Amazon still dominant, but competitors gaining ground

Nielsen reported recently that Amazon's e-commerce lead is shrinking as major brick-and-mortar retailers like Target, Walmart and Kroger - along with e-grocery company Instacart - have outpaced Amazon in percentage growth of online consumer packaged good (CPG) purchases.

In the two-year period beginning in January 2017, the number of e-commerce buyers of grocery and other CPG products for Amazon rose 29%. However, the growth for Instacart (256%), Walmart (207%), Kroger (172%) and Target (122%) was far greater.

According to Nielsen, Amazon competitors gained ground in the last couple years by rapidly ramping up their online grocery fulfillment capabilities for home delivery and for store pickup.

Despite big gains by competitors, Amazon still enjoys a healthy lead. Its reach among U.S. online purchasers is approximately ten times more than any other retailer.

Grocery store openings increased 30 percent in 2018

New grocery store openings were up 30% in 2018 as compared to the prior year, according to a report by JLL. More than one-quarter of the new stores were in Florida, California and Texas as a result of expansion by Publix, Sprouts Farmers Market, Aldi, Kroger and H-E-B.

"Grocery is one of the strongest retail sectors, with nearly twice as many new stores opening than closing last year," according to JLL Director of Research James Cook.

Cook also pointed out that shopper habits have shifted to more frequent, shorter trips, and as a result, food retailers are focusing on developing smaller format stores.

"In 2019 we expect to see even more grocery stores rolling out their smaller-format stores as they battle razor-thin margins in prime locations, while still serving evolving consumer needs," said Cook.

Aldi, which accounted for 16% of total new stores by square footage, continues to expand at a rapid pace. And new formats, like Giant's 9,500 square foot Heirloom Market in Philadelphia, were recently introduced.

Walmart has quickly become the top online grocer in the U.S.

The world's largest retailer is quickly becoming a big factor in online grocery shopping. In fact, consumer market researcher Packaged Facts said late last year that 23% of online grocery consumers cited Walmart as the retailer they use most for groceries. Amazon is the only retailer cited more often (38%).

As far as in-store grocery shopping goes, Walmart is the king. About 27% of in-store shoppers said Walmart is the store they most often buy groceries from. That's more than double the number of people that cited Kroger, the second most popular food retailer.

Package Facts noted that Walmart has successfully transformed itself into an omnichannel retailer, in part by turning its thousands of stores into a competitive strength in distribution.

By the end if its 2019 fiscal year (1/31/20), Walmart expects to have 2,140 online grocery pickup sites, covering nearly 70% of U.S. households, and online delivery through 800 stores, covering about 40% of the population.

The company expects to reach its goal of 40% growth in U.S. e-commerce sales for fiscal 2019.

Kroger debuts self-driving delivery vehicles

Kroger announced that it has started using unmanned vehicles for online grocery deliveries. The services was launched at a Fry's Food Store in Scottsdale, AZ. It follows a successful pilot with Nuro, a California-based robotics and artificial intelligence specialist.

To use the service, customers shop for their groceries at FrysFood.com or via their mobile app, and place their order according to available time slots. The orders can be delivered that day or the next day, and are brought to customers' homes by the Nuro R1 vehicle or by self-driving Prius cars. There is a $5.95 delivery fee and no minimum order.

Kroger partners with China e-commerce giant Alibaba

Kroger announced last week that it plans to test sales of its Simple Truth natural and organic brand  through Alibaba, China's largest e-commerce retailer. The move will give Alibaba's 500+ million Chinese consumers access to Kroger's Simple Truth brand.

Kroger pointed out that the partnership supports its strategic plan to redefine the grocery customer experience by growing its private brand program, creating customer value and driving top-line growth via alternative revenue streams.

The Alibaba deal also means that Kroger is following Walmart and Amazon, who have significantly boosted their e-commerce presence in lucrative foreign markets.

Kroger to test unmanned vehicle delivery

Kroger announced in late June that it plans to pilot unmanned road vehicles for grocery delivery through a partnership with Nuro, a California-based robotics and artificial intelligence company.

A test scheduled for the fall will allow customers to place grocery orders through Kroger's ClickList system and Nuro's app, and have their items delivered the same day. The pilot market has not yet been announced.

In addition, Kroger announced a partnership with British online grocery supermarket Ocado to build e-commerce fulfillment centers and build out its e-grocery platform. At the same time Kroger announced a deal to purchase online meal kit service Home Chef, as well as plans to launch Boosted Products in Search, a service that will "enable consumer packaged goods brands to reach digitally savvy shoppers with 'hyper-relevant' products in search results across Kroger digital properties," according to Supermarket News.

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.

