U.S. supermarkets gained market share against warehouse clubs and superstores in 2012, so finds a new study from DSR Marketing Systems Inc.
The new report, based on analysis of the latest government statistics, finds supercenter and warehouse club market share figures for food and grocery sales declining from 23.2 percent in 2011, to 22.6 percent in 2012, which represents “a sea-change in their inexorable growth from a grocery market share of only 9 percent in 1997 (see adjacent below),” notes Dr. David Rogers, president, DSR Marketing Systems Inc.
For the first time in years, supermarkets have gained at the expense of clubs and supercenters and have raised their collective market share to 61.7 percent during 2012, which Rogers points out is even higher than it was in 2007.
So what’s going on?
For starters, the primary factor at play is something we at PG have been preaching for the past few years – that select U.S. supermarket companies are at the top of their game and setting the bar ever-higher – thanks to, as Rogers also echoes, "a host of well-run, viable growth formats,” from the likes of H-E-B, Wegmans, Hy-Vee, Winco, Kroger, Publix, Sprouts and Woodman’s, among others.
“The U.S. supermarket industry is much more vibrant than excessive coverage of the legacy chains, such as A&P and Safeway would suggest,” says Rogers, adding his secondary observation for the reversal of fortunes for supermarkets: “Warehouse clubs and supercenters are not expanding as they used to; Super Kmart is closing stores, Target has chosen to prioritize its P-Fresh discount stores rather than invest in supercenters (including in Canada), and Walmart is re-balancing its growth away from Sam's Club and supercenters toward international development and small store formats.”
On an individual store basis, Walmart Supercenters have posted “anemic same-store sales growth -- and/or actual declines -- over the last five to six years,” says Rogers, while its conversions or replacements of discount stores to supercenters are now increasingly focused on the ‘runts of the litter.’” Moreover, he says, “Walmart continues to suffer from operational problems in its supercenters as it cuts store labor in order to buttress profit margins.”
Walmart’s emphasis on its “supermarket-type” express and Neighborhood Market smaller store formats may also be distracting to its supercenter operations, observes Rogers, which “ironically contributes to the re-growth of the supermarket sector. However, he believes Walmart Express in particular “is not destined for inevitable success." Accordingly, Rogers feels the world’s largest retailer’s Neighborhood Markets “have much better prospects for success, in large part because they are a ‘proven’ Supermarket format.”
Turning to the warehouse club sector, despite Costco's continued growth and success, Rogers believes “the future of BJ's remains an ‘open question,’ and Sam's Club is no longer a major expansion vehicle in the US. However, the latter now appears to be on solid financial footing with management having successfully focused on existing store performances rather than store expansion.”
The challenges facing clubs and supercenters in the U.S. are not, however, simply operator-specific, maintains Rogers, but instead reflect “societal and technology mega-trends which are also evident in European retailing.
“Beginning with the original hypermarkets, such as Auchan and Carrefour, in the 1960s, the large-format stores were designed to serve young, growing families eager to bulk-buy both foods and non-foods and save money. They still fulfill this role in growth economies such as Brazil, China, and the UAE,” according to Rogers. However, with aging populations, he adds, the market segment is shrinking with older shoppers who generally dislike large stores and rather prefer smaller store formats.
Meanwhile, the Internet is siphoning off nonfood sales in particular with reduced prices and margins, which in turn reduces the previous ability of hypermarkets and supercenters to subsidize food prices to generate shopper traffic and sell more profitable non-foods.
“Be they Tesco Extras, Sam's Clubs, or Target Supercenters, large-format stores are losing their price advantages to Aldi, Lidl, the Internet, etc., and becoming increasingly risky to develop,” sums Rogers. “This is why Tesco has just cancelled plans for Extras in the UK, and (relatively) small-format supermarkets finally appear to be turning the tables on supercenters and clubs in the USA.”
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