BrainTrust Query: Is There a Future for Traditional Supermarkets?
Through a special arrangement, presented here for discussion is a summary of a current article from the Mark Heckman Consulting blog.
The trend is clear. The growth in the U.S. grocery sector today is not found in traditional supermarket formats but rather with specialty stores such as Trader Joe’s, Whole Foods and Fresh Market. There are further signs of life on the other end of the spectrum as there is also growth opportunities for smartly located "price" oriented stores, especially the smaller, quick in-and-out formats including Aldi and Save-A-Lot.
But it has been a proverbial month of Sundays (aka, a very long time) since the days of traditional supermarket chains had dozens of new stores in their capital expenditure plans. Today, after another tough year of "comp sales," press releases focus more on updating existing facilities, consolidating and the ever-euphemistic "right sizing" of the number traditional grocery stores.
I see three prevailing reasons for this dearth of growth:
- The sluggish economy has slowed residential growth and consequently the opportunity for new shopping centers and emerging business locations that have traditionally been fertile ground for supermarket expansion.
- Competition and complacency are killing traditional stores. In medical terms, the autopsy of the traditional supermarket will read something like this: "Death due to over-exposure, and multiple lacerations from savvy competitors over an extended period of time." Their outside specialty competitors mentioned above are good at what they do and they have figured out how to profitably propagate their formats and brands nationally.
- The product life cycle of traditional supermarkets is close to its end. For more than sixty years, this format has carried the load for grocery selling in the U.S. Current trends indicate that there is little doubt that the traditional supermarket needs a radical reformation, or they will go the way of the drive-in theater and the eight-track tape player. It should be no surprise to anyone. Incredibly, these stores are designed for shoppers that no longer represent critical mass. The whole concept of grabbing a cart and a shopping list and spending 45 minutes to an hour shopping for food is already a rare and dwindling behavior.
Game, set and match.
Before you ask me to check my medication, I do realize that traditional supermarkets will continue to sell groceries for many years to come. There are over 35,000 of these things out there to be amortized and the accountants alone will prolong the death of this mighty beast until the last drop of EBITDA is extracted from its veins.
But the trend is clear. So the next time you see a flyer for a grand opening of a brand new supermarket, consider attending — and save the balloons. It’s something you can share with your grandkids someday.
Do you agree that traditional supermarkets will require a “radical reformation” to stay relevant in the future? What particular challenges do you see facing the format? What more drastic changes may help?