Are “food halls” an answer for mall vacancies?

One of the biggest issues confronting mall developers is how to fill empty space (especially from vacant anchors). There just aren’t enough brick-and-mortar retailers to fill that space without coming up with some original ideas. One recent discussion on RetailWire focuses on the concept of “food halls” as a possible answer:

Anybody who has traveled the world (and has visited department stores in the process) can’t help but be dazzled by the food halls, especially in Europe but also in Asia and elsewhere. I realize that this is an extension of “high street” shopping in densely populated central business districts, so it doesn’t necessarily lend itself to the American department store model. And yet…wouldn’t a food hall (in the European sense) be more compelling than a Backstage installation in a Macy’s store?

The growth in self-contained food halls inside malls (but not necessarily inside a department store) is healthy for several reasons — and not just as a placeholder for another anchor tenant. It capitalizes on shoppers’ growing interest in cooking, healthy eating, locavore dining, etc. — and it provides an opportunity for retailers like Whole Foods/365 or Trader Joe’s to expand their footprint. Besides, if you’re waiting for one department store to fill the anchor space of another…you’re going to have a long wait.

Case in point (from another recent post):

“Signs of the apocalypse” are rampant in some segments, such as traditional mall anchors, but overstated in other high-growth areas like off-pricers. As regional malls suffer one tenant loss after another, it’s hard to see how all of those giant locations are going to be filled — especially if the anchors were in B and C malls to begin with.

One example, in my home market of Milwaukee, is the exit of Sears (three locations) followed by last week’s announced liquidation of Bon-Ton Stores. Boston Store (the local Bon-Ton nameplate) had five locations here — including two stores with over 200,000 square feet. If you’re a mall developer losing two of three anchors, it’s easy to feel like you have a black cloud hanging over your head.

Is Aldi moving “uptown” too fast?

Here’s a recent comment from RetailWire about Aldi, and its decision to open more stores in upscale suburbs and neighborhoods. I think it’s a smart idea:

Many of the original Aldi locations (at least here in the Milwaukee area) were in lower income neighborhoods often suffering from “food desert” syndrome. The stores filled an important niche, but eventually Aldi started growing into middle-income and more upscale suburbs here. I’m sure the same phenomenon has happened around the country. If Aldi is serious about upgrading its merchandise content, the store experience has to keep pace.

Again, a local parallel: Pick ‘n Save stores (first part of Roundy’s, now a Kroger division) began as bare-bones stores with food displayed in cut-open shipping cartons stacked on empty gondolas. The formula worked for awhile (Pick ‘n Save became the market share leader here) but eventually customers expected a better experience. The same is true of outlet malls — from “piperack” operations to very upscale today.

So Aldi is making the smart move, especially where the trade-area demographics dictate, as long as they don’t simply duplicate their Trader Joe’s formula.

Online grocery sales gaining share quickly

It should come as no surprise (except, perhaps, to traditional grocery chains) that online sales are the fastest growing segment of the industry. Today’s RetailWire panel reflects on whether the major players are ready for this trend. Here’s my opinion:

The wave of online sales that has swamped general merchandising is now catching up to the grocery industry. This shouldn’t come as a surprise to food retailers after watching other industry segments caught flat-footed. It’s only now that general merchandisers have developed omnichannel strategies that are helping them turn a corner.

The key for grocery retailers is to reach the customer where he or she wants to shop. This may mean home delivery or it may mean BOPIS — and it may also mean a simpler shopping experience in-store with less overassortment to choose from. Rest assured that Amazon is going to deliver a more convenient experience (with higher in-stock levels) while traditional food retailers are still trying to figure out if there is a threat.

Amazon Go…it’s a go!

After a long period of testing, Amazon Go is finally opening its doors to the public. Its first C-store location in Seattle has already received a lot of attention for its technological leap, where the shopper can walk out the door and pay for purchases without stopping at a register. Here’s my comment on RetailWire:

I assume the long gestation period was needed to test not only the technology but also the merchandise content. From the descriptions of Amazon Go, it is more focused on fresh and ready-to-eat food than a typical C-store and devotes less space to categories like candy, chips and so forth. It will be interesting to read some on-the-ground reporting about what the store actually looks and feels like.

I expect Amazon to be patient with the concept, because some customers simply won’t be comfortable right away with a cashier-less environment. At least for now, human interaction in any kind of store (including a C-store) is part of the equation unless you’re an early adapter of the Amazon Go tech experience.

What’s the biggest obstacle to online grocery delivery?

My short answer (see RetailWire comment below): Execution!

If my experience (recounted on earlier posts) is any guide, too many shoppers have tried online grocery delivery with inconsistent results. It doesn’t inspire confidence when your delivery is two hours late and 33% short — and you’re on hold for 45 minutes trying to resolve the problem or cancel the order. (I’m talking about you, Safeway.)

There is no way for conventional grocers to grow their mature business without figuring out how to execute better. The customer has been trained to expect on-time delivery of complete orders in every other category, and Amazon is going to put pressure on its competitors as it expands the Whole Foods footprint.

About that “whole paycheck” perception…

Some of my earlier comments about the Amazon-Whole Foods deal touch on the expected benefits of better e-commerce execution and predictive data science. But let’s not forget that Whole Foods has a price perception problem that Amazon needs to fix. Here’s a recent comment from RetailWire:

I teach a college-level class in retail management. When I surveyed the class about where they shopped, most answered Aldi, or Trader Joe’s, or Metro Market (the Milwaukee brand of Kroger-owned Mariano’s). None of them shops at Whole Foods even though the store is in the neighborhood where most of them live.

