How Regional Grocers Are Competing with Big Boxes
Consolidation, fanned by a wave of technology, has produced mega-players that have largely set the tone in the grocery industry. Amazon and Peapod are encroaching online, European players are cornering the private label product market, and Walmart, which owes half its sales to grocery, has created unprecedented competition. This has benefited consumers but decimated regional and local grocers.
However, there’s still a place for regionals – if they take the right steps to be competitive. While large grocers have created replicable store experiences that appeal to the masses, local chains can offer hyper-customized experiences in a way that big grocers haven’t been able to.
By finding a niche, we’ve seen regional players thrive, despite encroachment from larger chains at home and from abroad. To succeed in your own locale, consider how your store can stand out from a low-priced big box.
Regionals have the advantage of being able to focus on a smaller portion of the country, meaning they can use their personal knowledge to create a small selection of the right food options instead of a selection that fits the majority of the country. Here, more than any niche strategy, is where middle-market shops prevail.
In our increasingly diverse nation, regional stores can offer a hyper-tailored selection that includes niche products and produce, giving a taste-of-home feel that can’t be paralleled in a big box’s global aisle intended to appeal to people from around the world.
We’ve seen stores selling unique products like dried orchid shitakes, fresh mamey or strukli – regional cuisines from Asia, Latin America and Europe – fight the "Walmart effect" with ease.
To see this in action, look at Sedano’s Supermarket in Florida and Vallarta Supermarkets in California. These chains, currently with 34 and 50 stores, respectively, specialize in authentic Hispanic foods and ingredients, appealing to the regions’ growing Latin populations. For example, Vallarta has an in-house taqueria for dining in or takeout, and holds a free Hatch chile roasting event at is stores. Using this method, it's been able to expand rapidly and generate double-digit revenue growth.
While selection is likely the best way for a regional retailer to develop a niche, it’s not the only one.
Yes, big boxes have made strides to address this issue with things like self-checkout and online options. However, the former still requires traversing a large “one-stop shop” store, and we don’t see the desire for last-minute in-store shopping going anywhere. If anything, the younger generation’s busy schedules and live-for-the-moment mentality mean that it’s more likely to value last-minute in-store shopping than the previous generation – if it can get in and out quickly.
We’ve seen regional grocers attracting time-pressed buyers with smaller stores and fewer selections, upending years of conventional wisdom that customers always want options. If actively competing against a larger retailer, grocers should focus their marketing on a fast-and-easy value proposition.
Niche stores can similarly win on the time front by focusing on convenience eating by offering a greater selection of foods that are either already prepared or take minimal effort to serve.
Di Bruno Brothers, a chain of five high-end retail locations in Philadelphia, has done this with flying colors. Browsing one of its stores, you’ll find specialty cheeses, charcuterie and olive oils, along with prepared foods such as lobster-and-spinach-stuffed chicken and pumpkin arancini. It's catered its selection to the type of person who wants excellent food but is more interested in sharing that food with others than in spending a lot of time in the kitchen preparing it.
While grocery consolidation has occurred nationwide, it hasn't done so evenly. Consolidation has focused on urban areas with high population density. This leaves an opening to serve smaller or less-dense markets.
Weis Markets has successfully done this in central Pennsylvania. Using a small-market strategy, it's been able to expand into adjacent states and better serve its home market, notably opening a flagship location that features a drive-thru pharmacy and beer café.
It's inevitable, though, that Big Grocery will come to these lesser-served areas eventually – either physically or through expanded online options – undercutting a regional grocer in nearly every instance. Knowing this, it’s critical to implement another niche strategy or reconsider the types of products sold.
Of course, even with a defined niche, there are still challenges. Regionals must manage their inventories and liquidity well while still investing in new trends and appealing shopping experiences. They have to work hard to fight the pressures of vendor consolidation. And the low prices of big-box retailers will continue to put downward pressure on everyone.
However, for those with a strong handle on these factors, there's no brighter spot in retail.