Whole Foods and Instacart end partnership, 56 workers let go

Whole Foods and Instacart announced earlier this month that the two companies have "mutually agreed" to end their delivery services partnership, effective May 15. As a result, 56 Philadelphia-area workers have been laid off.

The end of the Whole Foods - Instacart relationship did not come as a surprise to industry analysts, many of whom predicted the change since Amazon purchased Whole Foods in 2017. Whole Foods currently offers Prime Now, a one- and two-hour delivery service in more than 60 U.S. cities, including Philadelphia.

Instacart remains a strong presence in the Philadelphia market, as it has relationships with Reading Terminal Market, CVS, Aldi, Sprouts Farmers Market, Sam's Club, Wegmans, Acme, and Costco. Overall, the company is in 5,500 cities and delivers from nearly 20,000 stores.

"The U.S. is nearly a $1 trillion grocery market, and last year we saw almost every major grocer in North America bring their delivery business online in a significant way," said Instacart CEO Apoorva Mehta in a statement last year. "We believe we're in the early stages of a massive shift in the way people buy groceries, and we expect that one in five Americans will be shopping for their groceries online in the next five years."

Trader Joe's tops annual Retailer Preference Index

According to Dunnhumby's second annual Retailer Preference Index (RPI), Trader Joe's was the top grocery retailer, followed by Costco, Amazon, H-E-B and Wegmans. In a survey of 7,000 U.S. households, the RPI examined 56 grocery retailers to determine which companies have the strongest combination of consumer emotional sentiment and financial performance.

Market Basket finished 6th, followed by Sam's Club, Sprouts Farmers Markets, WinCo Foods, Walmart, Aldi, Peapod and The Fresh Market.

Dunnhumby said the rankings focused on seven "pillars": price; quality; digital; operations; discounts, rewards and information; convenience; and speed.

The company concluded that the top retailers on the index are mostly nontraditional grocers that have developed a highly targeted offering to bolster the value perception for their customer base.

"More traditional, regional grocery banners with a long history are hurting because of it, having relatively poorer-performing financials and/or emotional bonds," Dunnhumby said. "The reason: These traditional banners have inferior price perception and/or quality."

Trader Joe's also finished atop the rankings last year.

Costco and Target are primed for growth, experts say

According to participants in Supermarket News' 23rd annual Financial Analysts' Roundtable, warehouse clubs, specifically Costco, may be primed for a growth surge.

Wolfe Research Managing Director Scott Mushkin said that Costco's broad mix of offerings make it a big draw.

"Costco, over time, has created more and more reasons to pay for that membership," Mushkin said. "It's an incredibly positive business model."

"They are probably the best merchants of any retailer I've ever covered," added Karen Short, managing director for equity research at Barclays Capital. "They keep pushing the envelope and keep pushing their vendors, and the deals and price point just keep getting better and better."

As for BJ's Wholesale Club, Mushkin had a negative outlook. "If there were a Costco and a BJ's next to each other, it doesn't make any rational sense to actually have a membership to BJ's because the offering is so much more extensive at Costco and the savings are better," he said.

The participants also singled out Target, which they believe could be a sleeping giant in grocery if it continues to improve its fresh offering and out-of-stocks, and improves on its execution. The panel cited Target's strong private labels and the company's ability to develop innovative departments and merchandising.

Trader Joe's proposed for Cherry Hill

Plans presented to Cherry Hill officials earlier this month reveal that a Trader Joe's store is proposed for The Shoppes at Garden State Plaza. TJ Maxx and HomeGoods are proposed as well.

If approved, the new stores, along with a Shake Shack restaurant, would be built on Haddenfield Road and Garden Park Boulevard, between Pier 1 and PNC Bank. Previous plans had called for townhouses to be built on that location.

Several projects in the shopping center complex are still pending, including a Costco.

The Market Place at Garden State Park, which is connected to The Shoppes, includes Wegmans, Home Depot, Barnes & Noble, Best Buy, Dick's, Bed Bath & Beyond, Christmas Tree Shops, and several other retailers and restaurants.

