Recipes for Success

In retail, if you are not moving forward, you are moving backward. Traditional supermarkets are trying to change but have been severely impacted over the last decade by innovative and exciting new market formats and concepts. What can you learn from this? We spent the last week with a group of Russian retailers who felt there was a lot to be learned from these changes in the industry and we would agree. We thank Russo’sTrader Joe’s West NewtonWhole Foods Market NewtonvilleCrosby’s MarketplaceStar Market, Wegmans NorthboroughThe Cottage Chestnut Hill and Costco!

Why are the traditional grocery stores losing market share?

Here is a quick summary:

  • Americans still shop for groceries. However, they are getting them from a variety of sources, not just at traditional supermarkets.
  • Supermarkets’ market share of U.S. grocery sales has fallen 16% in the past 10 years (according to UBS).
  • They are getting squeezed on all ends and are losing market share both to big boxes on price as well as specialty stores on products.
  • In fact, in the 2005-2009 period, stores like Trader Joe’s and Wholefoods grew 14% while supermarkets only grew 4%.
  • Meanwhile Target, Walmart and others are increasing the amount of food products they carry.
  • In 2011, barely HALF of food sales were at grocery stores.
  • Yet, the traditional supermarkets are still operating in the same fashion they did a decade ago. And as sales decline they are increasing price promotions, further eroding margins, and cutting back on staff.

Not a recipe for change.

As new competitors entered into the grocery landscape, traditional stores didn’t react or respond to customer’s needs. Now they are playing catch up but are so far behind they cannot catch up. Whole Foods and other chains have embraced local products. Whole Foods goal is to have as much as 15% of products from local farms and vendors (within 25 miles of a specific store). A store like Russo’s gives local a whole new meaning with many of the products grown right on their own farm. Meanwhile the traditional grocers pride themselves on carrying a few local items that are different in each location as they don’t have as much autonomy to really dig in and provide truly local items in each store.

And while many stores now have “organic” products sections within their stores, they were so slow to build in this area that they lost many customers along the way. According to the Organic Trade Association, 78% of families say they are choosing organic products when shopping.

Innovative stores like Trader Joe’s and Wegmans offer a massive selection (more than 50% of products) that are private label. Not “generic” but fun and quirky items that in many cases are better than the name brands. Or in the case of Trader Joe’s are interesting and always full of surprises with new selections.

These new competitors have also incorporated technology and social media into their stores. Customers can interact, engage with the store, download coupons, and get recipes and ideas. Gone are the days of boring circulars and TV and radio ads.

Customers are shopping multiple stores and not doing just one trip each week. They split their dollars between the traditional store for basics, the discount club for bulk purchases, Trader Joe’s for fun and quirky stuff, Whole Foods for organic and fresh produce, and even buy online for low priced basics at Amazon or organics at Stores need to adjust and change accordingly. If they do not, they will continue to lose market share and those that do give customers what they want will continue to gain.