There is no doubt that Whole Foods’ “premium price” reputation has kept many shoppers away, as they face more competition in the “organic” arena. I believe the first round of price cuts is just the start, and it simply moved some overpriced key items to the “market price.” Expect more of this from Amazon in the future, but also expect Amazon to build Whole Foods’ base on its potential e-commerce and home delivery upsides.

Amazon pushes Whole Foods toward centralization

There has been plenty of comment — most of it critical — about Amazon’s intention to centralize its merchandising of the Whole Foods stores. Most of the critics are concerned that the lack of local brand advocacy will turn Whole Foods into something very different. Here’s my RetailWire comment on that topic, followed by a comment about what Kroger is doing in response:

Centralized buying will bring economies of scale that allow Whole Foods to compete more effectively on price and on execution. But competitors (Kroger, I believe, is one example) are already opening the door to local vendors in response to the Whole Foods move.

Let’s not forget, however, that Amazon is the master of data science when it comes to retail management. Just because they are tightening the screws on the buying process doesn’t mean that they will ignore local preferences. In fact, they are likely to do a better job of allocating space and replenishing goods to meet individual stores’ tastes than Whole Foods ever dreamed of.

And now my comment about Kroger’s announcement that it is encouraging more local vendors:

Whether this was a pre-existing strategy or a reaction to the Whole Foods “centralization” news, it’s a good idea especially for grocers with national scale to pay attention to local preferences. As I said last week, however, don’t assume that Amazon will ignore this issue just because it is trying to find cost savings in the Whole Foods model in order to compete.

Amazon is the leader in using data science to determine consumer preferences, and I expect this to extend to their assortment planning in individual Whole Foods stores. If Kroger intends to compete, it will want to support its “local” initiative with great execution of in-stock levels.

 

More on combating the Amazon grocery juggernaut

Another timely discussion at RetailWire about the best ways for grocers to fight the Amazon-Whole Foods tie-up. To me, it’s not just about price competition but a lot more:

Most of the spotlight on the Amazon/Whole Foods acquisition has focused on price cutting, but these were necessary to make WF more competitive. Look for more cuts to come, to help Whole Foods overcome its “Whole Paycheck” brand reputation.

But longtime observers of Amazon know that the keys to its success are its assortments and its mastery of logistics. If I were a competitor, this is where I would focus my efforts before being run over by the Amazon juggernaut. Improving the efficiency of the shopping experience — whether through faster checkout, better execution of home delivery or higher in-stock rates — will go a long way toward dealing with the looming challenge.

“Whole Paycheck” no more

As soon as Amazon closed the deal on its Whole Foods acquisition, it dropped prices on several best-selling staples (with more to come). This sent a shudder through the rest of the grocery industry, especially with Amazon’s history of losing money to gain market share. I argue (on RetailWire) that Amazon had to move fast to overcome Whole Foods’ perception as an overpriced place to buy groceries:

I did a fast price check at the site for Metro Market (one of the Kroger’s divisions operating here in Milwaukee, and the sister brand of Mariano’s in Chicago). Its prices on organic bananas, eggs, butter and Fuji apples are already at or slightly below the new pricing at Whole Foods. (Its price on lean ground beef is 50 cents higher as of this morning.) What this points out is that Whole Foods had a pricing problem (“Whole Paycheck”) that Amazon is taking aggressive steps to correct.

Based on what happened to Costco’s and Walmart’s stock prices since Friday, there is a typical overreaction to the steps that Amazon is taking. Just keep in mind that Walmart and many other grocers are already competitive and Whole Foods is just joining the party. Also keep in mind that the Whole Foods brick-and-mortar footprint has a long way to go before it catches up with its competitors, despite the smart moves that Amazon is likely to make.

Groceries are battling too much space too

Excess square footage in general merchandising has been well-documented, especially with 2017’s wave of store closures. The trend hasn’t swamped grocery retail — yet — but don’t be surprised if the advent of online grocery shopping will take a toll. Here’s my comment, from a recent RetailWire discussion:

The grocery business is suffering from the same “overspace” problem that has plagued general merchandisers for years, leading to waves of store closures this year. The retailers in the middle — the old standbys like Kroger — are particularly vulnerable to increased competition from discounters, small-format stores and retailers doing a better job engaging with “foodies” and Millennials. (At least Kroger has a winning concept with Mariano’s in Chicago.)

There is no doubt that shopping behavior is changing. Some shoppers are opting for more frequent but smaller trips for fresher food, while others are bulking up at warehouse clubs. Aldi, Lidl and Trader Joe’s are offering smaller stores with curated assortments, and now Amazon is lurking in the background with its purchase of Whole Foods. As a regular shopper at Kroger’s “Metro Market” chain in Milwaukee, I can tell you that the overwhelming amount of choice (to fill all that space) makes even a simple shopping trip harder than it should be.

While some mid-tier chains are in a better position than others to survive, some industry consolidation is probably long overdue here. Meanwhile, here’s a related post about mall developers looking to fill empty space with food retail:

It’s ironic that we’re talking about food stores taking over vacant mall space today, after discussing excess square footage in the grocery business yesterday. There may be specific malls where it makes sense to add a small-footprint store like Fresh Market, but it’s hard to see how full-line mid-tier stores like Kroger can make this work on a large scale despite its test in Ohio. Presumably the grocery store would be the “last stop” on the shopping trip, if the shopper visits the rest of the mall at all.

The entire issue comes down to mall developers and how they reinvent all that real estate. Southdale (outside Minneapolis) is replacing a JCP store with a three-level fitness center; other malls are adding more dining and entertainment. But pulling off-mall retailers (TJX, Costco) into the fold may be a more viable solution if the price of entry is right.