Traditional supermarkets struggle to fend off of specialty grocers - East Valley Tribune: Business

Traditional supermarkets struggle to fend off of specialty grocers

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Posted: Sunday, September 11, 2005 6:25 am | Updated: 10:15 am, Fri Oct 7, 2011.

Like the generation that embraced it, the supermarket is aging. August marked America’s most popular food-buying format’s 75th anniversary, but longevity is no guarantee of future survival.

Just last week, Albertsons, the second largest supermarket chain in the country, said it likely will put itself up for sale amidst lagging sales and overpowering competition.

The traditional supermarket is being assaulted at every flank.

The upstart supercenters and niche grocers aim to be primary grocery destinations for growing numbers of consumers. Warehouse stores, drug stores, dollar stores and even convenience stores are expanding their food offerings.

Can the supermarkets survive the war for consumers’ food dollars? That depends, industry experts say.

Southeastern giant Winn-Dixie is the latest of several supermarket companies that have buckled. Albertsons, based in Boise, Idaho, is teetering.

For years, traditional chains that operate in the East Valley — Albertsons, Fry’s, Chandler-based Bashas’ and Safeway — have kept a wary eye on the Wal-Mart Supercenter. To add to traditional chains’ woes, SuperTarget blasted into Gilbert in March with two mega-stores. The superstores provide the one-stop-shopping options that time-starved consumers say they want and the low prices financially squeezed households say they need.

But while the big guys were watching the even bigger guys, the niche grocers — Sprouts, Sunflower, Henry’s Farmers Market, Wild Oats, Whole Foods, Ranch Market, Trader Joe’s and the like — snuck into East Valley shopping centers under the radar screen.

They appeal to a variety of demographics, said Todd Hultquist, spokesman for the Food Marketing Institute.

"American shoppers are becoming more diverse — the growing (numbers) of Hispanics, more singles, more retirees with higher disposable incomes," Hultquist said. "There is no longer a one-solution-fits-all strategy. The real growth opportunity is in vintage marketing — organic, ethnic, specialty grocers."

The niche players have captured about 2 percent of the U.S. grocery market, Hultquist said, and the potential for grabbing even more is significant because they are focused on the country’s fastest-growing trends — Hispanic population increases and healthier eating habits.

In Arizona, the niche numbers are even higher. The Shelby Report, an industry publication that analyzes grocery shopping trends in U.S. Sunbelt states, shows more than 7 percent of the Arizona food shopping market share is in alternative grocery formats.

In the past, specialty grocers focused on high-income customers, said Mindy McBain, senior writer for The Shelby Report.

Whole Foods, Wild Oats and similar brands still do, offering natural and organic food at a premium over standard products — a price growing numbers of healthconscious consumers willingly accept, she said.

But now such companies as Sprouts, Sunflower and Henry’s Market are touting fresh produce, not necessarily organically grown, and prices competitive with the bigger supermarkets but in a smaller format.

That is appealing to both low- and high-income shoppers, McBain said. And — in an almost perverse prick at the traditional supermarkets — they offer the same appeal to convenience, she said.

Also focusing on the convenience factor, Hultquist said, are non-groceries — drug stores and dollar stores, for example — that are increasing food offerings.

"They are blurring lines," Hultquist said.

Drug stores like Walgreen’s are adding more frozen food sections, he said. Discounters, such as Dollar General, are allocating as much as 5,000 square feet of floor space per store for food, Hultquist said. And even regular Target stores — such as the recently remodeled version at Frank Lloyd Wright Boulevard and Loop 101 in Scottsdale — appear to have sandwiched small supermarkets into their structures, he said.

They are not trying to be the primary market for the typical family’s food buying, he said. But they are trying to become the mid-week stop for milk, bread, butter and cereal.

So with a variety of competitors grabbing at grocery shoppers pocketbooks, how is the traditional supermarket faring?

Pretty well, so far. At least in Arizona.

Statewide, behemoth Fry’s still rings up a quarter of the grocery sales. Safeway and Bashas’ both have bigger market shares than Wal-Mart Supercenter.

Add Albertsons into the mix, and the four traditional chains ring up nearly three-quarters of the local grocery sales.

But the chains will need to keep innovating to hang on to their holdings, national retail consultant Burt Flickinger said.

"They are being squeezed less than normal (in Arizona) because you’ve got a million people moving in every few years," Flickinger said. "Traditional supermarkets are still No. 1 in dollar sales."

Albertsons, which has already ditched some markets, may be the next Valley fallout victim. The market has seen several others disappear — Smitty’s, Smith’s and Fred Meyer were swallowed up by Fry’s and ABCO folded.

Albertsons launched a pricey Valleywide initiative a couple of years ago to dual brand all its supermarkets with its drug store brand Osco. It was an attempt to counter the one-stopshopping option of the Wal-Mart Supercenters. But according to The Shelby Report, the brand has still lost Valley and statewide market share.

On the positive side, Flickinger said home-grown chain Bashas’ is a proven survivor.

"Bashas’ is one of the three finest grocery chains in America," he said. "They are arguably the best at figuring out three major formats — Food City (Hispanicfocused), Bashas’ (traditional) and AJ’s (gourmet)."

The Shelby Report figures Bashas’ increased its market share by 2.5 percent in the Valley in 2004, and 2.8 percent statewide. Wal-Mart Supercenters’ share of grocery shoppers’ dollars jumped 1.9 percent in the Valley and 1.4 percent throughout the state last year. Nearly every other chain from Wild Oats to Fry’s lost market share. Fry’s eked a minimal gain statewide and lost nearly 1 percent share in the Valley in 2004.

Food City, which qualifies as a niche grocer even though it is owned by a traditional supermarket chain, has been a major contributor to Bashas’ success.

The company grew the Food City brand from one store to 62 — more than 40 percent of the company’s locations — in 12 years, said Bashas’ spokeswoman Diana Bejarano-Medina.

At the other end of the specialty store scale, AJ’s grew from one to 11 stores in that same time period, she said.

The niche grocers also are evolving to maintain their momentum.

Henry’s Farmers Market, which is scheduled to open its seventh Valley store in Chandler in January, is adding such products as "Tide, Bounce and Benadryl," to its shelves starting next month, Henry’s spokesman Jim Nielsen said.

The traditional supermarkets will still have the edge, however, if for no other reason than their sheer size and purchasing power, said Tom Rex, research director at Arizona State University’s W.P. Carey School of Business.

Rex worries about the Valley’s sudden influx of niche grocer’s during the last handful of years. He thinks they — not the traditional chains — are on the endangered list.

"Can we support the number we’ve been getting? There’s a lot of risk in the specialty markets — not so much the number of stores as the number of companies," he said. "They are likely to consolidate to be more efficient. Grocery business is a high volume, low profit industry."

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