discussed the difficult times supermarket have found themselves in, along with Craig Rosenblum of the firm, at the June 20 Future of Food Retailing webinar, presented by THE FOOD INSTITUTE.  Putting it in a nutshell, “There is no more business as usual for traditional grocers.”

While the traditional grocery channel held its 46.7% market share in 2011, Willard Bishop foresees this segment’s share slipping to 45.3% by 2016, as traditional grocers see more intense competition from alternative outlets. Most of the decline will come in the traditional supermarket segment however, for which sales are forecast to drop at an annual rate of 1.4%, as its market share slips to 37.4% by 2016, from 40.1% in 2011.

Traditional grocers in the upper quintile that offer a “truly different value equation,” such as WHOLE FOODS and FRESH MARKET, are projected to continue to do well catering to a higher demographic, noted the experts, as they avoid the much more challenging middle market. That middle market will increasingly find it difficult to balance offering value and typical services as have done historically. On the other end of the spectrum, the lower quintile of supermarkets offering a value proposition are expected to outpace traditional grocers as well due to a more budget conscious consumer.

Traditional grocers who do cater to the middle market will need to differentiate
themselves in some way, becoming strong in private label, fresh offerings and be very sharp on pricing as well. Indeed, SUPERVALU’S SAVE-A-LOT chain alone is seeking to add more than 1,000 new stores over the next three years.
Fresh format stores are also seen experiencing strong growth on the heels of 2011’s 11.4% gain, to $10.4 billion in sales. Through 2016, however, that annual growth rate is projected at 6.5%. At the same time, all will be faced with increased competition from non-traditional formats ranging from dollar stores to warehouse clubs.

As for non-traditional outlets they continue taking market share away from traditional formats and their market share is expected to increase to 38.2% by 2016, “as shoppers turn to new types of retailers in search of low prices.”
Supercenter sales grew 5.6% in 2011 to reach $184.2 billion as the number of stores rose 3%, to more than 3,600 units.

Meanwhile, the mass format growth of 5.0% in 2011 was attributed to the success of TARGET PFRESH.

The dollar format saw some significant growth in 2011, with an 11.8% increase in sales, to $24.0 billion, and store count rose almost 5%, to 24,000. This trend is projected at about 3.6% annually as these chains add more stores and expand food offerings

For a recording of the webinar, go to http://www.foodinstitute.com/foodretailing2011.cfm