Instacart raises money to fuel expansion, add employees

Instacart announced last month that it received $350 million in financing from Coatue Management, a technology-focused hedge fund, and noted that it has raised more than $1 billion since 2012, with most of it still in the bank.

According to the company, the additional funding will be used to double its employee count, fuel expansion, and invest in new products and services.

Instacart is now used by North America's eight largest grocery retailers - Kroger, Albertsons, Publix, Costco, Ahold Delhaize, H-E-B, Loblaw and Sam's Clubs, not to mention regional grocers like Wegmans.

BJ's expands Instacart partnership

BJ's Wholesale Club, which has been marketing heavily to Sam's Club customers since the Walmart-owned company closed several stores, has expanded its same-day delivery agreement with Instacart and will soon offer the service from all 215 stores.

Instacart also recently expanded its partnership with Costco, Kroger and Aldi. According to Kroger, two-thirds of its customers now have access to delivery and/or curbside pickup.

Target ramping up CapEx, small-format stores, e-commerce efforts

Target announced earlier this week that it plans to spend about $3.5 billion on capital expenditures in 2018 (compared to $2.5 billion last year) as it accelerates investments in store remodels, small-store formats and other initiatives.

The company also reported that the investments will likely have an adverse affect on profit margins. Target execs said that they expect to generate a lower operating margin in the near term as they continue to increase wages and upgrade its stores and supply chain to better accommodate its growing e-commerce business.

Regarding Target's e-commerce efforts, the company unveiled free two-day shipping on hundreds of thousands of items and plans to offer same-day delivery through Shipt, which it acquired last year, in most major markets by the end of this year.

Shipt is currently available to deliver from 455 Target stores. Target said Shipt also plans to continue to expand its partnerships with other retailers, including Costco, Publix and others.

Following up on the "nearly 30" small-format stores opened in 2017, Target said it plans to open about 30 more in 2018 and another 30 in 2019.

Costco online sales up 43.5%

Costco reported earlier this month that its online sales increased 43.5% compared to the same quarter last year, largely due to website improvements, the ability for shoppers to buy items online and pick them up at the store, and the recent launch of new delivery options. In addition, the company reported that it continues to get a revenue boost from customers who initially come into the store for food, but end up purchasing non-food items as well. (Those who shop at Costco know that it's hard to get out of the store for less than $200!)

Even with the online boost, about 95% of Costco's sales occur in stores.

Costco, the third largest grocery retailer in the U.S. behind Walmart and Kroger, reported net income in the third quarter of $640 million, a 17% increase from the same quarter last year. Membership fee revenue climbed 9.8% to $692 million. The company raised membership fees in June.

"Membership trends and renewal rates are still at the 89% and 90% level," according to Edward Jones Analyst Brian Yarbrough. "I think the model continues to work very well. They've got food that's over 50% of their business, and that drives traffic. And they have great deals, and that creates a treasure hunt nature."

Whole Foods price reductions hit competitors hard

Thasos Group, a New York-based research firm, issued a report based on mobile phone location data that showed that Amazon's lower prices at Whole Foods contributed to a 17 percent rise in foot traffic for Whole Foods stores the week of August 28, and that traffic remained modestly higher by mid-September. Amazon officially merged with Whole Foods on August 28.

According to the report, the data also indicated that the largest percentages of new customers for Whole Foods during the first week of price reductions were regular customers of Walmart (24%), Kroger (16%) and Costco (15%). When adjusted for the size of the customer base, Trader Joe's (10%), Sprouts (8%) and Target (3%) saw the highest percentage of shoppers defect to Whole Foods during that period.

Thasos Group reported that by September 16, Whole Foods traffic was up 4 percent on a year-over-year basis.

"We all know that Amazon's acquisition of Whole Foods has the potential to be a game-changer in the grocery space, and in the bricks-and-mortar versus online battle more broadly," said Thasos Group CEO Greg Skibiski. "It will be extremely interesting to watch the winners and losers emerge from the data over the coming months."

Costco announces new online grocery program

Last week Costco announced an expanded relationship with Instacart, and a new online shopping service called CostcoGrocery.

