Grocery Outlet to open 40 new stores in 2019

Grocery Outlet, the California-based discount food retailer, has quietly ramped up its growth as competitors like Aldi and Lidl are making much more industry noise. Earlier this year the company opened its 300th store, and 40 new stores are expected for 2019.

Grocery Outlet, which purchased Amelia's stores in Greater Philadelphia a few years ago, operates stores in Pennsylvania, Oregon, Washington, Idaho, Nevada and California. Southern California represents their largest region, with 70 locations.

According to a recent story in Supermarket News, Grocery Outlet offers 40% - 70% off nationally recognized brands. They purchase from manufacturers that have excess inventory and pass their savings on to consumers. As a result of this opportunistic approach, the lineup of products often varies with each shopping trip. And since the stores are locally owned (not franchised), the product lineup may also vary from store to store. Each owner has the ability to choose what products they want to buy and sell.

"People love to save money, there's no question," said Phil Lempert, founder and editor of SupermarketGuru.com. "If you can combine that with a treasure hunt, from a consumer standpoint, it's great."

Although the products may differ from week to week, Grocery Outlet's inventory is predominantly made up of national brands, unlike Aldi and Lidl, who only offer a limited amount of national brands.

Recently Grocery Outlet has addressed its millennial customers, who are often their most vocal shoppers. Millennials seek both value and high quality, as well as an understanding of 'the experience of the food," according to Vice President of Marketing Layla Kasha. As a result, Kasha describes a new store in Los Angeles as "modern and hip, focusing on clean lines and a design aesthetic that matches the surrounding area."

Nationally, the model seems to be working, as Grocery Outlet recently surpassed $2 billion in annual sales, according to Supermarket News.

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.

United Natural Foods to acquire Supervalu

United Natural Foods announced that it plans to acquire Supervalu for $2.9 billion in cash. According to Supermarket News, the deal would create a large, diverse food distributor serving traditional grocery stores via Supervalu, and natural/organic product retailers though United Natural Foods, whose primary customer is Whole Foods.

The acquisition is expected to result in Supervalu's exit from the grocery retail business. Supervalu operates 114 supermarkets under the Cub Foods, Hornbacher's and Shoppers banners. Save-A-Lot had been owned by Supervalu until 2016 when it was acquired by Onex Corporation.

In recent years Supervalu has struggled to compete with larger grocery companies and online food retailers, and as a result has stepped up its wholesale operations. Wholesaling now accounts for 78% of total sales, up from about 44% two years ago. The company's wholesale arm serves a network of 3,437 stores.

The deal is expected to close in the fourth quarter of this year.

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.

Dollar stores continue to increase food and beverage offerings

A story in Supermarket News earlier this month reports that Dollar General and Dollar Tree are pushing ahead with plans to increase their food and beverage offerings.

Dollar General

Dollar General reported that consumable sales rose significantly in the quarter ending May 4, which helped the company fuel a gain in total sales as well as same-store sales compared to the same quarter a year ago.

"We recently launched a better-for-you offering intended to provide our customers with healthier consumable options at affordable prices," said Dollar General CEO Todd Vasos. "Over time, we expect this offering to include more than 130 products."

Vasos also said the company will roll out Good & Smart, a new private label that will represent about 75% of the better-for-you product portfolio.

Furthermore, Dollar General plans to remodel locations with fewer than 12 cooler doors, as Vasos anticipates that the entire store base will have an average of 20 cooler doors by the end of fiscal 2018 (up from an average of 10 cooler doors in 2012).

The company plans to open 900 new stores this fiscal year, remodel 1,000 mature stores and relocate about 100 stores. Dollar General has nearly 15,000 stores in 44 states.

Dollar Tree

Dollar Tree President and CEO Gary Philbin reported that the company plans to expand its Snack Zone concept, which is designed to provide customers with an assortment of consumption products at the dollar price point to drive incremental sales.

The chain added Snack Zones to 214 stores in the most recent quarter, and plans to bring it to 750 more stores in fiscal 2018.

"Our customers are excited with the introduction of the Snack Zone - great values across categories of cold beverages, candy and snack cakes, salty treats and other favorites that bring our customers back to those treats they crave," explained Philbin.

At Dollar Tree's Family Dollar stores, consumables have been a focus in store remodels. Remodeled stores have expanded beverage and snack stands, and an added assortment of food in coolers and freezers.

Dollar Tree has nearly 15,000 stores (Dollar Tree and Family Dollar combined).

Dollar General expanding store count, adding fresh produce

According to an article in Supermarket News, Dollar General plans to add 900 new locations this year and pending a successful market test, will add fresh produce to hundreds of remodeled locations.

The company has introduced "traditional plus" stores that include 34 cooler doors to merchandise an expanded perishables assortment (by year-end, the company expects to have an average of 20 cooler doors per store, up from 10 in 2012). And of the 750 traditional plus stores that are expected to be in operation by the end of the year, about 450 will carry fresh fruits and vegetables.

According to Dollar General CEO Todd Vasos, "The ability to offer produce, particularly in areas with limited grocery availability, represents an attractive growth opportunity for Dollar General in the years ahead."

