By Nelson Wheeler
To understand where the grocery sector stands today and the direction it is headed, we first have to understand where it has been.
The original dry goods stores were primarily a pre-World War II phenomenon selling ‘dry’ kitchen stuffs and clothing. New features were added over time, with dedicated meat departments, fresh fruits and vegetables, deli counters, bakeries, pharmacy counters and even in-store coffee purveyors. As the range of available products grew, so did the size of the stores. By the 1980s and 1990s, small stores had expanded to 40,000+ square feet and some to 70,000 square feet, and modern day supermarkets had emerged as one-stop-shop destinations—making it all the more remarkable that this “traditional” supermarket model has seen so much of its market share eroded in just the last 10-15 years.
This significant industry shift can be traced back to four primary causes:
- The devastating 2004 Southern California grocery Labor Union strike that not only severely wounded major chains, but also prompted the beginning of a nationwide shift in consumer shopping patterns.
- The great recession of the late 2000s, which sent consumers looking for lower cost alternatives and fueled the growth of warehouse discounters like Costco and Sam’s Club, dollar store grocery offerings, grocery components in Walmart, Target and Smart & Final, and the ongoing expansions of ALDI and Lidl.
- A post-recessionary wealth transfer and corresponding boom in gourmet grocers like Ralphs, Vons, Gelson’s Market, Bristol Farms, Whole Foods Market and Sprouts Farmers Market, and specialty grocers like Trader Joes.
- The growing popularity and prevalence of ethnic grocery stores.
The implications for the supermarket business are profound. With the one-stop-shop model now bifurcated to two or more stops, an evolving grocery marketplace suddenly opens up to a wider range of players. More consumers now look to discount options for staples and bulk purchases, and shop at higher end grocers for specialty items. Consequently, we may need to rethink the conventional wisdom surrounding grocery real estate and may see a Gelson’s Market and Smart & Final, or a Whole Foods Market and Costco in the same shopping center.
We also might see more growth and creativity in one part of the grocery marketplace that has been slow to take off: e-commerce. Approximately 1 percent of all grocery sales today are purchased online, and experts believe that might eventually grow to as high as 7 percent. While that might not seem like much, 7 percent of $684 billion in annual sales is a big deal—and brands and businesses are working to figure out how to best get their piece of the pie. We can expect to continue to see growth from food and grocery delivery services like Peapod and GrubHub, and home delivery of semi-prepared meals such as Blue Apron. The checkout-free AmazonGo has raised eyebrows in recent months, and Walmart has partnered with Uber and Lyft to experiment with grocery delivery. In a grocery marketplace that has changed so much in such a short time, virtually everything is …ahem… on the table.
Read the original article in Today’s Grocer.