Instacart, which is currently offered at 376 U.S. Costco stores, will gradually expand to additional locations over the next year. CostcoGrocery is a service that includes about 500 nonperishable dry grocery items and provides free delivery on orders over $75.

Despite the new and expanded offerings, Costco CEO Richard Galanti admitted in a conference call with analysts that the company still prefers when shoppers visit the store, since baskets are typically much larger. 

Net sales for the 17-week fourth quarter, which ended on September 3, were $41.4 billion, a 15.8% increase over the 16-week fourth quarter from fiscal 2016. 

Instacart to service PriceRite stores in PA's Lehigh Valley

PriceRite Supermarkets announced yesterday that it is expanding its partnership with Instacart to include the Lehigh Valley, where the grocer has two stores - one each in Allentown and Bethlehem. Instacart already operates in the Lehigh Valley, where about 206,000 households can shop online at Wegmans, Whole Foods and Costco, and have their purchases delivered to them for a fee.

Instacart is already offered at many PriceRite locations in Connecticut, Maryland, Massachusetts, New York, Rhode Island and Virginia.

The impact of the Amazon - Whole Foods deal may be far-reaching

Several media outlets and industry experts have weighed in recently with their thoughts on Amazon's planned $13.7 billion purchase of Whole Foods, including The Washington Post, in which its "On Leadership" column cited several "telling comments" made by Whole Foods CEO John Mackey. Sample comments include the following.

• Mackey admitted that Whole Foods may be too employee-focused, and although he didn't back down from the importance of treating employees well, he said that Amazon is "more customer-centric than we are... we're gonna become as customer-centric as Amazon."
• In a sharp contrast from when Zappos was purchased by Amazon and pledged to remain independent, Mackey said that "when this deal closes, we're all Amazon people."
• Mackey acknowledged that his company has been a little behind in technology as compared to Amazon, and pledged that "we'll go to the front of the class, eventually, in the grocery business."

A subsequent article in The Washington Post  reported on the deal's potential impact on small farmers and food producers, who are worried that Amazon will use its market power to further centralize production and boost larger, industrialized organic operations. In addition, industry activists and farmers advocates are fearful of the pressure Amazon may put on producers for price concessions, which could cause them to compromise on environmental and formulation standards.

According to an article written by CNBC's Chantel McGee, a data scientist claims that the merger is less about stores and more about data. Specifically, Boston College Professor Kenneth Sanford said that one of Amazon's goals should be to combine the data it already collects online and via Echo and Alexa, with Whole Foods' customer transaction data.

The data collected would enable the company to predict what customers need and automatically send it to them. "Amazon will know what's in your refrigerator already and be able to deliver extra turmeric when you need it," said Sanford.

Grocery e-commerce retailer Instacart is already working towards this goal. According to Jeremy Stanley, the company's vice president of data science, Instacart uses customer behavioral data and search activity to anticipate what a customer wants or might like.

"One of the wonderful things about groceries is that compared to other e-commerce purchases, groceries are habitual and frequent," Stanley said. "Groceries are really personal... and I think data can really change the way people buy food."

Supermarket News reported on the deal's potential impact on competitors, including Instacart, whose service generates more than $200 million in sales annually for Whole Foods. Should Amazon decide to pull out of the deal in favor of its own delivery service, it could harm Instacart, and perhaps Instacart's other customers as well. Furthermore, rather than replacing Instacart, Amazon could attempt to purchase it.

Sprouts Farmers Market has been competing successfully against Whole Foods in certain markets, and has made plans to partner with Amazon Prime Now for e-commerce. Perhaps the Amazon - Whole Foods deal could kill this partnership, or even make Sprouts an attractive Amazon target. Having Whole Foods and Sprouts under the same ownership could save Whole Foods from spending on its 365 format since Sprouts could fulfill the small format need.

Walmart's success integrating physical and digital assets, which has led to strong sales results in recent years, has not gone unnoticed by Amazon. And grocery, which generates frequent and habitual trips, has been central to Walmart's strategy, not to mention the company's expanded offerings in grocery pickup and delivery strategies. As the Supermarket News article points out, Amazon and Walmart are gunning for each other.

