No Limits on Small Grocers Growth

Discussion
Feb 02, 2011
George Anderson

Among the hottest retailing segments in recent years has
been limited-assortment grocery stores. Chains such as Aldi, Grocery Outlet
and Save-A-Lot are opening stores at a fast pace as consumers are drawn to
savings well below traditional supermarkets and others selling food.

A USA
Today
article reports that Aldi currently has 1,135 stores in
30+ states with plans to open up to 100 more this year. Save-A-Lot, a divison
of Supervalu, is looking to more than double its current store count to reach
roughly 2,400 locations over the next five years. West Coast-based Grocery
Outlet plans to add 15 stores in 2011 to the 150 it currently operates.

Limited-assortment
grocers have benefited from consumers’ willingness to substitute private label
for national brands.

Fifty-four percent of consumers in an August 2010 survey
told SymphonyIRI Group they were buying more store brands.

“Slightly more than one-third of consumers tell us they’re struggling
to afford groceries. That has increased 11 [percentage] points over the past
six months,” Susan Viamari, editor of SymphonyIRI’s Times & Trends,
told USA Today.

Another advantage to limited-assortment grocers is store
size.

As Phil Lempert of supermarketguru.com told CBS News, “People
really have gotten very frustrated going into supermarkets. …These stores,
on average, are about a third or a quarter of the size. So you are able to
get in the store, find what you want faster, and get out.”

Discussion Questions: Will limited assortment grocers continue to grow at a faster pace than other food retailers as the economy improves? Are consumers who switched to these stores during the Great Recession going to continue to shop there or will they “trade up” to others selling groceries?

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13 Comments on "No Limits on Small Grocers Growth"


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Fabien Tiburce
Guest
Fabien Tiburce
10 years 3 months ago

Smaller stores tend to be located closer to where people live. As the population ages, shopping in a store that is both closer and cheaper becomes very attractive to a huge segment of the population regardless of the economic situation. I would say if the locations are strategic and the store adapts to an improving economy, the small store format has a bright future.

David Livingston
Guest
10 years 3 months ago
First, I don’t think consumers will trade up from the limited assortment stores. They are finding the quality is the same or better, especially in Aldi. The pricing differential is just too large, even with Walmart. Aldi loves opening in the parking lots of Walmart because they know Walmart can’t beat their prices and Aldi feeds off the traffic Walmart draws. Save-A-Lot isn’t as price competitive and is vulnerable to Walmart. All the talk about doubling its size is so far, just talk. I’m not seeing hundreds of stores opening. In fact Supervalu has completely failed to get a Save-A-Lot open in their home base in the Twin Cities while Aldi has. If Supervalu does open some Save-A-Lots, they will most likely be in shuttered Supervalu owned or supplied stores. Grocery Outlet has owned the West Coast’s limited assortment market. It could be a while before Aldi crosses the Rockies and impacts them. Aldi really has a nice business model having no debt, no rent, no unions and no Wall Street. Those four factors have… Read more »
Anne Bieler
Guest
Anne Bieler
10 years 3 months ago

Small stores have the potential to become the favorite stop off for many shopper groups. They can be more localized in assortment, and provide a much easier shopping experience. The quick checkout lines usually aren’t faster in large stores, and finding the things you need takes time. Execute small format well, and they will come.

Gene Hoffman
Guest
Gene Hoffman
10 years 3 months ago

With an aging population and a large segment of the U.S. population having to seek low costs on their grocery purchases, and with more limited assortment stores appearing in closer proximity to consumers’ homes, smaller grocery stores will continue to serve the growing needs of a large group of consumers in the decade(s) ahead.

The expansion and acceptance of limited assortment and smaller grocery stores indicates to me that supermarkets must reinvent themselves.

Bob Vereen
Guest
Bob Vereen
10 years 3 months ago

As a committed Aldi shopper for the basics, we find quality to be excellent. Having checked out Save-A-Lot, the stores look messier and not as attractively merchandised.

Gordon Arnold
Guest
10 years 3 months ago

This article accurately defines the problems faced by retailers that are using promotions to address supplier high inventory levels or slowed inventory category sales instead of customer buying habits. Many retailers have been fooled into thinking that we are in a 4+ year recession. Recessions have a life span measured in months with single digit declines. Depressions live for years with steady double digit declining results, like where we are now. Smart retailers are stocking and promoting market needs and looking at impulse displays loaded with needed inventory to increase average ticket size.