The company also plans to roll out an expanded assortment of better-for-you products at select stores, with a focus on high protein and low salt options.

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.

Discount grocers are getting it right... here's how

Earlier this month Supermarket News listed six reasons that discount grocers continue to grow, and provided the following background.

Ten years ago, two-thirds of U.S. shoppers reported that supermarkets were their primary grocery channel, as per the Food Marketing Institute's 2016 U.S. Grocery Shopping Trends Report. However, in 2016, only 49% of U.S. shoppers said that supermarkets were still their primary grocery channel. The average shopper is now using five to seven retail channels and two to three shopping channels on a regular basis. More than half of Americans feel overworked and overwhelmed, making convenience increasingly important.

Here are the six things that discount grocers are getting right, according to Supermarket News, and below is a link to the article that provides more detail on each point.

• Good deals attract consumers from all economic levels.
• Stores that are modern, convenient and offer a more supermarket-type experience with great value attract customers.
• Discounters benefit by offering a wide selection of products including wine, produce, health and beauty, bakery and organic products.
• Discounters are customer-obsessed about their brand and model, and keeping it very simple.
• Discounters are proving private labels can provide extremely good quality and amazing values.
• Discounters are adopting multi-channels.

Viewpoints: What discount grocers are getting right

Wakefern introduces Price Rite Marketplace

The Wakefern Food Corp cooperative launched a rebranding of the Price Rite banner and unveiled its first fully rebranded store under the new Price Rite Marketplace name in Secane, PA last month. According to a story in Supermarket News, the store is brighter and includes new signage, a whitewashed wood backdrop, and various new offerings.

Wakefern said it plans to roll out the look to all 65 of its Price Rite locations in the next year.

The new offerings at Price Rite Marketplace include a "Sweet Spot Dessert" case, expanded private label offerings, a "Meals to Go" section, and the addition of Certified Angus Beef and Perdue's No Antibiotics Ever Chicken.

"Price Rite has become the strongest traditionally sized extreme-value retailer in the Eastern U.S.," according to Burt Flickinger, managing partner at Strategic Resource Group. "In relatively small amounts of space, they have some of the highest sales per square foot and sales per store of any of the extreme-value stores."

Price Rite stores typically have from 22,500 - 35,000 square feet of selling space, according to Flickinger. 

Moody's downgrades The Fresh Market

A Supermarket News story last month reported that The Fresh Market's effort to increase store traffic through investments in price have not been successful, and same-store sales are expected to decline for the rest of the year. Supermarket News cited Moody's Investor Service as the information source.

Moody's recently categorized The Fresh Market's corporate family credit rating as a very high credit risk and gave it a negative outlook.

According to a Moody's analyst, increasing pricing pressure and new store openings in The Fresh Market's operating areas will "make it very challenging to meaningfully improve profitability in the next 12 months." The analyst quoted cited potential pressure from Amazon-Whole Foods.

In addition to the credit rating downgrade, Moody's also downgraded the rating on The Fresh Market's $100 million revolving credit facility, as well as the rating of its $800 million senior secured notes.

The company was acquired last year by Apollo Global Management for about $1.4 billion. The Fresh Market currently has 176 stores in 24 states.

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.

Albertsons to purchase meal-kit company Plated

Albertsons announced recently that it plans to acquire New York-based meal-kit company Plated, which has annual sales of over $100 million, according to a story in Supermarket News.

The deal will allow Plated, which will operate as a wholly-owned subsidiary of Albertsons, to operate well beyond its subscription model with new distribution points, including Albertsons locations. Albertsons claims to have 35 million customers per week at its stores, which include 19 banners across 35 states (including Acme in the Greater Philadelphia Region).

Albertsons CEO Bob Miller said Plated would provide the company with a more personalized and versatile shopping experience.

Plated offers customers pre-portioned ingredient packages that can be used to prepare easy meals at home. The company was founded in 2012 and was featured on the television show "Shark Tank" a few years later, where it gained investment funding from one of the "sharks."

Walmart partners with Google, expands Uber delivery service

Walmart and Google announced last week that a new partnership between the companies will allow shoppers to use Google's apps and devices to shop at Walmart.

According to a story in Supermarket News, Walmart customers will soon be able to link their accounts to Google and receive personalized shopping results based on past purchases using Google Express, Google Assistant or a Google Home device. Walmart will fulfill orders made through Google at no extra charge.

According to the companies, "hundreds of thousands" of items will be available through the service. (Walmart.com has about 67 million SKUs available for sale.)

Walmart ecommerce CEO Marc Lore said the partnership is "just the beginning," adding that voice shopping, which will be possible through Google, will be expanding its capabilities in the near future.

Walmart and Uber team up for home delivery

In a separate announcement, Walmart said last week that it plans to expand its grocery home delivery service through Uber to the Dallas and Orlando markets. Walmart began testing Uber delivery over a year ago in Phoenix.

Customers who choose home delivery through Uber are charged $9.95 per order.

Perhaps the bigger news is that the fleet of Walmart Uber delivery cars have giant models of fruit and vegetables on their roofs.

