Live From FMI Midwinter: Rules of the Retailing Road

How are consumers, competition, the economy, technology and culture impacting the path to success?

A panel of experts attempted to take on these issues Tuesday morning during the closing session of FMI’s 2015 Midwinter Executive Conference in Miami Beach.

A few points upon which they all seemed to agree: change is slow, fresh is king, mergers will continue, consumers are cash-crunched and Millennials want what they want when they want it.

Scott Moses, managing director and head of food, drug and specialty retail investment banking at Sagent Advisors, said companies can only do as well as their customers are doing financially, and the country’s middle class is shrinking.

“When you look at a large portion of your customers, they are struggling,” Moses said, noting that young people, namely Millennials, are grappling with student loans as well. “The American Dream is no longer there for a large portion of your customers. Older folks are working longer and crowding out young people.”

Boomers Bust?

That view was supported by pollster John Zogby, who in his presentation at Midwinter a day earlier noted that mass numbers of Baby Boomers are clinging to the job market, some wanting to make up employment lost during the last recession, and others bent on what Zogby called “encore living.”

Zogby said a growing numbers of Boomers say it’s “time for a second act.” Overall healthy and vibrant, they want to continue to contribute to society on their own time and their own pace. “We’re the first age cohort who will have 1 million of us reach the age of 100,” Zogby said.

Meanwhile, folks are redefining the American Dream based on evolving values that have minimized material desires. “Generationally, we’re outgrowing the desire to acquire,” Zogby said, pointing to an “active, vibrant and growing simplification movement” during the last two-plus decades.

Panelist Burt Flickinger, managing director, Strategic Resource Group, foresees a record number of mall and shopping center bankruptcies, and observes a crisis in dollar-denominated debt growing overseas.

Front and Center

Reflecting on some of the concepts discussed during the conference, Andrew Wolf, managing director and senior equity research analyst for the food and agribusiness group at BB&T Capital Markets, suggested the most effective route to success is to follow the basics of marketing, especially emphasis on people. Wolf singled out The Kroger Co. as particularly adept at this.

“All these ideas are great ideas,” Wolf acknowledged, “[but] the pace of change in retail is glacial.” He predicted that sustainable change will likely come “out of basic marketing more so than some breakthrough new idea.”

Discussing the strength of fresh over center store, Moses said retailers like Sprouts have “turned the model on its head,” in stores that are far smaller than the average supermarket. “You can’t buy Coke or Tide, but it’s a fun place and the produce is priced great.”

Wolf seemed to discount the notion that extraordinary measures should be taken to gin up interest in center store, which lacks the perimeter’s excitement. “The center of the store is a huge cash cow – it’s not going anywhere … but in a glacial sense, that’s the part that’s in decline,” he said. “If all the energy is in the perimeter, it’s hard to generate energy up the aisle. When I was a kid, canned food was the biggest thing. Things change.”

M&A

Flickinger predicted the industry will see merger and acquisition activity like that seen in the mid- to late-1990s, especially if GOP wins the White House in 2016, which would likely mean a loosening of FTC oversight and regulatory interference. He also anticipates “activism on Wall Street” will drive M&A activity.

Wolf called the Albertsons-Safeway merger a “30-year capstone to Walmart changing the structure of the industry.”

A further result: the massive expansion of Northwest regional grocer Haggen, which is growing exponentially in store numbers through acquiring stores being divested as a condition of the Albertsons-Safeway deal. “They are well positioned … and have an opportunity to become the next great retailer on the West Coast,” said Moses, whose firm advised on the Haggen acquisition.

According to Moses, private equity firms have $1 trillion ready to invest in retail.

Read more from FMI Midwinter at Progressivegrocer.com.