Lastly, natural and organic food consumers have seen big retailers like Costco and Kroger catch on to the trend that Whole Foods pioneered, and these retailers have hurt Whole Foods on price. With Amazon's buying power, that price advantage may eventually disappear - or at least lesson - resulting in Whole Foods recapturing sales at the expense of others.

Wegmans tops Consumer Reports list again

Wegmans grabbed the top spot in a survey of grocery chains conducted by Consumer Reports, which received feedback from nearly 58,000 subscribers. Wegmans has held the top spot in the annual survey since 2006.

For 2017, the company received excellent ratings in categories such as cleanliness, fresh store-prepared foods, staff courtesy, checkout speed, produce quality and variety, meat/poultry quality, healthy options and local produce quantity.

Market Basket finished second, followed by Trader Joe's, Publix and Fairway Stores. Costco and Aldi received good marks, while Whole Foods, Kroger, BJ's, ShopRite, Giant and Weis were further down the list. Acme received poor marks, and Walmart finished last.

Shipt to begin Costco delivery service

Shipt, a delivery service headquartered in Birmingham, AL, announced late last month that it would start delivering Costco products to customers in Tampa, FL, with plans to expand Costco service to 50 markets by the end of the year. Shipt says it is already working with Whole Foods, H-E-B, Harris Teeter and Meijer.

For a $99 annual fee, Shipt customers will get unlimited Costco deliveries, and will have a one-hour window for when merchandise is dropped off. The company says it plans to deliver from stores, not from warehouses.  

Food deflation and competition hurting supermarket profit margins

A story this morning in USA Today reported that "low food prices and razor-sharp competition" are putting a serious dent into grocery chain profits. However, the issue is good news for consumers, who last year saw the first annual decline in supermarket prices since 1967.

According to Supermarket Analyst Phil Lempert, the low food prices and competition have created "a price war among everybody." This price war, combined with supermarkets' efforts to attract new customers (mainly via investments in pricing), have badly hurt profit margins.

According to the Agricultural Department's Economic Research Service, prices of supermarket items declined 1.3% in 2016 compared to the year before. The article cites confirming evidence from Wegmans and Costco, both of whom provided examples of recently lowered prices on items like bananas, peanut butter, eggs, pistachios and laundry detergent, among others.

The USDA said that meat, chicken and eggs have seen some of the biggest price cuts due to oversupply and lower than expected exports.

Kelly Bania, a senior analyst at BMO Capital Markets, added that "we're definitely in a prolonged deflationary period."

BJ's may be looking to sell or go public

A report in the Wall Street Journal last month stated that the private equity firms that own BJ's Wholesale Club could either be trying to sell the company or planning for an IPO.

Leonard Green and Partners and CVC Capital Partners acquired BJ's in 2011 for about $2.8 billion. At the time, it was reported that Walmart made an offer for BJ's but was rejected.

An analyst at Kantar Retail noted that although more and more BJ's shoppers have been cross-shopping on Amazon and limited-assortment discounters are eroding the uniqueness of the warehouse club's value proposition, BJ's has shown signs of improvement since CEO Chris Baldwin took over last February.

Baldwin has focused on five key pillars: smart saving families; improving value perception; driving member engagement and retention; revitalizing the general merchandise assortment; and increasing its response speed by improving processes.

BJ's currently operates 213 clubs. Although analysts think Costco and Sam's Club could be curious about acquiring BJ's, they believe it's unlikely either company would make such a large investment in physical stores.

Walmart, Kroger and Costco top list of 75 food sellers in US and Canada

Supermarket News released its annual list of the Top 75 Retailers and Wholesalers. The list ranks the largest sellers of food (by revenue) to be consumed at home in the United States and Canada.

Here are some bulleted highlights that I have copied word-for-word from Supermarket News. I would suggest visiting their website for the complete study.

