Are there too many grocery stores?

Discussion
Photo: Lidl
Aug 02, 2017
George Anderson

J.C. Penney, Macy’s and Sears have been closing stores in large numbers in an acknowledgment that there is simply not enough business to support their continued operation. Others in the consumer electronics, specialty apparel, and sporting goods channels have also shuttered stores in large numbers. Are grocery stores next?

The commercial real estate firm, CoStar Group, reports, via The Wall Street Journal, that the amount of retail space per person increased to a record 4.15 square-feet last year. Part of the reason for the expansion is that convenience stores, dollar stores, drugstores, e-tailers, mass merchandisers, supercenters and warehouse clubs all use groceries to drive more frequent customer traffic.

The amount of square footage for groceries should continue to expand in the near-term as Lidl continues its entry into the U.S. market and others, including Aldi and Dollar General, open stores in large numbers.

Lidl, the German discount grocery chain, expects to have 100 stores operating in East Coast states by the end of next year. The company has also been reported to be scouting locations in Ohio and Texas as it plans its national expansion.

Aldi has moved aggressively into California in the past year while ramping up store counts in key states such as Florida and Texas. The chain, which expects to have 2,000 stores nationwide by next year, is also investing $1.6 billion to expand and remodel 1,300 current stores.

Dollar General plans to open around 1,290 new stores during this fiscal year while remodeling or relocating 760 others.

While online currently represents a relatively small percentage of grocery sales, the number of consumers using these services is growing. Third-parties, such as Instacart and Shipt, have made it easier for chains like Publix and Whole Foods to offer online shopping. Amazon.com, Kroger and Walmart offer both home delivery and click and collect services.

Barclays Capital has found that 38 of the top 50 grocery markets in the U.S. will have too much space dedicated to food retail by next year.

“Everybody should stop growing,” Barclays analyst Karen Short, told the Journal. “It would make the whole industry much healthier.”

DISCUSSION QUESTIONS: Are there too many stores selling groceries in the U.S.? Do you see recognition of the problem among grocery chains? How do you see the industry shaking out over the next five to 10 years?

Braintrust
"Yes, the analyst from Barclays is right — stop growing or we will all go out of business. "
"Stop growing? No company should ever stop growing. It’s survival of the fittest out there and the competition is smart and new."
"The grocery space is clearly heating up and most every retailer out there knows it. "

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33 Comments on "Are there too many grocery stores?"

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Dr. Stephen Needel
BrainTrust

Of course there are — but that doesn’t mean anything will change. Major chains (as opposed to small stores like Aldi, Lidl and Trader Joe’s) which have only minor differentiation rely on convenience for traffic. Here in Atlanta, it’s rare to find a Kroger without a Publix very close by. This removes the “it’s more convenient” factor in store choice — both are convenient. Smaller stores need to worry about location — not everyone thinks driving far to an Aldi is a good use of time. Of course, we do drive 20 minutes to get to a Trader Joe’s — they’ve created themselves as a destination.

Al McClain
Staff

Yes, there are too many stores selling groceries (and everything else) in the U.S., but it varies widely by region. Shop at Publix in southeast Florida, where I live, and you will almost never have to wait in line, and never, in my experience over 10 years, have to wait 5 minutes, so there are probably too many stores. Shop in Southern California, and it seems to be the complete opposite, with shoppers sparring for a single parking space in many retail shopping centers, and waiting in line to buy almost anything, anywhere. In that case, we have enough stores, but too many people in a confined space. Growing vertically is probably the only long-term answer, as the people keep on coming.

Karen Short’s comment indicates the problem. “Everybody should stop growing.”. It’s generally true about food retail and retail, at least in terms of space, but no one wants to do anything for the collective good. It is all about taking share from the other guy so THEY can stop growing or go out of business, and satisfying antsy shareholders. The shakeout will continue in retail.

Sterling Hawkins
BrainTrust

And this doesn’t even account for non-traditional grocery sellers like Amazon Fresh and Google Express! The grocery space is clearly heating up and most every retailer out there knows it. Technology, service and data are central to competing and grocers making the most of those things will survive.

Ryan Mathews
BrainTrust

The easy answer is, yes. The more thoughtful answer is, maybe — but perhaps the real question is whether there are enough stores approaching the sale of groceries in the best way (i.e., in a way that benefits consumers on their own terms).

