BrainTrust Query: Is There a Future for Traditional Supermarkets?

Discussion
Oct 04, 2012

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 Incredibly, these stores are designed for shoppers that no longer represent critical mass.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?

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26 Comments on "BrainTrust Query: Is There a Future for Traditional Supermarkets?"


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Dr. Stephen Needel
Guest
6 years 4 months ago

I’m going to disagree just a bit with Mark and suggest that the demise of the traditional supermarket remains a long way off for reasons other than accounting. A lack of growth does not mean irrelevancy — it means a lack of growth. We would likely be in error to suggest that, in this economy, anything that doesn’t grow is dead.

Ian Percy
Guest
6 years 4 months ago

I think Mark is on to something.

The strategy of having a sharp point on your arrow is a smart one if you want it to stick in the target. Specializing/differentiating is simply a smart thing to do. It helps if you can appeal to something deeper than the mechanistic shopping experience.

I’d add the idea that the best place for many of these ‘specialty’ stores is in the 50,000 to 150,000 population centers…not the major cities.

Frank Riso
Guest
6 years 4 months ago

I think the traditional supermarket will adapt to the changes in customer preferences, but will not fade away. Some of these newer formats have less variety, higher prices, and more service departments. In order for shoppers to find everything on their list (those who still use them), and for coupons and specials the traditional supermarket is their destination. Warehouse clubs, drug stores, and now specialty grocers have actually helped the supermarkets adjust to the changing consumer but still maintaining the traditional selections yet adding cheese counters, home meal replacement counters, and a lot more general merchandise. All done to become a one stop shop, but not yet I am afraid.

Roger Saunders
Guest
6 years 4 months ago

To paraphrase Mark Twain, “The reports of my death are greatly exaggerated.”

Traditional Retail Grocery formats have a strong position on which to hold revenue and margin. The September, 2012 BIGinsight Monthly Consumer Survey indicates that 57.6% of adults shop a traditional grocery store most often, while 25.6% shop a discount store format. In September, 2010, 53.8% said they shopped traditional grocers most often.

Leverage points that grocers have are location, quality, selection, and an ability to leverage price where and when needed. Service, merchandising mix, loyalty programs, and other vital marketing points can be added to this list.

Is it easy to be a traditional grocer today? The ones that have the right vision, proper cash flow, and talented people will continue to thrive.

Ryan Mathews
Guest
6 years 4 months ago
You might want to write this down … there’s no future in traditional institutions, period. The supermarket will continue to evolve because people, lifestyles, society and technology continue to evolve. This isn’t a bad thing. It’s just … well … the way of the world. Institutions have two options — evolve or die from a lack of relevance. That’s what happened to the general store. It wasn’t that people didn’t like the convenience of one stop shopping, where you could buy your coffee, a shirt and dynamite all under one roof. It wasn’t that they hated the local grocer or despised full service. Something new came along … either because lifestyles were changing or, depending on how you look at the facts, that changed lifestyles. The supermarket is a commercial artifact of the Baby Boom and the Baby Boom is over. Does this mean the industry will go away? Of course not. Shoes stores didn’t go away when button hooks fell out of fashion, they just stopped selling shoes with buttons. As an industry, we… Read more »
Fabien Tiburce
Guest
Fabien Tiburce
6 years 4 months ago

Local, premium, and specialty are indeed generational trends that are unlikely to deflate anytime soon. But I wouldn’t sound the death knell of the traditional supermarket quite yet.

Supermarkets are adapting to become more local and specialty focused. Take Loblaws for example (Canada’s largest supermarket chain). Loblaws recently opened a large store in the old “Maple Leaf Gardens” hockey arena (that needs no introduction to a sports fan). To say the store is superb is an understatement. You have a whole floor of freshly prepared foods, fresh breads, deli-style cheese and meats. The store is literally a throwback to an ancestral “market,” it’s beautiful, fun and doing exceedingly well (by any casual observation).

As they say “if you can’t beat them, join them.” Traditional supermarkets don’t have to be “traditional,” embrace change and embrace a bright future.

