Posts Tagged 'Kroger'

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.


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.


“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.

Kroger upends the “category captain” model

Kroger has announced that its liquor/beer/wine departments will no longer be managed by “category captains,” such as InBev or Diageo. The concept of category captains involves using outside vendors to handle shelf space management and planogram resets for all manufacturers in its category — not just for its own goods. Kroger wants to “own the process” despite the added cost that it may be assuming. Here’s my opinion from a recent RetailWire discussion:

Category captains probably make the task of space management easier and more cost-efficient for both the retailers and smaller vendors who don’t have the internal resources. But I always thought the model was a case of “the fox guarding the henhouse.” Certainly InBev (for example) will have its own best interest at heart, no matter how much the retailers look over the captains’ shoulders.

If Kroger is prepared to take over the cost and task management (including more frequent product resets), the change ought to be beneficial to the consumer and ultimately Kroger’s market share.

Kroger’s to buy Roundy’s: More consolidation on the horizon?

The announced acquisition of the Roundy’s stores (Pick N’ Save, Mariano’s, Copps) is of special interest here, because Roundy’s is a hometown Milwaukee retailer. I describe it (on RetailWire) as a “tale of two companies,” including some valuable assets for the Kroger’s portfolio as well as some underperforming stores:

The success of Mariano’s certainly gives Kroger a foothold in the Chicago market, and a vehicle for brand positioning much different from Jewel or the big discounters’ grocery operations. Mariano’s may be the prize posession but is a relatively small part of Roundy’s portfolio.

Roundy’s still generates most of its sales from its mid-market Pick ‘n Save and Copps locations here in Wisconsin. These stores have steadily lost market share to Woodman’s, Walmart, Aldi, Costco and now potentially Meijer. And, frankly, Roundy’s has been slow to expand its Metro Market concept (the local version of Mariano’s) fast enough while the upscale (and locally owned) Sendik’s chain has expanded rapidly.

As a shopper at my neighborhood Metro Market and Pick ‘n Save (about five miles apart from each other), I hope Kroger management brings better operating attention to detail to the market. Long checkout lines, expired dairy, and an overabundance of private brand have not helped Roundy’s win the market share war. Meanwhile, Mr. Mariano has been more focused on his personal re-entry into Chicago, having lost his job at Dominick’s to another takeover several years ago.

“Small format” momentum continues to build

Today’s RetailWire discussion focuses on traditional grocers (Publix, Kroger and so forth) who are developing small-format concepts for college towns, resort communities and other locations where a full-sized supermarket can’t pay for itself. As I discuss here, it’s part of a rapidly growing trend throughout the retail industry:

Small format stores make a world of sense for both food and general merchandise retailers. They provide edited assortments aligned with the brand equity of the parent company. They also offer the retailer much more flexibility in terms of location strategies and site selection.Most national chains have too much square footage devoted to large-scale prototypes. Full-line discounters like Walmart and Target have already figured this out, so it’s not surprising that food retailers are looking at similar growth opportunities.

After all, why should TJ’s and Aldi have this idea all to themselves?