The problem is that many supermarkets are approaching store count in a traditional way — hoping that scale wins in the end. Of course, building scale just exacerbates the original problem. So absent a new strategic vision it is fairly easy to predict widespread contraction of the traditional industry and the failure of a good number of current players.

Mark Ryski
BrainTrust

The short answer is yes, there are too many stores selling groceries. The market is finite and so stealing share is the only way to grow. I have no doubt that grocery chains are acutely aware of the problem as they see it reflected in their top-line sales and even more compressed margins. The situation is particularly challenging with international players entering the market and non-grocery players nibbling at market share by offering food items as a traffic stimulation strategy. At the end of the day, consumers will decide who the winners and losers will be, but until then it will be painful for grocery retailers and good for consumers. The market is finite and ultimately something has got to give — the shake out will come and it will be big.

Steve Montgomery
BrainTrust

Groceries used to be sold in grocery stores with c-stores serving as a place for quick fill-ins. As the Wall Street Journal article points out, they are now sold in a wide variety of retail formats. Each taking a piece of what supermarkets heretofore depended on. Supermarkets are adapting with less emphasis on the center stores and more on the store perimeter with produce, bakery, meats, foodservice, etc. C-stores have moved from the replacement business to refreshment, snacks and foodservice.

However, there is only so much adaptation that can take place. At some point all the sellers of food will face a situation where their networks will have to be rationalized. The questions really is, who will survive — the traditional supermarkets or the interlopers?

Adrian Weidmann
BrainTrust

There is simply too much retail square footage in the U.S. Given the growth of online commerce, there is too much physical retail to support the shopper demand. Everyone in retail is hoping that if they offer food they will draw more traffic. This is a short-term, reactionary strategy that won’t be sustainable. The vertical lines between grocery, retail and QSR/foodservice is continually blurring. Amazon’s purchase of Whole Foods destroyed these lines. It’s an exciting time for retail.

Zel Bianco
BrainTrust

Yes, the analyst from Barclays is right — stop growing or we will all go out of business. Unfortunately that is not the American way as we are all judged on growth from year to year and in some cases quarter to quarter. Given these realities, the industry will need to deal with the massive amount of square footage that will be collecting dust. The industry, or more likely the real estate holders, will need to become very creative in turning these spaces into community colleges, community centers, senior living centers etc., just like malls across America are starting to do.

Naomi Shapiro
Guest
19 days 1 hour ago

It ain’t your father’s corner grocery store any more — nor is it the bigger grocery chains’ store. What’s going to be important is what the stores will carry to suit the need/demand in their particular area — size and content will be determined by the same criteria.

Gene Detroyer
BrainTrust

Absolutely! And we will see closings in the future. Let’s go back a generation or two and look at how people shopped at the supermarket. There was that once-a-week trip to stock up on everything. Mostly staples. The baskets would overflow.

Without addressing niche markets, consider how many shoppers are getting their staples from other sources. Costco, online, Amazon. As they fill these needs there is less a demand for the center-store real estate of the supermarket. Now it becomes a place of fill-in and fresh.

The trend will continue and the core real estate of the supermarket will not only become less valuable to the shopper but an albatross to the operator.

Dick Seesel
BrainTrust

The grocery business is suffering from the same “overspace” problem that has plagued general merchandisers for years, leading to waves of store closures this year. The retailers in the middle — the old standbys like Kroger — are particularly vulnerable to increased competition from discounters, small-format stores and retailers doing a better job engaging with “foodies” and Millennials. (At least Kroger has a winning concept with Mariano’s in Chicago.)

There is no doubt that shopping behavior is changing. Some shoppers are opting for more frequent but smaller trips for fresher food, while others are bulking up at warehouse clubs. Aldi, Lidl and Trader Joe’s are offering smaller stores with curated assortments, and now Amazon is lurking in the background with its purchase of Whole Foods. As a regular shopper at Kroger’s “Metro Market” chain in Milwaukee, I can tell you that the overwhelming amount of choice (to fill all that space) makes even a simple shopping trip harder than it should be.

While some mid-tier chains are in a better position than others to survive, some industry consolidation is probably long overdue here.