Anne Howe
Guest
6 years 4 months ago

When the supermarkets begin to get brave and bold and disrupt the “eternal sameness” with truly engaging experiences that bust the paradigms open, things will start to change. It might take a few more years of stagnation. It only took Walmart 9 quarters to realize change was needed, and now, while not a traditional grocer, Walmart is willing to test and learn and test and learn more.

Maybe brave is the new black…or at least a path out of the red.

Bill Bittner
Guest
Bill Bittner
6 years 4 months ago
I think it is certain that supermarkets will change. The challenge will be getting the timing correct. Just as we’ve seen with other technology it can take a long time for people to change their habits. Many people still use paper checks. I think there is an opportunity for a great new retail format, a sort of “Bazaar” where consumers can make a single stop for all their needs. It would contain a variety of products and services. The product selection would include the traditional supermarket items supplemented by delivery of online orders. The only local inventory would be the common last minute and perishable items that consumers need quickly. The Bazaar would be filled with the aroma of locally prepared items. Services would include delivery pickup, return packaging, and dry cleaning. The goal would be to minimize retailer held inventory, allowing manufacturers to deliver directly to the consumer through the Bazaar. Returns would be made simpler by the Bazaar staff handling the packaging, labeling, and initiation of the return.
Lee Peterson
Guest
6 years 4 months ago
The issue is that traditional grocery stores are just not built for change, meaning mentally or physically, internally or externally. The general mentality of “it’s not broken, um, too much” is pervasive and no one in leadership wants to be the sacrificial lamb of big change. Why should they be? They’re still doing incredible volumes, albeit decreasing slowly but surely. So no one wants to be the Ron Johnson of grocery … leaders may see the change coming, but still look at it as too daunting of a task and leave if for their descendents to attack … some day. But this is a mistake. From our studies with young people, there is much more of a burning platform than they may think. The next generation is no longer interested in going to the traditional stores and look at them as a chore, and with Walmart, Amazon and others about to figure out on line buy with home delivery, they’re not going to have to wait for long. So in fact, there’s a ton of… Read more »
Michelle Fenstermaker
Guest
Michelle Fenstermaker
6 years 4 months ago

Based on recent research we conducted “Grocery’s Next Generation,” Millennial shoppers find very little appealing about traditional supermarkets and actually report they are more likely to shop at supercenters and specialty stores before traditional formats. This is not good news as more than 80 million consumers in this cohort are out there grocery shopping. Experience trumps convenience when it comes to food shopping for them and unless traditional grocers can radically alter their designs to cater to this new “foodie” generation, they will be missing out. Millennials are looking for grocery retailers to inform and inspire them about “what’s for dinner.” This more “experiential” focus will not alienate the boomers (for whom traditional grocery formats were designed). Blow up center store, take some lessons from perimeter merchandising and then maybe new life could be breathed into this dying format.

Camille P. Schuster, PhD.
Guest
6 years 4 months ago

Any retailer operating today the same way it operated 20 years ago, even 5 years ago, is about to be extinct. Consumers, lifestyles, technology and the marketplace are different. To be competitive, retailers, including grocery stores, need to change. Consumers’ lives are different; supplying goods and services to those consumers also needs to change.

Cathy Hotka
Guest
6 years 4 months ago

People love specialty grocers. But moms who are spending over $100 per week to feed families need a host of items — baby formula, Lysol, crackers, detergennt — that these stores may not carry. It’s hard to argue with the convenience that supermarkets offer.

Gordon Arnold
Guest
6 years 4 months ago

Supermarkets are not selling buggy whips and saddles, they are providing staple products. The food market will survive even the worst of times. The survival of supermarkets as a retail platform is in the hands of the people who are running them and their ability to address consumer trends. If they continue to staff themselves with the same old management practices, they will be left to flounder and die off. Their replacements will succeed as a result of behavior and format which is in line with consumer practice.

Gene Detroyer
Guest
6 years 4 months ago

Why would there be a future to the traditional supermarket? The traditional format is now over 60 years old.

