Six ways grocery stores are evolving
Nowhere are changes in consumer taste and behavior more visible than in the grocery business.
Grocery stores have dramatically transformed over the last century. Air-conditioning, refrigeration, the automobile, the internet, a sharing economy, technology and changing consumer habits have all shaped the grocery store format, a retail sector that continually adapts and evolves in reaction to population shifts.
From corner food purveyor to grocery stores
At the turn of the 20th century, people went to the butcher for meat, the fishmonger for fish, the bakery for bread, the dairy shop for milk, eggs and cheese and the corner grocer for dry goods. Many people even had milk and bread delivered right to their home. These stores were all small format and located throughout neighborhoods. The evolution of air-conditioning and refrigeration allowed the grocery store to add produce, meat, fish and dairy products. Newer grocery store formats emerged with larger floor areas complete with aisles and displays. Grocery store locations moved from neighborhoods to suburban shopping centers as the use of automobiles grew, highways were built, and people left the cities for a better life in the suburbs. Store formats grew in size and introduced large shopping carts to encourage higher volume sales per trip. At home, refrigerators and freezers also grew in size to allow for more groceries to be stored inside the home.
The supermarket emerges
Grocery stores competed for customers and evolved to offer more products and services under one roof. These stores became what we typically refer to today as a “supermarket.” As grocery stores began selling more than just food items, store leases became much more complex. “Permitted Use” clauses and “Exclusion” clauses became lengthier in scope. Prohibited uses included any use that might impact the parking allocation to the grocer or was inconsistent with the wholesome family value of the grocery store customer. For example, grocery stores restricted leasing to other grocery stores or food purveyors, bars, fitness centers, movie theaters, bowling alleys, medical clinics and residential buildings in the shopping center. Nowadays, grocery stores, like other tenants and landlords, are more accepting of these uses.
Here come the organic grocers
In the 1970s, the organic and all-natural grocery store concepts emerged. Evolved from the urban “health food store,” the grocery format started to mainstream organic and all-natural foods and socially responsible merchandise. When Whole Foods Market arrived on the scene in 1980, its product selection appealed to a discerning consumer base who sought a higher-quality food offering without pesticides, additives and unnatural products. Since then, Whole Foods has grown exponentially and has proved so successful, Amazon acquired the brand in June 2017. While most grocery brands remain and operate regionally, Whole Foods expanded nationally. In response, the regional traditional grocery store operators adapted to include healthy and organic products, prepared foods, and better bakeries and produce to compete with Whole Foods and other natural grocers. Grocery store formats continued to grow with expanded levels of service with some stores operating with over 140,000 square feet.
On the other end of the spectrum, a growing number of smaller grocers focused on convenience located in close proximity to the neighborhood pockets. Operating in 10,000 to 20,000 square-foot store formats, Aldi, Save-A-Lot and Trader Joe’s rapidly expanded and continue to grow today. One of the largest grocers worldwide, Lidl, came into the United States with a media splash but quickly halted their progression of planned growth to adapt to the American market. Many people in the real estate community remain skeptical about whether Lidl will succeed in penetrating the U.S. market.
Club stores and department stores compete for grocery dollars
Club stores such as BJ’s offer quality bulk grocery merchandise at attractive prices. Club buyers are excellent at selecting the right merchandise that resonates with their customer bases. Club store shopping differs from typical grocery stores in that it is a much greater time commitment for the consumer and requires an automobile to transport the bulk merchandise. Grocery stores like Giant, Weis and Kroger are countering club stores with its own gas stations to increase traffic and offer shopper loyalty programs with cheaper gas in exchange for in–store purchases.
Department stores such as Target have expanded their grocery merchandise and grown its store format to make room for more grocery merchandise. Its buying power is extraordinary, providing price points that are tough to compete with. As Target expands their small store format in cities and close to colleges and universities, they highlight Target’s ability to adapt and evolve with their consumer base.
Boomers and millennials move back to the urban centers
Urban centers have seen a major transformation over the last 10 years. Inward urban migration – a return to the cities from both baby boomers downsizing and millennials’ desire to live in more walkable environments have spawned tremendous urban development across the United States. In response, some grocery merchants have followed the consumer but had to shrink their footprint in order to find great locations close to their customers. Though urban customers tend to buy less, they make more trips throughout the week. Target is a great example of creating a smaller format, sometimes multi-level store well located amidst their core consumer. Instead of 140,000 square feet, Target is leasing 30,000 to 35,000 square feet. Another grocer that is penetrating the cities is Sprouts Farmers Market. They also lease smaller store format space – think 20,000 to 25,000 square feet.
Automated app checkouts
Recently, customer choice and control have been increasing. Instead of prepackaged items, there has been an increasing emphasis on self-service and automated mobile app checkout. Amazon is rolling out automated phone purchase technology in small format convenience stores. As more and more people adopt usage of mobile phone linked payment systems, self-help automated pay format shopping will flourish.
There is an increasing market in the United States for grocery stores that specialize in ethnic communities. Asian and Hispanic grocers and international supermarkets that represent different ethnic populations are becoming increasingly common and successful. In some communities, the specialty supermarket is the center of community life and is a measure of the economic health of the community. Save-A-Lot expanded into Hispanic neighborhoods through a licensing affiliation with Hispanic grocer Rafael Ortega with the “El Ahorro Save-A Lot” brand.
In summary, grocers who survive will adapt to remain relevant. Store formats and the products they place on the shelves or in the parking lots take into consideration the demographic and psychographic profile of the consumer in the trade area. With changing consumer habits and advancements in technology, the grocery store format will need to stay in lockstep and evolve with the times.