Art Suriano
BrainTrust

In many ways, grocery chains are making the same mistakes as specialty apparel retailers by having too many stores and getting in each other’s space. Years ago supermarket chains had established territories and you didn’t go into someone else’s space. Today that no longer exists, yet we still have the same amount of customers so competition increases while sales usually do not. However, I also see other opportunities for grocery chains with smaller stores, more specialization and unique services.

Over the next 10 years, I see the food store of the future as being smaller, focusing only on the items the customer wants to experience before purchasing, and shopping from home with home delivery becoming the standard way of food buying. Meal kits will become a big item, but I see them evolving to self-preparation — open the package, make some personal choices, then pop it in the microwave or most likely the next big thing and minutes later, here’s dinner.

Technology is changing the way we do everything and if you think 10 years ahead who knows where we’ll be.

Tony Orlando
BrainTrust
The answer is yes, as you can find food products everywhere you turn. Part of this is simple. Selling groceries is easy, and these massive chains have used this as a draw into their stores to sell higher-ticket items once they get the gallon of milk for $1 wholesale and super-cheap pop and top selling staples. It has hurt our industry’s bottom line severely and it will not stop, as consumers are shopping for bargains wherever they can get them. Many smaller independents are heading for extinction, as they simply can not compete on the price of these giveaways in the drug stores, in Dollar General, Amazon, Costco etc. All the major dry goods and dairy categories have been priced down to no profits, or negative profits, so unless the store owners know how to provide gourmet deli/bakery and meat departments, they stand no chance of staying in business today. I’m glad I have the ability to run these departments well or I would be gone. The discount and limited format stores cannot compete against us in these departments, because they require highly-skilled labor and are unwilling to invest in it. Anyone can sell chips, booze, cookies and dry goods,… Read more »
Ian Percy
BrainTrust

Feeling your pain Tony! We’ve got to find the answer!

Ed Rosenbaum
BrainTrust

You make a strong case Tony.

Tony Orlando
BrainTrust

Thanks Ed. I’ll be around a while longer, as these discounters know nothing about gourmet scratch foods and custom cut meats — and never will.

Ian Percy
BrainTrust

Looks like a consensus so far. Yes, there are too many grocery stores — and, in fact, there are too many of just about every retail category. A very successful retail friend suggests five times too many of everything.

Karen Short’s brilliant suggestion that “everyone should stop growing” is right on the mark. We not only bought into the “lowest price wins” myth, we also believe that growth is more important than profitability. There’s not much wisdom in either mindset it seems to me. Readers will rush to remind me of Walmart and Amazon who seem to have won with both low price and growth. Right now that’s a good argument — for Walmart and Amazon. They are the retail version of the top 1 percent. So what about the rest of retail?

Maybe what is more important is the fact that the future may tell a different story. After all — EVERY organization is on the inescapable S-curve. You start, you grow, you mature, you die. Of course you can reinvent yourself pre-death and live another life, but the bigger you are the harder it is to do so.

Ricardo Belmar
BrainTrust

In many ways, consumers should be looked at as a fixed resource with retailers across any segment, even grocery, vying for market share within that fixed resource. Grocery has an advantage over other segments which is making it very popular right now — consumers have to buy food, so there is a sense of automatic foot traffic generation that’s implied. Convenience is very important as most people don’t want to drive out of their way for groceries if they don’t have to. Some brands, Trader Joe’s comes to mind, have made a point of differentiating on product such that consumers WILL go out of their way to shop there. Not every grocery brand can do this.

In the end there must be a shake out and stores will close but, until then, consumers will win as all of these brands try desperately to make themselves into a destination either with specialized products or with new service offerings. Fortunately for consumers, this will lead to an improved grocery shopping experience.

Brandon Rael
BrainTrust

There clearly are too many grocery stores and it’s rapidly becoming very difficult to differentiate between the brands. What may evolve out of the rapid expansion plans of Lidl, Aldi and potentially the smaller-scale Whole Foods/Amazon/365 hybrid is that the grocery store will become far more specialized. It will offer far more organic assortments curated to the local markets and will no longer be the one-stop destination that we all grew up with in the suburbs.

The most precious commodity outside of money is time. If the grocery business evolves and the stores focus on organic, lifestyle and holistic trending products in a format that is easy to navigate, enabling far greater self services capabilities, they will be able to differentiate themselves from the intense competition.

Convenience is one thing, but the in-store experience and product assortments are critical as well.

