The way that Americans buy groceries has changed dramatically in the last few years, and it’s about to change some more. The reason it will change is that the expectations and demands people have for grocers has changed completely.
The major trends that are reshaping and disrupting the grocery industry are based upon new consumer expectations. The most obvious and disruptive of these trends include:
- A demand for higher quality; Americans want more purity, better taste, and better ingredients in their food. Yet they do not necessarily want to pay more. A prime example of this trend is the growing popularity of products like olive oil, whole bean coffee, and craft beer. The growing business at stores like Costco Wholesale (NYSE: COST) and the privately held Trader Joe’s, which sell high quality foods at low and sometimes discount prices, is another example of this. The growing popularity of organic produce and grain-fed or free-range meat is another example of this.
- A greater awareness of cost and a tendency towards thrift. This is both a holdover from the Great Recession and a product of growing income inequality. Interestingly enough, the growing concern with cost drives some awareness of money and a tendency to shop for higher quality at a lower price.
- A growing concern for health and a demand for transparency in food. Americans are more concerned with health and healthy eating than ever before. They’re concerned about the quality of food and the ingredients in it. They are also more distrustful of the food industry and less tolerant of artificial ingredients, additives, and food industry claims. Expect this trend to accelerate and intensify as baby boomers age and start suffering more physical ailments.
- A demand for more convenience as people get more pressed for time. Shoppers are less likely to put up with poor customer service, long checkout times, and un-stocked shelves. They want to speed up their shopping and spend less time in the stores. This is driven by harried schedules and the popularity of online shopping, which makes consumers look for alternatives to the shopping trip. The growing popularity of grocery delivery and of services like Google Express, Walmart to Go, and Kroger’s Shop at Home will drive a move towards greater convenience. Expect a convergence of online and brick and mortar retail as stores become more like fulfillment centers and more people shop online.
- Closely related to convenience is a growing demand for pre-prepared foods. This includes the growing number of frozen entrees in stores and the growing number of stores that cook food in store for customers. This trend converges with quality as customers want high quality in ready-made meals. The old Swanson dinner with the meat that tastes like cardboard, the mushy peas, and the potatoes that taste like wallpaper paste will not cut it anymore. The cutting edge here is at Trader Joe’s and Costco Wholesale, where gourmet entrees, some made in Europe, are sold at prices of less than $3 or $4 apiece. Another example is Whole Foods Market (NASDAQ: WFM), which offers a wide variety of foods cooked in the store, including sushi bars. Kroger (NYSE: KR) is also a leader
The writing is on the wall: today’s value shoppers want healthy, quality foods that are convenient but sold at the lowest price possible. Those trends seem to benefit Kroger, Whole Foods, Trader Joe’s, and Costco Wholesale. A potential loser here is Walmart (NYSE: WMT), which has a reputation for low quality and lousy customer service.
Your mother’s supermarket will not cut it anymore. Today’s soccer mom wants a store that is a combination organic grocer, high quality butcher shop, pharmacy, discount store, gas station, supermarket, and gourmet kitchen. At the same time, she wants the lowest prices possible.
Those chains that can fill those demands will prosper; those that cannot will go the way of the A&P, or Great Atlantic & Pacific Tea Company. The A&P, for those of you who do not know, was America’s largest grocer from 1915 to 1975 and the nation’s largest retailer until 1965. Today it is the 28th largest grocer in the United States and operates in just five states because it could not compete in the new suburban reality of the 1960s and ’70s.
One has to wonder what stores can avoid A&P’s fate and what stores cannot.
Disclosure: your friendly neighborhood blogger and the writer of this piece owns shares of Kroger (NYSE: KR).