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.

Lidl stores open in three states

The first Lidl stores in the U.S. opened earlier this month in North Carolina, South Carolina and Virginia. At 36,000 square feet, reports say the stores look more like car dealerships than grocery stores, with floor-to-ceiling glass covering much of the exterior.

The selections are nearly all private brands, with the packages made specifically for the U.S. market and closely resembling the national brands they are designed to replace.

According to an analysis conducted by RBC of Lidl's sales flier versus fliers of competitors, Lidl's promotional prices were 12% to 30% lower than all others - including Kroger, Sprouts Farmers Market, Publix, Food Lion and Save-A-Lot - with one exception. Lidl's and Aldi's prices were about the same.

A supplier representative told Supermarket News that Lidl appeared more concerned with quality compared to some competitors, and that the pricing was supported by a more efficient process than other buyers.

More to come as Lidl stores continue to open.

Real estate experts question Lidl's planned store locations

Real estate experts that spoke with Supermarket News last month expressed skepticism over Lidl's real estate choices. Douglas Munson and John Tippetts, former Kroger real estate staffers and co-founders of MTN Retail Advisors, said that about 70% of what they identified as the first 75 stores that Lidl intends to open lack the ingress and egress of a typical "Class A" supermarket location.

In addition, Munson and Tippetts believe that the sites appear to have been selected with a lack of insight into the volume of the competitors in the immediate trade areas.

Site Specialist Matthew P. Casey expressed similar concerns.

"I don't think they evaluated competition beyond doing things like looking at the number of cars in the parking lot," Casey said.

Lidl says that it plans to address quality and price in a manner that existing U.S. markets are not.

Munson predicted that Lidl will attract "the wrong people" and end up being more like a Weis Market or Food Lion rather than a Harris Teeter.

"You have to realize that the average Food Lion is doing $175,000 a week and the average Harris Teeter is doing $450,000. If you assume you're hitting Harris Teeter and you wind up hitting Food Lion, you're taking a much, much smaller piece of the pie."

On the other hand, Mark Thompson, managing director at Crossman & Co., said Lidl's site choices don't surprise him.

"Look what Wawa did in Florida," he said. "They went off hard corners to midblock and where they are at a hard corner it's a 'B' corner, yet all the pumps are full. Their model blew the market away. If Lidl's model blows the market away then people will shop."

Target investing in pricing, e-commerce, small format stores

Target announced that it plans to shift away from promotional pricing and back to every day low pricing as part of a $1 billion investment this year. The change in pricing is part of the company's overall strategy to enhance the in-store experience and leverage its stores as fulfillment centers for online orders.

CEO Brian Cornell said the investments in pricing will be spread throughout the store, but will begin with food, personal care and household essentials, "the trip-driving items our guests depend on every day," he said.

Target has been testing its food offerings at prototype stores in California and Texas, including transitions to daily delivery of produce.

In addition to Target's price investments, the company plans to remodel stores and open about 100 small-format stores in the next three years. The TargetExpress banner will be found mostly in urban markets, densely populated suburbs and college campuses. Currently there are 32 TargetExpress stores, all of which are highly tailored to suit the needs of the individual neighborhoods, the company said.

According to a story in Supermarket News, the small-format stores are part of Target's e-commerce strategy. Company executives reported that physical stores played a key role in fulfillment during the past holiday season, with 80% of online orders being picked up at stores.

These changes come in the wake of a sharp decline in profit in 2016. Net income fell 18.6% for the year, with sales down 5.8% to $69.5 billion.

Weis Markets unveils in-store pub, ice cream shop and drive-thru pharmacy

Weis Markets unveiled its "Community Market," a new store prototype, last week in Enola, PA, near Harrisburg. The 65,000 square foot store incorporates an in-store pub, ice cream shop, juice bar and expansive food court.

According to a PennLive.com story that was reported in Supermarket News, the store is designed to take Weis' service to the next level.

"We are sort of a middle-of-the-road supermarket," said CEO Jonathan Weis in the PennLive story. "We always have one eye on pricing and we compete with massive competitors such as Royal Ahold, Walmart and Wegmans, and others who do a tremendous volume. So that tempers our thinking. But, on the other hand, we have to be on trend. We want to be interesting, not boring or dull. We just have a philosophy that we're not going to be afraid to fail."

The new store protoype also includes a drive-thru pharmacy, a fuel center, and online ordering for in-store pickup. The company says it intends to incorporate elements of the new prototype into existing 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).

Albertsons - Price Chopper deal called off

According to a Supermarket News report in late January, Albertsons has dropped its pursuit of Price Chopper, which is headquartered in upstate New York. It had been reported in late 2016 that Albertsons was in "advanced talks" to purchase the supermarket chain for about $1 billion.

It is likely that Price Chopper will continue to seek avenues for new investment, but a strategic acquisition is now unlikely, according to a Supermarket News source.

Strategic Resource Group's Burt Flickinger anticipates that the 135-store chain would seek alternative means of financing such as sale-leasebacks or a family investment in partnership with private equity.