Grocery’s Regional Battle for Baskets
Editor’s Note: In the first of this two-part series, industry analysts offer their thoughts on which retailers are best positioned for success in their respective markets. Part 2 will look at banner loyalty and shopper dwell times.
Market disruptors are giving stalwarts a run for their money, compelling grocery retailers to be constantly innovating and ever vigilant.
But even the disruptors can be disrupted, and ultimately success comes down to how well you know, connect with, engage and serve your market. That means being all in on shopper insights, talent development and diversity; learning from the wins and losses of parallel sectors; and delivering a seamless experience that doesn’t let consumers discover that you don’t have something they need.
To paraphrase the wise sensei Mr. Miyagi in the inspirational 1984 film “The Karate Kid,” either you do retail “yes” or you do retail “no” -- you do retail “guess so,” you get squished, just like grape.
Despite continuing industry consolidation and the presence of several strong national giants, the battles for dominance are playing out regionally. Still, it’s those big players, assembled from formerly independent regional banners, that are leveraging their scale to disrupt or be disrupted.
Bill Bishop, chief architect of Barrington, Ill.-based Brick Meets Click, offers Progressive Grocer his thoughts on the state of competition in key U.S. markets.
The Northeast is competitive, “but there have been no major competitive disruptions, with the exception of Lidl’s entering the New York market, which will increase competition and probably trigger a price war,” Bishop asserts. In the South, “Walmart, Publix, Lidl and now Wegmans are all expanding in ways that are increasing the pace of competition,” he says.
In the Midwest, Aldi and Hy-Vee “are both expanding and increasing competition,” Bishop notes, while in the West, Kroger and Aldi “are disrupting an otherwise generally stable market.”
As competition ramps up, which retailers are in the best position for success? In New England, it’s Ahold Delhaize, Bishop says, “because of their experience competing successfully in Europe, and ShopRite, because of their strong prices and reputation for innovation.” In the South, he sees Walmart continuing to win, “because of their EDLP and online grocery focus, and Publix, because of their stellar customer service.”
In the Midwest, Bishop names these retailers as his top three: “Kroger, with all of their innovation; Hy-Vee, driven by their exceptional culture; and Aldi, with extreme value and small-store convenience.” And in the West, he says, “Kroger, with some historically strong KMAs and all the innovation, is probably best positioned for success, followed closely by Walmart and Aldi.”
Burt Flickinger, longtime industry observer, analyst and managing director of the New York-based Strategic Resource Group, makes this prediction: “The best leaders with the best women, who strategically invest in the business and hire from within, will be the big winners.”
NORTHEAST
Flickinger recently conducted an extensive analysis of regional grocery markets and shared his findings with Progressive Grocer.
“The Northeast is evolving from one of the most over-stored markets in North America to one of the most competitive U.S. markets,” he says, offering some historical context. “Due to the oppressive taxes in most Northeast cities, counties and states, and most of the northern U.S., as well as higher operating and utilities costs, many of the big chains had challenges investing in cap ex, while taking on unsupportable debt.”
This, Flickinger says, led to the bankruptcies of many of the biggest supermarket chains of the 20th century, including Grand Union, A&P, Penn Traffic, Fairway, and Tops. “The supermarket bankruptcies in seriatim have created a tremendous food retail vacuum for retailers with outstanding leaders and executive officers to capitalize on by accelerating their highly successful food retail expansion,” he observes.
That competition is coming from abroad: “From what our team studied in the EU, U.K. and Ireland, Lidl is bringing its best leaders to transform U.S. food retail, starting with two ‘pincer moves’ in the Northeast. For perspective, we saw how quickly Lidl and Aldi, as well as Ocado, ran Walmart/Asda out of its last European strategic salient in Ireland, Scotland and England.”
Lidl’s bold moves include the “transformative” acquisition of Best Market on New York’s Long Island as well as in New Jersey, and its conversion of “abandoned, high-volume supermarket sites like Pathmark in Philadelphia,” Flickinger says.
“After some early Southeast deceleration, Lidl is accelerating and converting consumers quickly as it becomes a major force in food retailing along the Eastern Seaboard, and ultimately across America,” he notes, adding, “Aldi will move very successfully in both the Northeast and all U.S. markets.”
