Short-Term Gains, Long-Term Contraction

2. Short-Term Gains, Long-Term Contraction • Although the annual increase in sales for the total supermarket/food industry typically doesn’t exceed all retail sales, the sector is historically very steady, with total 2018 sales of $754.66 billion (NAICS code 445), a 4.0% increase from 2017’s $725.92 billion. • Another positive number is 30% more new store openings during 2018, or the equivalent of 17 million square feet. More than 25% were in Florida, California and Texas, driven by the growth of Publix, Sprouts Farmers Market, Aldi, Kroger and H-E-B. • Despite the current positive numbers, Inmar Analytics projects total dollar share for the traditional grocery channel will decrease 1.5% to 43.1% and the number of traditional supermarkets will also decline, by 2.7%, to 24,572 by 2022.

3. Consumers Choose Their Favorites • The latest Dunnhumby’s “Retailer Preference Index” study of 7,000 US households revealed Trader Joe’s was their first choice for the second consecutive year. Like many chains in the top 25% of the results, Trader Joe’s is a non-traditional grocer. • Based on the 7 criteria of the study, Aldi was first on price; Wegmans Food Market, quality; Amazon, digital; Market Basket, operations; Walmart, convenience; Fry’s, discount, rewards and information; and Amazon, speed. • Non-traditional grocers are succeeding with private brands, which reduces prices and provides funds for customer service improvements. Traditional grocers are trying to compete with discounts/rewards and promotions, but these are costly to manage.

4. Grocers with a Positive Outlook Must Turn to Innovation for Future Growth • At a fall 2018 food industry event, Leslie Sarasin, president/CEO of the Food Marketing Institute (FMI), said there was considerable optimism among food retailers as they have been experiencing increases in per-basket size and sales and same-store sales. • Despite the optimistic outlook, many retail grocers are faced with increasing operational costs, requiring major investments, to compete online, to offer pick-up-at-store and home delivery services and to respond to consumers’ health-and-wellness food choices. • Some grocers realize they must transition from their old business models and create a destination experience for consumers, such as ShopRite’s Wellness Center and Gelson’s in-store wine bar where customers sip wine while a store associate does the shopping.

5. Perimeter Store Sectors Attract More Consumers • Supermarket News’ 2019 Fresh Foods Survey certainly reinforces consumers’ preferences for the freshest food items, especially in the “perimeter” sections: produce, meat/seafood, cheese, dairy, bakery, deli, floral and prepared foods. • According to the respondents of the survey, 83% said sales of perimeter items had increased and only 7% decreased during the past 12 months (March 2019 YOY) while 76% expected sales to increase and just 8% decrease during the next 12 months. • For the year ending March 2019, 41% of respondents to the Supermarket News’ survey said their bakery section had improved the most, followed by produce and meat/seafood while 55% said they would devote more space to produce and 48% to deli.

6. The Inside Story About Shelf Management • Shelf management may be the “under-the-radar” driver of improving perimeter sales and all grocery items, as Acosta reports there are approximately 20,000 different grocery items, but the average household only purchases 3% of them annually. • Acosta’s research found carbonated beverages, cosmetics, facial skin care and dog food have the highest “walk rate,” as their absence on the shelf will cause shoppers to buy another brand, delay their purchase or shop at another store. • Because perimeter sales have increased, as indicated on page 2 of this Profiler, the center store, in which almost all products are displayed on shelves, has become smaller, which has resulted in a 0.5% decrease in spending there since 2014.

7. Major Changes Are Needed – and Coming • According to CBRE Research’s 2019 U.S. Food in Demand Series: Groceries report, during the next 10 years there will be major changes, such as more stores moving to a convenience-store format, the disappearance of checkout lines and more in-store tech. • More grocery stores must adopt restaurants’ hyperlocal food model, with such innovations as in-store herb and lettuce “gardens,” forging partnerships with local suppliers and promoting those products with an increasing use of social media. • Although it may be some time yet before the prediction of John Mackey, CEO of Whole Foods Market, that his stores will be selling cannabis is true, it is legal to sell CBD products (primarily topicals) and Kroger is the first major supermarket chain to do so.

8. Advertising Strategies • Both major chains and regional/local independents must be willing to make changes to their business models to boost their stores’ perimeter sectors, especially prepared foods, improve their shelf management, etc. and then promote these improvements rigorously. • Stores may want to create an occasional highlighted display of the center-store category leaders that aren’t typically allotted enough shelf space, promote a discount and use the sales data to help determine which products deserve more shelf space. • Direct your prospects and clients to the table on page 2 of the Profiler highlighting the best-performing specialty food products and recommend they increase their inventory of these items and feature them in a special promotion.

9. New Media Strategies • As regional/local independents begin to adopt more of these innovations, social media is the perfect channel to announce their inclusion and tell the continuous story of how customers are responding to these innovations, especially via short videos. • Effective social media content would also include postings about new specialty food items in the store, short interview videos of customers’ interests in these products and an occasional recipe for cooking with these products. • As supermarkets and food stores adopt the hyperlocal food model, their social media content can highlight the farmers, suppliers and vendors’ products added to the store, including video visits to their locations and interviews with the owners.