Gro­cers Are Squee­zed On Near­ly All Sides

L'Opinion - - The Wall Street Journal L'Opinion - Ste­phen Wil­mot and Aa­ron Back

The next top players in the gro­ce­ry bu­si­ness may feel more like sur­vi­vors than win­ners.

The in­dus­try is trying to keep up with ra­pid­ly chan­ging consu­mer tastes. But new com­pe­ti­tion, ran­ging from Eu­ro­pean dis­coun­ters like Al­di to Ama­zon’s Whole Foods, will leave even the best- po­si­tio­ned su­per­mar­kets strug­gling for growth.

The big lo­sers will be re­gio­nal chains, which ac­count for the bulk of sales in the U. S.’s high­ly frac­tu­red su­per­mar­ket in­dus­try. Al­rea­dy this year chains like Tops Mar­kets and Sou­theas­tern Gro­cers, the ow­ner of Winn-Dixie and Bi-Lo, have fi­led for ban­krupt­cy.

Al­di and fel­low Ger­man dis­coun­ter Lidl have wrea­ked ha­voc across Eu­rope. In the U.K., whe­reTes­co used to be so do­mi­nant lo­cals cal­led it “Tes­co­po­ly,” the dis­coun­ters de­fea­ted both War­ren Buf­fett and Wal­mart . Mr. Buf­fett fa­mous­ly cal­led his $2.3 bil­lion in­vest­ment in Tes­co a “huge mis­take” and Wal­mart sold its strug­gling U. K. chain ear­lier this year.

The same dis­coun­ters, which cut prices by fo­cu­sing on a li­mi­ted range of main­ly pri­vate- la­bel pro­ducts, now have their sights on the U. S. Al­di has com­mit­ted rough­ly $ 5 bil­lion to up­gra­ding and ex­pan­ding its stores. It wants 2,500 lo­ca­tions by 2022, up from rough­ly 1,700 now, ex­clu­ding the al­most 500 Tra­der Joe’s stores ow­ned by an Al­di sis­ter com­pa­ny. Lidl is much fur­ther be­hind, ha­ving ope­ned its first U. S. stores last June. The most li­ke­ly vic­tims of their ex­pan­sion aren’t Wal­mart and Kro­ger, the Nos. 1 and 2 chains in the U. S., but the smal­ler chains that still do­mi­nate U. S. food re­tail. In the U. K., the top four chains ac­count for al­most two- thirds of gro­ce­ry sales; in the U. S. the fi­gure is 42%.

Wal­mart and Kro­ger have the re­sources to fight back. But they had grown by ta­king mar­ket share from smal­ler players, which will be har­der with Al­di and Lidl trying to ex­pand.

In an in­ter­view, Kro­ger Chief Fi­nan­cial Of­fi­cer Michael Schlot­man said the chain can com­pete on more than price, ci­ting its pre­pa­red foods and in- store res­tau­rants, on­line or­de­ring and in- store pi­ckup sys­tem, and cus­to­mer loyal­ty pro­grams. “We star­ted compe- ting against Wal­mart in 1992,” he said. “There’s al­ways been people out there com­pe­ting main­ly on price, off­set­ting se­lec­tion and ex­pe­rience.”

A key growth op­por­tu­ni­ty for U. S. chains is pri­vate- la­bel brands, which ac­count for on­ly around 15% of pa­cka­ged food and hou­se­hold pro­ducts, com­pa­red with over 40% in the U.K, ac­cor­ding to Niel­sen.

Mar­gins on these pri­vate- la­bel goods are se­ve­ral per­cen­tage points hi­gher than on other goods, Mr. Schlot­man said. Kro­ger’s pri­vate- la­bel sales are up 40% over six years, and now ac­count for al­most30% of unit sales.

Among the most pro­mi­sing pri­vate la­bels is Whole Foods’ 365 brand, which Ama­zon has tried to grow on­line. If Ama­zon can grow Whole Foods’ pri­vate la­bel broad­ly, the im­pact will be felt in high-mar­gin pro­ducts such as or­ga­nic gro­ce­ries and pre­pa­red foods.

The lo­sers in the gro­ce­ry bu­si­ness will be consu­mer brands like Kraft Heinz, which are hurt by pri­vate-la­bel goods, and smal­ler chains, hurt by the dis­coun­ters. Big su­per­mar­ket groups should do bet­ter, but it will be hard to match the growth rates of the past.


Ra­pid­ly chan­ging ideas about what’s heal­thy are cau­sing strong head­winds for su­per­mar­kets.

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