Herb Sorensen
BrainTrust

NO! There are not “too many grocery stores.” But the stores that there are, are designed to accommodate suppliers and retailers — NOT shoppers. It is NOT online that is assaulting brick-and-mortar retailers, it is someone aggressively dedicated to the shoppers.

The story has way too many facets to treat here, but mostly the recognition of the “Houston, we have a problem!” variety is all we hear. WHAT the problem is, is largely unrecognized. If it was “too many stores,” why are the new players, INCLUDING AMAZON, building NEW brick-and-mortar stores? What is needed is brain transplants all around. And this is only a nudge: The Problem: “Parked” Capital — September 30, 2014.

Ian Percy
BrainTrust

Wow, Herb. I’d love to see you pull back the curtains on the points I think you’re making here. You are onto something we need to discuss.

Herb Sorensen
BrainTrust
The entire perspective BEGINS with Ed Rosenbaum’s final note (below): “We do have to eat.” The detail, I have spelled out at http://www.ShopperScientist.com, and with my second edition of, “Inside the Mind of the Shopper,” particularly the first six chapters. Very briefly, retailers are merchant warehousemen, who are focused on a pallet-based supply chain. They get the merchandise onto the shelves of their neighborhood warehouses (aka, stores,) and rely on unpaid stock pickers (aka, shoppers,) to “come and get it!” They neither know nor care how the shoppers do this, they only tally the items and dollars at checkout, and the square feet of the store. The rest is “crowd” demographics, etc. Meanwhile, retailers have ZERO interest in maximizing the sales of ANY supplier. They want multiple suppliers competing for their warehouse space, which creates the “brand-on-brand” mayhem that goes on in the aisle, and from which the retailer draws their #1 source of profits, which is in reality, a cut from the suppliers’ profits — slotting fees, trading allowances, etc. The radical difference between this and Amazon is NOT that one is bricks, and the other is online. It is one that is intensely focussed on individual items, one… Read more »
Ian Percy
BrainTrust

A great contribution. Thank you.

Mohamed Amer
BrainTrust

In the aggregate, we are overstored in the U.S. and that includes grocery stores. For food in general, the situation is extreme as most center-store and impulse purchase items can be found across multiple retail segments and store formats, as well as online.

Peel the onion back and you discover that gaps do exist as geographic distribution is uneven as is access to specific grocery formats. Yes, grocery chains are aware of the increasing capacity issues and are working to match the appropriate type of capacity-to-demand ratio in the local markets. New geographic entrants like Lidl perceive an opportunity for their format and assortment that fulfill inadequately met consumer demand.

Based on online capturing a greater proportion of grocery sales, I expect that over the next 10 years the average store size will go down significantly and the number of stores will stabilize. More grocery stores will bring the store to the consumer/home and the melding of physical and digital will go into high gear, with novel partnerships and potentially renewed M&A activities. This will lead to more concentrated consumer purchases with fewer grocery chains and online platforms.

Liz Crawford
BrainTrust

In terms of retail, the internet is the great divider. Categories like apparel and home goods will need less space because online sales are cannibalizing brick-and-mortar revenues. However for immediate consumption categories, like groceries (especially perishables), the transition to online sales will be slower — and may never completely go digital. I predict that there will always be a percentage of grocery shoppers who “hold out.”

About too many stores — no, I don’t believe there are too many grocery stores. But I do believe that they are poorly distributed. There are food deserts and food meccas. Grocers are chasing the same affluent demographics, mostly in the same ZIP codes. This leads to diminishing returns.

David Livingston
Guest
19 days 58 minutes ago

The market is overstored with hundreds of sterile ineffectual grocery stores. I predict about 500 store closings over the next couple of years, mostly on the eastern seaboard and Florida. I don’t think Food Lion, Winn-Dixie, Bi-Lo and a few others are going to make it. Kroger is quietly closing stores in the Midwest. Albertsons will need to shed some low volume units, many of them in Texas. I’m seeing per-bankruptcy strategies based on calls I’m getting from landlords. Such as a chain agreeing to a 10-year lease extension in exchange for a cash payment today. I advised the landlord that the chain will pocket the money and go bankrupt. Wegmans, Lidl and Publix will simply push too many off the edge.

We are also going to see a lot of failures in the natural/organic area. Fresh Thyme, Sprouts, Earth Fare and others. Any that are growing too fast using debt will most likely fail. Survivors will be the debt free, rent free chains that grow methodically using their own cash.