Supermarkets lead customer experience survey; Wegmans tops all companies

The Temkin Group, a research and consulting firm, said earlier this month that its 2018 Temkin Experience Ratings survey of 10,000 U.S. shoppers revealed that supermarkets were tops in customer experience ratings among 20 industries evaluated.

Supermarkets posted a rating of 78.5%, up from 78.1% in 2017. The industries near the top of the list include retail (74.4%), banks (73.1%), and parcel delivery (71.9%). A score of 80% or above is considered "excellent," 70% or higher is "good," and below 60% is deemed "poor."

Ratings are determined by customer responses in three main categories - success (can you do what you want to do?), effort (how easy is it to work with the company?), and emotion (how do you feel about the interactions?).

Overall, Wegmans turned in the top rating of all 318 companies included in the survey. The Rochester, NY-based food retailer had an overall customer experience rating of 86%. Among supermarkets, H-E-B, the top company in 2017, and Publix tied for second with a score of 83%.

Rounding out the top 10 scores among supermarkets for overall customer experience were Aldi and Wawa (82%), Trader Joe's and ShopRite (81%), Save-A-Lot and Food Lion (80%), Meijer, Kroger, Hy-Vee and Winn-Dixie (79%), Albertsons (78%), Safeway and Piggly Wiggly (77%), Stop and Shop (76%) and Vons (75%).

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.

Investments in grocery-anchored centers grew in 2017

Investments in grocery-anchored shopping centers grew by 5.3% last year compared to 2016, according to a report issued by Chicago-based Jones Lang Lasalle (JLL). The increase makes the grocery-anchored segment one of the few retail sectors to see real growth.

The report also stated that grocery store openings declined by 29% in 2017, with several retailers cutting back on expansion plans and others shutting stores as they attempted to avoid bankruptcy.

"Grocery is considered to have a moat around it to defend against e-commerce, and because of that, these assets are seen by retail property investors as a safe investment," according to JLL.

A Supermarket News article points out investing in supermarket-anchored centers is not 100% safe, as Amazon and other e-commerce firms make inroads into the market. As a result, many shopping centers run the risk of dying, like their regional mall counterparts anchored by weak department stores.

Tops Friendly Markets (upstate New York) filed for bankruptcy last month, and Southeastern Grocers (Bi-Lo, Winn-Dixie, Harveys) may file this month. A&P, once a major player in the grocery industry, filed for bankruptcy and liquidated in 2015.

Not surprisingly, shopping centers anchored by strong operators like Whole Foods, Sprouts, Trader Joe's, Kroger, ShopRite, Wegmans and Publix are among those that have the greatest investment potential.

Kohl's to add Aldi to stores in pilot program

Kohl's announced last week that it will bring Aldi into as many as 10 stores later this year in an attempt to increase customer traffic and store productivity. The specific stores were not released.

Earlier this year Kohl's CEO Kevin Mansell said the company had "a whole list of partners" ready to fill the space leftover from Kohl's recent efforts to rightsize its footprint. In addition to grocery stores, Mansell mentioned convenience stores and fitness centers as candidates.

Aldi, which continues to expand at a rapid pace, currently has 1,600 stores across 35 states. It plans to expand to 2,500 stores by 2022, which would make it the third largest grocer in the U.S. behind Walmart and Kroger.

Kroger to sell its 784 convenience stores

Kroger announced last week that it reached an agreement to sell its convenience store business for $2.15 billion to EG Group, a petroleum and convenience store retailer based in Great Britain. The deal includes 784 stores across 18 states.

The EG Group plans to continue operating the stores under their current banners (Turkey Hill, Kwik Shop, Quick Stop, Tom Thumb and Loaf 'N Jug), and plans to establish its North American headquarters in Cincinnati, where Kroger is based.

Burt Flickinger III, managing director at Strategic Resource Group, doesn't support the sale.

"For Kroger to sell more than 700 convenience stores when they had the opportunity to get to 1,700 stores, it is really regrettable that the company succumbed to this activist pressure because the c-stores were performing so well across all banners."

Flickinger believes that Kroger will miss out on the opportunity to further grow the business by installing Amazon lockers in the c-stores, as Marathon Speedway currently does.

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."

Sprouts willing to acquire or be acquired

Sprouts CEO Amin Maredia said earlier this month that the company is open to acquisition talks, and at the same time is open to purchasing another business.

"This is an interesting time to be looking at M&A from both perspectives," said Maredia. "There's certainly one element we can control, which is looking for interesting opportunities that would fit well in our portfolio. The second is to the extent we get a gesture, we'll put our fiduciary hat on and look at the Sprouts brand, and evaluate it and do the right thing for shareholders."

Sprouts is seemingly on a crash course with Amazon, which since its Whole Foods acquisition has promised to make organic products more affordable. However, Maredia says Sprouts' sales have accelerated since Whole Foods started discounting certain products.