Conversely, Flickinger continues, Whole Foods/Amazon is having some of its biggest U.S. setbacks in the Northeast. “After bulldozing a huge Bon-Ton department store, Whole Foods opened in an ideal location near the busiest Canada-U.S. border crossing and numerous universities, colleges and community colleges in the Buffalo-Niagara region,” right in Wegmans’ territory, he notes. “The Wegmans are some of the best and fiercest competitors in food retailing, and their outstanding operations team never let Whole Foods-Amazon get out of the starting gate.”
Additionally, Flickinger says, “great independent food retailers added competitive pressure, and BJ’s Wholesale Club and Walmart, with more organic and natural foods at better prices, all crushed Whole Foods/Amazon.”
In addition to Market Basket, Wegmans, Big Y and Stew Leonard’s “having exceptional success with both new and existing stores,” Flickinger notes, “Ahold Delhaize, under new leadership, is gaining sales and market share in New England,” asserting that retail conglomerate’s primary struggles are in New York City, Long Island and New Jersey.
“With the legendary leaders of the Cullen family selling King Kullen to Ahold, Stop & Shop may achieve better operating costs and savings, which will be passed along in the form of lower prices to Long Island food shoppers,” Flickinger says. “Long Island shoppers are already paying for some of the highest costs of living in the U.S. Saving money on groceries is the only way for Long Island working families to practically balance their monthly cost-of-living budgets.”
The retailer with the greatest risks in the Northeast appears to be the Tops corporate store group, Flickinger points out, “as its independently owned and operated franchisees continue to be big winners, and Tops corporate stores have not yet appeared to fully glean the lessons in operating success from its independently owned franchisees, the Perna and DiMino families.”
Meanwhile, he observes, “Golub/Price Chopper may have longer-term challenges as its Market 32 stores appear to lose market share to Wegmans, Wakefern/ShopRite, DeMoulas/Market Basket, Ahold Delhaize’s Hannaford, and others.”
Southeast
Sedano’s is the “major new news” in the Southeast, Flickinger says, adding, “The great Herran family leadership team has partnered with Takeoff.com and Jose Aguerrevere, Max Pedro and Curt Avallone to ‘checkmate’ Amazon with micro fulfillment e-grocery centers with robotics and mechanization.”
Bankruptcies, he notes, “have been a tragic theme in the Southeast, as private equity-owned food retailers have outsourced operations and struggled financially, as Bi-Lo went bankrupt with Bruno’s, and then declared bankruptcy with Southeastern Grocers (SEG).”
Kroger and Harris Teeter continue to hold and gain share in the region, Flickinger observes. Meanwhile, he likens the brewing battle of Wegmans versus Publix in the Southeast to “the ‘Thrilla in Manila’ legendary Ali-Frazier heavyweight title fight. While [Publix CEO] Todd Jones and his team have more victories and titles than coaches Nick Saban, Dabo Sweeney and Bobby Bowden combined,” he enthuses, “Wegmans may be the early favorite. … Wegmans has met and beaten the best of the U.S., Canadian and European-owned competition. Publix has bested big, formidable food retail foes, too, [but] Publix has benefited from more big food retailers filing for bankruptcies.”
Louisiana-based Rouses has demonstrated “spectacular success” in the Gulf Coast region, which has had a record number of bankruptcies, Flickinger says. “The Rouse family has uniquely won against all odds from Hurricanes Katrina and Rita back to back, and the corresponding loss of approximately 50 percent of the population, which declined from a few energy exploration recessions as well,” he continues. “Rouses’ private label work has connected very well with consumers, building on the Rouse family’s sensational regional and in-store merchandising.”
In sum, Flickinger says that Kroger/Harris Teeter, Publix, Walmart, BJ’s, Wegmans, Sedano’s and Rouses will expand their leadership positions in the Southeast for the foreseeable future. On the flip side, he notes that SEG and Whole Foods/Amazon “appear to be the most vulnerable for sales and market share losses.”
Midwest
The Midwest is “a very dynamic market,” Flickinger asserts, “with vacuums created from the beginning of this decade to now, with bankruptcies including Marsh Supermarkets and Central Grocers Cooperative. With Meijer filling the vacuum in northern Ohio from the exit of Tops, and Giant Eagle moving back from Toledo, Meijer and Kroger will be the big winners, [along] with Walmart.”