Ed Rosenbaum
BrainTrust

Yes, there are too many grocery stores and more coming with Aldi, Lidl and now Lucky’s making a strong move in areas of Florida. But that is not going to change anytime soon because they all seem to sense that they can grab a larger slice of the pie. It’s not going to happen but that is what they believe and can probably make a strong case defending it.

I question the comparison with J.C. Penney, Macy’s and Sears. We do not have to go shopping in a department store on a weekly basis. We do have to eat.

Camille P. Schuster, PhD.
BrainTrust

Maybe. Certainly there are too many traditional stores selling the same items with the same promotions. The number of stores may not be as relevant as the way the stores function. Are they being used as mini-warehouses for online shopping? Are assortments appropriate for that location? Is in-store space being used appropriately for consumers who frequent that store? If these and other issues are not addressed, there will be many more stores closing.

Brian Kelly
Guest
19 days 5 minutes ago

Grocery isn’t apparel, or beauty, furniture, electronics or whatever.
Folks need to eat. Right now, all other categories are superfluous.
Don’t fall into the trap of applying irrelevant circumstances to different shopping behaviors.

That’s not to say that grocery retailers with an irrelevant selling model will hang on. Nope, those brands will go away just like the thousands of home fashion or apparel cousins that have shuttered in the past eight years. Recent industry consolidation has claimed plenty of regional chains as brand portfolios got trimmed. Perhaps grocery is further along the curve.

The same external and internal forces remain to challenge grocery. Aldi and “dollar” both address those budget-stretching shoppers in both urban and rural food deserts. Convenience stores face an uncertain future as local municipalities rush to enact a “sin tax” on pop. Will Lidl arrive with a uniquely compelling solution? Tesco didn’t and it went away. And of course, how Amazon absorbs Whole Foods and responds remains to be seen.

Grocery is different. And it’s exciting. That’s why we say, “retail ain’t for sissies!”

Richard J. George, Ph.D.
BrainTrust

Joining the conversation at the back end leaves little to be constructively added. My only point is that there are not too many stores selling groceries as there are too many stores with little positive differentiation selling groceries in the U.S. The new entrants, both bricks & mortar and online, offer points of difference to the big middle players that have graced the food marketing landscape for almost one hundred years.

Unless and until these operators morph into something American shoppers consider attractive enough to forego online or drive past one of the new players, some will find themselves in the position of Sears, where America used to shop.

Janet Dorenkott
BrainTrust
18 days 22 hours ago
Stop growing? No company should ever stop growing. If she would have said some companies should stop expanding their retail footprint, then I would agree. But all companies stop growing? That’s ridiculous. That said, every retailer is different. If Aldi’s sees value in adding brick and mortar stores, then they should do it. If Dollar General sees financial growth opportunities, then they should do it too. Every retailer needs to get better at their online presence and some of them are doing it better than others. If they are, then their online sales should be replacing their in-store sales and those retailers should reduce their brick and mortar footprint. It should increase profits for them. It seems to me like there is a correlation of brick and mortar stores that are growing, to incomes. Both Aldi’s and Dollar General appeal to lower income shoppers. Perhaps we should be looking at the bigger picture that low income shoppers don’t buy online as much as others. Perhaps it’s the shipping fees or maybe lower income shoppers can’t afford high speed networks or fast computers that make online shopping easy. Bottom line is every company should be trying to grow and they should… Read more »
Mark Price
BrainTrust

Over time, markets segment. That is an eternal law of marketing. What we are seeing is an expansion of alternative channels that are taking a piece of the grocery “pie” (only a small pun intended!). The segmentation of grocery will narrow the customer base (segment) for each channel to customers who have an affinity for that channel. Then the channel must work to optimize share of wallet and margin by improving customer experience and product options for the specific needs of that segment.

William Passodelis
Guest
18 days 14 hours ago

YES!! There ARE too many grocery “sellers” and as with other retail, there will be winners and losers, and the losers will go away. As already stated, the customers will decide.

wpDiscuz
Braintrust
"Yes, the analyst from Barclays is right — stop growing or we will all go out of business. "
"Stop growing? No company should ever stop growing. It’s survival of the fittest out there and the competition is smart and new."
"The grocery space is clearly heating up and most every retailer out there knows it. "

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