For now, Sprouts main focus is on conventional grocers. Maredia believes most grocery stores have not kept up with the consumer. And although some conventional grocery stores (Kroger, for example) have slowed growth, Sprouts plans to expand by about 30 stores next year, with the goal of eventually increasing from 285 to 1,200 stores.

The company's plan is to fuel its growth by leveraging its advantages in fresh foods (which account for about 25% of their total sales) while investing in private label, technology and an enhanced deli offering.

Kroger - Ahold merger rumors have started

Last week the Cincinnati Business Courier reported that an analyst report out of Europe speculated that Kroger was pursuing a merger with Ahold Delhaize (Giant, Food Lion, Stop & Shop, Peapod, among others). On Wednesday of last week, Supermarket News reported that it was not able to verify the substance of the claim.

Analysts have talked about such a merger before, suggesting that the two powerful food retailers could gain additional scale and more effectively fight competitors like Walmart, Aldi and Amazon-Whole Foods. A merger would also provide Kroger with access to Peapod and its e-commerce platform.

As reported in Supermarket News, Ahold and Kroger have similar operating strategies in the U.S., both have invested in lower prices and have developed distinct private brands. Although the two companies compete in the Southeast, Ahold's Northeast store base would compliment Kroger's existing footprint.

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."

Kroger drops lawsuit against Lidl

The trademark suit filed by Kroger against Lidl in July for allegedly copying its "Private Selection" generic brand name and logo has been dismissed. Both sides agreed earlier this month to dismiss the federal case with prejudice, which means the case can not be refiled.

Kroger had charged Lidl with violations of federal trademark and service mark infringement, unfair competition, dilution, and a violation of Virginia's Consumer Protection Act. The company was seeking damages of $75,000 and an order preventing Lidl from selling its "Preferred Selection" items.

It is believed that Kroger reconsidered its case when a judge ruled against the company's request for a preliminary injunction that would have prevented Lidl from using its own "Preferred Selection" logo. The judge ordered a jury trial and indicated that he was skeptical of Kroger's ability to prove its claims.

Kroger scraps long-term growth targets, plans to invest in pricing and tech

Kroger announced earlier this month that it has scrapped the long-term earnings-per-share growth targets that it established in 2012. Rather, the company plans to invest in pricing and technology amid increased competition from Walmart and Amazon, as well as Aldi and Lidl.

"We are re-prioritizing and accelerating investments in our 'Customer 1st Strategy' in order to anticipate and meet rapidly evolving consumer demands to shop with us for anything, anytime, anywhere," said Kroger CEO Rodney McMullen. "Our transformation is all about redefining the customer experience."

Although the company will release more details at its next investor conference, McMullen revealed that Kroger plans to invest in a store-wide space optimization initiative to spur sales and growth, and would continue to make investments in price.

Dollar stores not being hurt by big retailer price wars

Despite analysts' fears that dollar stores could become collateral damage in the price wars being waged between big retailers like Walmart and Kroger, sales forecasts for Dollar General and Dollar Tree remain strong. Dollar General expects net sales to increase by five to seven percent for the year ending February 2, and Dollar Tree expects a similar increase for the year ending in January.

In contrast, Walmart and Kroger anticipate low single-digit growth.

"The big advantage that dollar stores have is that, given their store footprint and the real estate they need, they can exist in small towns where Walmart or supermarkets are not going to go," according to Euromonitor analyst Jared Koerten.

In an article last month, The New York Times said that dollar stores, which operate on razor-thin margins, are sprucing up stores, stocking more national brands, selling food and fresh produce, and opening more stores.

Moody's analyst Mickey Chadha added that "dollar stores... also offer home products, seasonal products, electronics, apparel and accessories that are higher margin."

Kroger files suit against Lidl over private label concerns

Kroger filed a lawsuit against Lidl last month, claiming that in it's new U.S. stores, Lidl copied its Private Selection private label and was profiting from consumer confusion between the similar-sounding and similar-looking packages. In the lawsuit, Kroger sought a preliminary injunction that would prevent Lidl from selling its Preferred Selection products, as well as monetary damages.

After listening to testimony earlier this week from both parties, a judge ruled that the lawsuit would go to trial early next year, and that in the meantime, Lidl could continue offering its private label products.

In response to the suit, Lidl has argued that other Kroger competitors - including Safeway and Aldi - also incorporate versions of the word "Select" in their brands.

"The packaging, logo, and branding of the Lidl versions of these products - including pasta sauce, jam, ice cream, pizza, and cookies - is often more distinct from the Kroger offering than several of Kroger's other competitors," claimed a Lidl spokesperson.