And yet experts say the industry is in the early stages of a massive shake-up, with rivals coming from all sides to siphon away customers. Players such as Whole Foods Market and Fresh Market are wooing customers seeking natural, organic foods. Wal-Mart and Target are using their huge store footprints to offer a vast assortment of items, and they are joining dollar stores in going after a price-conscious grocery shopper. Still more competition is coming from drug stores and convenience stores.
Jones Lang LaSalle’s retail research team has compiled a report that illuminates just how different the grocery store landscape is bound to look in the not-so-distant future.
Using data from retail consultancy Willard Bishop, JLL projects how sales and store counts will change across a variety of store formats between 2013 and 2018. As you can see from these two charts, it’s not looking good for traditional supermarkets:
(A small note to help you understand the charts: The “fresh format” category includes Whole Foods and other organic grocers; the “limited assortment” category includes small-footprint outlets such as Trader Joe’s and Aldi. The rest of the categories are self-explanatory.)
In these forecasts, traditional grocery stores distantly trail their rivals in two key measures of growth.
The fresh format stores, in particular, have aggressive expansion plans in the coming year, a strategy that reflects a heightened interest in healthy diets and sustainable food practices.
“Beyond fresh format stores, limited assortment and dollar stores are also seeing strong percentage increases in store openings, which underscores that consumers continue to seek out value since the recession,” Ahlburn said in an e-mail.
Trader Joe’s is the emblem of success in the limited assortment category: With its low prices and a tightly-edited collection of products, the store is pulling down $1,723 in sales per square foot, compared to $552 per square foot at Publix or $496 at Kroger.
Amid the rise of more shopping options, the forecasters expect that traditional supermarkets will lose ground to nearly all other shopping formats:
These supermarkets have ultra-narrow profit margins, building their success with shoppers who come back frequently and regularly fill their cart to their brim. And so Ahlburn says their chief challenge in this climate will be to stay profitable.
So what are the key fronts in the battle for your grocery dollars?
“The real growth for the grocery sector is coming in the urban space,” Greg Maloney, chief executive of JLL Retail, said in an e-mail.
Plenty of players are experimenting with stores that work well for city spaces: Wal-Mart has launched its smaller-footprint Neighborhood Markets, while Target is piloting a similar Target Express concept. Experiments in grocery delivery services from the likes of Amazon Fresh and Instacart have also so far centered on major urban areas.
With the arrival of these fresh competitors and consumers’ shifting shopping preferences, the traditional supermarkets have a major fight for survival ahead of them.