• Natural and organic foods are still growing, but the retail beneficiaries aren't necessarily who they used to be;
• Formats serving low-income shoppers - while still some of the industry's fastest growers due to unit growth - have seen their sales in disarray as their shoppers deal with reductions to federal food benefit programs and rising costs for housing and health care, while a slowly improving economy may be lifting some of their shoppers out of the channel; and
• While Internet retailing remained a relatively small share of the pie, it became the subject of outsized ambitions by some of the industry's leading players, and a serious threat from digital natives like Amazon, which at year-end announced plans for a leap into the physical food retailing world. Initiatives to add click-and-collect shopping capabilities speak to a trend among food retailers to improve the convenience of their offerings to shoppers, and drive more sales from existing units, sources said.
• All this occurred while a nearly unprecedented stretch of deflating prices triggered chaos throughout the supply chain - an event analysts say could dampen sales at least through the first half of 2017.

Here are the top 10 retailers and wholesalers, plus other notable companies on the list.

1.  Walmart

2.  Kroger

3.  Costco

4.  Albertsons

5.  Ahold Delhaize

6.  Loblaw Cos.

7.  Publix

8.  Target

9.  C&S Wholesale Grocers

10. Walgreens

Also:

12. CVS

15. Dollar General

16. Supervalu

16. Wakefern

19. 7-Eleven

20. Trader Joe's

21. Aldi

22. Dollar Tree

26. BJ's Wholesale Club

30. Rite Aid

30. Wegmans

44. Weis Markets

54. Grocery Outlet

56. The Fresh Market

61. Amazon

Three Wakefern members were listed as separate entities on the list, including Saker ShopRite (56), Village Super Market (61), and Inserra Supermarkets (69).

Supermarkets increasing their presence in power centers

Shopping Centers Today, an ICSC publication, recently published an article explaining that U.S. developers are changing the traditional shopping center retail mix by moving neighborhood stores - namely grocery retailers - into power and lifestyle centers. The article says that the ground was broken about a decade ago by stores like Costco, Target and Walmart, all of which offer supermarket shopping in a warehouse style or as a supplement to discount retail.

Several trends were cited for the changing retail mix, including the significant drop off in neighborhood shopping center development as well as the recent expansion of smaller-format, natural and organic grocers. More grocers and less neighborhood shopping centers being built means that these new formats have to go somewhere other than neighborhood centers.

The trend may be troubling for traditional supermarkets like Kroger, ShopRite, Giant and others. It's much easier for a 15,000 - 25,000 square foot small format grocer to find a spot in an existing power center than it is for a 50,000 - 100,000 square foot store.

In addition, power center owners have realized that customers typically visit grocery stores at least twice per week, and the increased visits benefit all tenants. An added benefit to landlords has been the resulting cap rate compression brought on by the addition of grocery retail. 

Wegmans beats out Trader Joe's as nation's best grocer

For the first time in four years, Trader Joe's wasn't ranked as the nation's best grocery chain. That honor recently went to Wegmans, which ranked ahead of Trader Joe's and Publix in a survey of more than 10,000 consumers conducted by Market Force Information.

Hy-Vee Food Stores ranked fourth, and Aldi was fifth. The top five chains are all privately held.

Costco ranked sixth, while Walmart ranked 15th, last on the list.

Although online ordering seems to be a hot topic and a fast growing trend, the survey found that only 5% of the people surveyed ordered online for home delivery in the past 90 days, while only 2% placed an order online to pick up their groceries in the store.

Walmart and Costco are the top two global retailers; Kroger, Lidl and Aldi in the top 10

The top 25 global retailers based on 2015 sales in U.S. dollars, according to an annual list compiled by Planet Retail:

1. Walmart
2. Costco
3. Carrefour
4. Kroger
5. Tesco
6. Seven & I
7. Schwarz Group (Lidl)
8. Walgreens Boots Alliance
9. AEON
10. Aldi
11. Target
12. Auchan
13. Metro Group
14. CVS
15. Casino Group
16. Woolworths
17. Rewe Group
18. Edeka
19. Albertsons
20. Leclerc
21. Coles Group
22. Ahold
23. ITM
24. Sainsbury's
25. Loblaw