According to Flickinger, independent grocers in the region hold a position of strength. “The great Mayne family at Dorothy Lane Markets, Buehler’s and SpartanNash-supplied retailers will be significant sales and market share winners for the next five-plus years, along with Standard Market, which is a gold standard for fine food and wine retailing in Chicagoland,” he predicts.
He cautions, however, that while Heinen’s “has a great, highly deserved, award-winning history in Ohio, from our observations of its Illinois stores versus the top competitors, it appears to need to catch up and bring more of the excellence from Cleveland metro to the greater Chicago market.”
In Wisconsin, Minnesota and the Dakotas, Flickinger says, “Woodman’s continues to lead the Midwest with great high-volume stores, [and] like Meijer, as well as Marc’s, in the eastern Midwest,” operates excellent stores with low prices. Additionally, he calls Upper Midwest operators Coborn’s, Festival Foods, Hugo’s, Jerry’s, Johanneson’s, and Lunds & Byerly’s “outstanding food retail operations.” Also, Schnucks, Dierbergs, Balls and Associated Wholesale Grocers “continue to invest well in both existing stores and opportunistically expanding operations.”
Minneapolis-based Target “needs to invest more in fresh, staffing and inventory, and less in consulting firms,” Flickinger advises, “which have appeared to have led retailers, from Kmart to A&P and others, the wrong way, in my professional view.”
Among other nationals, he says, “While Whole Foods/Amazon faces more challenges in the Midwest, Walmart’s best expansion initiatives are in the Midwest and West. The dollar stores, most notably Dollar General, and chain drug stores, led by Walgreens and CVS, are gaining the most in the Midwest and Western markets.”
West
While Texas is a “shoulder market” between the West and the Southeast, according to Flickinger, “H-E-B Chairman Charles Butt is still the greatest living leader, student and teacher of retail. Despite pronounced price wars raging between Walmart Supercenters and Costco, H-E-B in food retail is better than any sports team in any sport in North America.”
Continuing his application of sports metaphors to grocery, Flickinger says “[Albertsons Chairman] Bob Miller is the next All-Pro Hall of Fame winner for bringing Albertsons LLC to unprecedented size and scale while rescuing most of Supervalu corporate retail, with the addition of Jim Donald and other dynamic women and men of the Albertsons-Safeway team.”
Hispanic- and Asian-American-owned and -operated chains continue to generate the greatest growth, Flickinger contends, “with unparalleled merchandising and marketing, and team leadership skills.” California-based grocers he singled out include El Super, Superior, Northgate, Vallarta, Bristol Farms and Cardenas, adding that “Hannam, HMart, Mitsuwa and other Asian-American food retailers are power players for the foreseeable future, too.”
Additionally, Costco and WinCo Foods “are winning the most in every market,” he says. “While Walmart is now Amazon’s emerging ‘worst nightmare,’ WinCo and Costco have been the ongoing competitive nightmare for all retailers, given the ongoing excellence of WinCo and Costco with their exceptionally successful respective expansion in existing and contiguous markets.”
Rounding out the West, Clark’s, in the Intermountain region; Harmons, in Utah; and URM, Metropolitan Market and Red Apple, in the Pacific Northwest “are examples [of] outstanding independently owned and operated food retailers,” Flickinger asserts.
The Road Ahead
Flickinger describes Walmart as “the newest Roman Empire of Retail,” and observes that “Amazon appears to be slipping, as Jeff Bezos is facing his Waterloo on many fronts, from Whole Foods and beyond.”
"In the end,” Flickinger continues, “Main Street will continue to outsmart Wall Street, with the independents and family-owned/-operated and professionally led food businesses” working with food science educators to “lead our food industry to record-breaking success, health, and lower prices and higher profits through greater innovation and efficiency.”
For his part, Bishop envisions grocery retail becoming “more clearly divided into three consumer-defined segments: premium, mainstream and discount.”
The premium segment, Bishop says, will mainly be driven by Whole Foods and other Amazon grocery businesses, along with a handful of highly differentiated food retailers like Wegmans, Publix, H-E-B and Raley’s.
“The mainstream segment will be driven mainly by the growth of Walmart and other high-volume grocery operators such as WinCo,” he adds. “The discount segment will be driven mainly by Aldi, Lidl and Trader Joe’s.”