Page 10
— Retail Properties Quarterly — November 2015
S
hopping for groceries was
much simpler 45 years ago.
Grocery stores were 20,000
to 25,000 square feet, which
allowed stores to offer a
variety of products, but only sold
groceries, meat and produce. For
example, let’s say you want to buy
peas. Your choices were simple –
you bought fresh,
frozen or canned
peas. Items were
easier to find, and
shopping at your
small neighbor-
hood store wasn’t
as physically
demanding or con-
fusing as shopping
in the large mega-
stores we have
today.
Unfortunately
nothing stays
constant in our society, including
grocery store formats. While some
changes benefit society, such as
the technological advances that
make it easier to communicate,
other changes cause more prob-
lems than they solve. Grocery stores
are a prime example of the latter
because the changes implemented
confused consumers about what
was the store’s purpose. Telephones
changed, but their purpose didn’t.
No matter the form – from rotary
dialing landline phones to pagers
to cellphones and voice over IP – at
its core, it is still a way to commu-
nicate.
Grocery stores decided to reinvent
themselves and, in doing so, forgot
what was their primary purpose –
to offer conveniently located stores
close to their customers to sell food
to eat or prepare for home con-
sumption.
Over time, selling food became
less important and selling more
of everything became the way to
defeat the competition. Selling
everything meant stores had to
become larger to accommodate
these additional nontraditional food
products, which were traditionally
sold in drug and discount stores.
This led to new store formats that
added departments like pharma-
cies, health and beauty aids, pet
food, service meat, delis, bakeries,
salad and sushi bars, pizza, sand-
wiches, Chinese food and other
prepared foods, as well as coffee
and juice kiosks with seating areas
with plush seating and fireplaces.
In addition, stores added childcare
areas, in-store banks, dry cleaners,
floral departments, and beer, wine
and liquor departments. All these
new departments did not fit in the
old 25,000-sf store format. So, store
footprints increased.
These larger stores drove out the
weaker competitors, which could
not afford to build larger stores.
Many of these stores were closed
or bought by the larger chains. The
independent stores were virtually
eliminated.
This shift caused a redistribution
of grocery store square footage and
a reduction in the number of stores.
Although these changes did not
significantly increase the amount of
square footage, the individual store
sales increased and all was good in
the grocery store land of Oz.
New Competition
The chicken-and-egg question
grocers have struggled with is
whether the larger store format that
sells a variety of items increases
profits. Or put another way, does
building a bigger store in order to
accommodate and sell more of
everything increase the bottom
line? There doesn’t seem to be a
answer to this yet, so in the mean-
time, we have conventional stores
that range in size from 50,000 to
120,000 sf.
All seemed peaceful with these
ranging sizes in the grocery land
of Oz, until the wicked witches of
new competition began to disrupt
the system. New competition like
Whole Foods, Sprouts and Trader
Joes focus on selling food only,
which flies in the face of the sell-
everything model. The Oz grocers
lack the scarecrow, who hasn’t got
its brain yet, and that’s why the
grocery industry is unable to decide
the right format to use to win the
grocery wars.
The war got worse when discount
stores began adding food depart-
ments. Drug stores fought back
by adding food. And convenience
stores became coffee, Slurpee and
junk food havens. In response, the
conventional supermarkets began
selling an even larger variety of
products.
Meanwhile stores like Whole
Foods, aka whole paycheck, devel-
oped almost a cult-like following.
Eventually, like all love affairs,
the consumer fell out of love with
Whole Foods when many realized
that they could eat at a restaurant
for less than buying the prepared
foods. In turn, Whole Foods real-
ized that customers still liked to
“squeeze the Charmin,” drink coke
and eat junk food – all of which
they didn’t sell.
Therefore, Whole
Foods downsized its
stores, reduced its
variety, lowered its
prices and announced
a new, smaller Whole
Foods express store,
which may be a note-
worthy new format.
Similarly, the dis-
count stores realized
selling everything
didn’t necessarily
mean an increase in
sales and profits. Tar-
get sold its pharma-
cies to CVS and is not
building Super Targets
anymore. Likewise,
Walmart is building
more neighborhood
supermarkets.
Today, conventional
supermarkets are
focused on acquir-
ing other chains or
closing unprofitable
or outdated stores.
Kroger is building
larger store that are
between 100,000 to
120,000 sf, and add-
ing more departments
that sell products
commonly found in
discount stores.
Albertsons, with the
addition of Safeway,
hasn’t built any new
stores in the past 10
years, but has closed
stores – a confusing
strategy to gain mar-
ket share and win the
grocery war. If Albert-
sons does become a
publicly owned com-
pany again, it might
focus on a long-term
strategy of operat-
ing both brands in
the same market
and experiment with
alternative formats.
For example, Alb-
ertsons, which carries
more nonfood items,
could become a store
that sells only non-
perishable products,
only carries national
brands and features
a pharmacy. Safeway
could concentrate on
perishable products
and private label gro-
ceries. This would
give Albertsons the
best of all worlds –
selling everything
and offering the con-
sumer the choice of
convenience and an
easier shopping expe-
rience, depending on
their shopping needs.
This format concept
could be tested easily
where Albertson and
Safeway have existing
stores close together.
Taking out my crystal ball, which
I’m sure you can buy at any of the
major sell-everything grocery stores,
I see the confusion continuing.
For chains like King Soopers and
Albertsons, that have a large num-
ber of existing and prototypical
stores, it will be difficult and costly.
Safeway discovered this when it did
an extensive lifestyle remodel that
wasn’t as successful as it hoped.
King Soopers will continue to try to
build larger stores, but I don’t think
that is the ultimate format either.
In the future, I hope to write
another article focusing more of a
“Steven Hawkins analysis” of why
the theory of selling everything
doesn’t work. If I’m not asked
to write any additional articles,
at least I can tell you that stores
always locate the peas in the veg-
etable section – now trying to find
out where the vegetable section is
will be the challenge.
s
Grocery Update
Howard
Gerelick
Consultant, hgc,
Phoenix
Stores need to be larger to accommodate nontraditional
departments, including pharmacies, beverages, health and
beauty, and others.
One important ingredient to the sell-everything model is
offering prepared foods, including deli sandwiches, salad
bars, sushi and pizza.
New competition focuses on selling food only, which flies in
the face of the sell-everything model.
The chicken-and-egg question grocers
have struggled with is whether the
larger store format that sells a variety of
items increases profits. Or put another
way, does building a bigger store in
order to accommodate and sell more of
everything increase the bottom line?
