Supermarkets are still feeling the effects of the 2007-10 recession with consumers retaining their price-conscious habits and turning to dollar stores and other low-cost discounters like Walmart for their grocery needs, according to a new report from Jones Lang Lasalle (JLL).
Traditional supermarkets, which JLL defines as offering a full line of products between 15,000 and 60,000 SKUs and earning at least $2 million in sales, have been hit the hardest as consumers have moved away from one large weekly shopping trip in one store. They now divide their shopping across several stores, as many as five, in multiple channels. The result is traditional supermarkets will see their share of grocery dollars decrease to 37.2 percent by 2018, a loss of 300 basis points or 3 percent market share.
The number of traditional supermarket locations also is predicted to decrease by 576 units by 2018 or a loss of 2.2 percent. But all is not doom and gloom for traditional supermarkets. The report also indicates that sales will increase 3.6 percent by 2018.
Fresh Format, Organic
The future is a bit brighter for fresh format and organic stores. “With an increased focus on health, consumers are moving toward fresh format and organic stores such as Whole Foods and the Fresh Market that offer higher quality produce and meats as well as center-store items,” the report stated. Seventy-five percent of consumers surveyed indicated fresh produce was the main driver for where they shopped. The JLL report predicts fresh format stores will increase market share by 150 basis points or a gain of about 1.5 percent in market share. The number of fresh format supermarkets locations will increase by 668 locations or 62.8 percent by 2018 and sales will grow a whopping 92.2 percent by 2018.
Dollar and convenience stores have been increasing their food selections with dollar store market share predicted to grow from 2.5 percent in 2013 to 2.9 percent in 2018 and convenience store market share to hold steady at 14.7 percent. “Dollar stores became virtual retail superstars during the recession, with strong sales growth and aggressive expansion,” the report stated. Dollar stores will add 7,848 locations or increase store numbers by 28.9 percent by 2018 while c-stores will add 11,199 units or increase stores by 7.1 percent. Both formats will also see an increase in sales by 2018 with dollar stores seeing a 31.2 percent increase and c-stores upping sales by 12.7 percent.
Alternative formats are gaining inroads in the grocery segment, which has seen sales growth year-over-year decrease from 5.3 percent in 2012 to 2.6 percent in 2013. But grocery performance is strong comparatively, with average sales per square foot of $507; the retail industry standard is $350. The leader in sales per square foot in the grocery segment is Trader Joe’s, which brings in $1,723 and plans to open 30 stores. Whole Foods, with plans to open 38 locations, brings in $937 per square foot. Both are considered alternate formats by the survey, falling into the limited assortment and fresh format categories, respectively. For traditional format supermarkets, Publix rakes in $522 and plans 30 new locations while Kroger hits $496 and is planning 15 new stores.
E-commerce also can’t be overlooked. Revenue growth is projected to be 57.4 percent between 2013 and 2018; however, overall share is predicted to only hit 2.5 percent by 2018. “While this is reassuring news for bricks-and-mortar players, it will still be critical to keep an eye on emerging trends within the grocery delivery space for several reasons,” the report stated. “If Amazon figures out a successful solution to wide-scale implementation of its AmazonFresh model, it poses a significant threat to groceries, particularly supermarkets with thin margins. Secondly, given that logistics for delivery may lie in crowdshare programs like Uber, this may have important implications for local stores looking to stay ahead of the curve and offer enhanced services to its existing customers.”