W. Frank Dell II
Guest
10 years 3 months ago

The supercenter opens outside of town which drives the local grocery store out of business. Gasoline prices increase to $3.50 and you have great rationalization for limited assortment stores. Dollar stores are adding food. Convenience stores are growing in size to add food as are drug stores. Of these, only the dollar stores are competition to limited assortment stores just based on retail prices.

The future is bright for limited assortment stores and when they are approach 10,000 retail units we will be asking if they are taking over the food channel, just like we did with club stores.

Anne Howe
Guest
10 years 3 months ago

Even Tesco’s recently announced smaller format Fresh & Easy stores are on the radar. I think smaller formats are here to stay. Gen Y may re-invigorate supercenters when they start having families, but I think they could be shifting culturally to more online and more local specialty merchants as their primary base. Especially those who are urban versus rural.

Regardless of price point thresholds, smaller formats are just easier to shop and more enjoyable, especially if close to home. I may still do pantry loading at Meijer, but my visits to local small grocers and the Farmer’s Market provide me with a much stronger sense of community and conversation, including advice and interaction with friendly, engaged employees.

I know that’s not the Aldi or Save-A-Lot program. To me, while smaller and easier to navigate, those formats don’t feel very inviting. I get the value, but I don’t get the experience part. It’s just too sterile and non-personal for me.

Ralph Jacobson
Guest
10 years 3 months ago

Once again, this trend demonstrates the “bifurcation” of the industry. That is, the splitting in two of an emerging “well-curve.” The “specialty stores, like these limited assortment retailers, as well as other specialty formats will grow on both sides of the demand curve, while the traditional format stores will fall to the bottom of the growth curve as time goes on. New formats drive growth in the industry.

Cathy Hotka
Guest
10 years 3 months ago

Some of the prices at traditional grocery stores are positively breathtaking; a recent trip to the local market revealed a meatloaf-sized tray of hamburger for $13.65. The recession has made saving chic, but traditional retailers are partly to blame for the rise in nontraditional grocery stores.

Roger Saunders
Guest
10 years 3 months ago

Aldi most especially is going to hold onto Consumers in “post-recession” time–we’re are there now, but a large portion of the population hasn’t joined us yet.

Based on trends from the Prosper Business “Consumer Intentions & Actions” (CIA) monthly survey, in January, 2007, 1.2% of Adults said they shopped Aldi MOST OFTEN for Groceries. In January, 2011, that figure is 1.9%. And, Aldi has picked up attention from other shoppers, those who shopped there SECOND MOST OFTEN, moving from 1.6% to 2.0% of the population.

Aldi has also picked up loyalty from Adults with a Household Income of $50,000+, jumping from .6% of Adults in 2007 to 1.4% of Adults in January, 2011 who say they shopped their MOST OFTEN for Groceries.

Sav-A-Lot has picked up during this timeframe with consumers who frequent their stores in a SECOND MOST OFTEN status.

These pages have addressed the ‘New Normal’ ad-infinitum. It pays to “watch” and “listen to” the consumer. When it comes to retail they vote with their wallets AND their feet.

Herb Sorensen
Guest
10 years 3 months ago

In any store, the BIG HEAD is what you sell most of, because it is what shoppers want mostly. It is ALWAYS a limited assortment. However, the LONG TAIL, those other thousands/tens of thousands of items are VERY ATTRACTIVE in the sense that they attract shoppers to the store. The greatest ignored problem at retail is how to really sell the big head without letting the long tail get in the way. I discussed how Costco does this: “Tell ’em Where to Go; Tell ’em Which to Buy!

A long tail store, properly merchandised, should beat the limited selection big head store every time. But they almost never do, so expect to see limited selection gaining ground.

Justin Time
Guest
10 years 3 months ago
Aldi is the A&P of 50 years ago. Build a smaller and navigable foot print, stock with quality, house brands, open the door, and watch the masses load up their carts and empty out their wallets and debit cards at the checkout. Aldi is so very cool. I wrote their Batavia headquarters last month, like I normally do every quarter. I applauded them for bringing back Tundra liquid bleach and as an added bonus, at a lower price, 99 cents. They had, for a short time, branded it as Tandril, but customers were apparently turned off by that name, for liquid bleach, anyway. Aldi management is very receptive to trends and changes in customer demands. Look at all the new products they introduce each week, rice cookers, warming trays, prepared meats and seafood, the variety is almost endless. I wish Aldi much continued success. They build stores in food deserts, across the parking lot from Walmart, in the suburbs, their influence continues to stretch east of the Rockies. They are the true “American” grocery store.… Read more »
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