Do we even want a future for the traditional supermarket or should we be looking for what is going to replace it?

Donna Brockway
Guest
Donna Brockway
6 years 4 months ago

I think there is no question that the traditional supermarket as we know it is “dead,” and it is just a matter of time before they start dropping like flies. But one of the things that is not strongly stated in the article is the impact of technology and online shopping on ALL purchases, not just food. The winners in all of this are the guys who are working diligently and creatively to find the next “supermarket” format of the future. And ironically, one of the things I note about supermarkets is, they are definitely not on the cutting edge of any creative, new ideas on how to serve consumers better.

W. Frank Dell II
Guest
6 years 4 months ago

The supermarket format has been under attack since the ’60s. Eating away from home took away most of the food growth for years. Then we had membership clubs followed by superstores, convenience, drug, dollar stores and now online shopping all taking a bite of the apple. One rarely reported issue has been the growth of farmer markets. Whole Foods has shown there is another way, yet Kroger is doing just fine.

I think rapid is the wrong word. The industry’s executives need to look outside the industry to create strategic scenarios and plans. The industry needs to move from reactive to proactive, but not be the leader of the pack. Change with the times, not after you are in trouble. Change occurs at a different speed in each market.

David Livingston
Guest
6 years 4 months ago

Niche grocers have been squeezing out traditional grocers and exposing their weaknesses. Privately held regional grocers seem have evolved nicely such as Publix, H-E-B, Hy-Vee, Wegmans, Festival, Crest, and WinCo. And that’s just a small sample. The traditional grocers that really seem to be in trouble are the large, sterile, publicly held chains. Their hands are tied with debt, rent, union labor, credit card fees, Wall Street/stock price, and to a lesser extent the economy. What changes would help? My advice is to the winners out there to just keep doing what you are doing. Keep using Walmart as muscle to destroy your competition.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
6 years 4 months ago

Oh, man – the number of times the demise of conventional supermarkets has been predicted over the decades! Yet, it never happens. Improvise, Adapt, and Overcome. The reports of their death have been premature.

Do Whole Foods, Aldi, and Trader Joe’s have loyalty programs? Compared to conventional supers, do they do much coupon business? How many locations — combined — do they have compared to conventionals? Why is Walmart experimenting with mini-Walmarts, which are just conventional supermarkets? And what happened to Fresh & Easy Neighborhood Markets?

Does Aldi really have anything going for it other than price? Does Trader Joe’s really have anything going for it other than overpriced, esoteric store brand stuff? Does Whole Foods really have anything going for it other than an elitist appeal? Do these fringe formats really represent the future of consumer packaged goods retailers?

Not hardly. Share is always taken most from the largest share holder.

Alyson Anderson
Guest
Alyson Anderson
6 years 4 months ago

Great minds think alike. We were excited to read your analysis of the traditional grocery stores and why they are failing. We agree with you that due to the current organization and operations, these “traditional” stores just can’t compete on the price end, or the specialty end. Yes, they serve a need. But it is a need that can be filled many other places and through many other formats. Most families do not shop in the same ways as they used to and the traditional format does not always work for them. We just published our newsletter this month on the very topic and hit many of the same points that you did.

Tom Redd
Guest
6 years 4 months ago
Lot of good comments by very smart people. Can’t really offer an eye-popping opposing view, but emphasize that when your business isn’t growing (and others are), it might as well be dead. Raising capital becomes difficult and when possible, it’s expensive; you’re not able to attract the talent you need to get you out of the mess you’re in; and those employees in place have little opportunity to develop and grow inside the company. Your new competitors don’t have your history, legacy structures and systems, and have already shifted over to the next growth formula by focusing on what you had not (be it technology, societal trends, shopping experience, assortment, etc.). Competitors become relevant as you become extinct. Change is good and it is not going away. There is some hope. Most operators in the traditional supermarket segment are listening, some are experimenting and adapting, and few are transforming their business — and by default they’ll no longer be a “traditional supermarket.” Some will make it, others won’t — that’s the nature of business. But… Read more »
Roy White
Guest
Roy White
6 years 4 months ago

The demise of the traditional supermarket has been announced for as long as I can remember, in many cases ballyhooed even more forcefully than this discussion article. The “traditional” supermarket has indeed evolved over the past several years, and in comparison to some other channels, such as drug, the traditional supermarket has made major alterations to its footprint. It is true that innovative chains like Trader Joe’s, Aldi, Whole Foods and others have by and large entered on an era of fast track growth, but they tend of appeal to a segment of the market, not the market as a whole. Traditional grocery chains have a large base to grow on, so the percentages may not look so good, but many continue to be profitable.

Ernie Schell
Guest
Ernie Schell
6 years 4 months ago

The decline is probably also driven by the decline in home-cooked meals. If you eat fast food, you’ll not be doing much supermarket shopping…it’s grab-and-go!

And if fast food eaters eschew supermarkets, true foodies prefer smaller markets where they can buy local vegetables, butchers for local meat, and fish markets for the fresh catch….

ramon lovato
Guest
ramon lovato
6 years 4 months ago
There will always be a need to “go to the store and pick up some groceries.” I agree that the presentations need to evolve (e.g. WFM, Trader Joes, Fresh Market, etc.) in order to stay relevant. Sears was the #1 retailer in the world 20 years ago, now it Walmart; who will it be in another 15-20 years? Amazon or some other dot come or perhaps something that we haven’t even seen, perhaps? The right sizing and right location-ing with the right positioning will produce new players. Traditional retailers MUST evolve IF they are to survive. I see a return to the old school. A meat market, a produce stand, a sundries shop, etc. Specialists, not generalists. All in my neighborhood. Perhaps not with traditional presentations. Some blend of web-based shopping with showrooms perhaps. Mobile carts/grocers, partnerships between traditional and neo retailers will pop up as the traditionalists recognize that their formats are being left behind. These guys are smart enough to see the writing on the wall. Change or DIE!!!
Kai Clarke
Guest
6 years 4 months ago

Yes, there is a place in our future for the “traditional” supermarket. For many retail footprints, it has morphed a bit, but the big super retail grocer is still alive and well…just being added to Walmarts, Targets, Costco’s and even Kmarts. That these “hypermarkets” which contain a full-fledged supermarket are aggressively growing, only supports the presence and need for the “traditional” supermarket, albeit in a modified footprint.

Herb Sorensen
Guest
6 years 4 months ago
Agreed completely. Retailers are very Janus-like, with two faces on the same head. One is facing the supply chain, and the other is facing the shoppers. The supply chain face is highly developed, striking and handsome, with encompassing eyes. The one facing shoppers is shriveled and shrunken, with eyes that can scarcely distinguish the shoppers. However, there ARE retailers with eyes wide open on the shopper side, and a FEW will leverage the new opportunities with their existing capital structures. These new opportunities invariably boost the shopper’s own efficiency in serving themselves, with more intelligent assistance with what THEY want, rather than what the suppliers want. Notice, I do not advise ANY attenuation of retailer shrewdness in managing the supply chain. That can continue unabated. But there is a window now during which they can bring some savvy to the shopper side. If they don’t, others WILL, and eventually the physical walls of the store will not be a safe barrier behind which to practice retarded retail. Those walls will be transcended by mobile apps… Read more »
Ralph Jacobson
Guest
6 years 4 months ago

Traditional format supermarkets have been facing the threat of industry bifurcation for literally decades. Toward one side of the spectrum, you have the gourmet/health/wellness/specialty formats and toward the other side you have the deep discount/club stores. The traditional format stores are stuck in the middle with a shrinking market share. Is there a future? Yes. With their slice of the market pie continue to shrink? Yes. The trouble is that the traditional stores look alike on the inside. You don’t know what store you’re in. Some ground breaking differentiation would be nice here. Less of the “me too” frequent shopper discount cards (I refrain from calling them “loyalty” cards), and maybe some innovation. Stores have looked the same for literally at least 70 years.

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