The trend is clear. The growth in the U.S. grocery sector today is not found in traditional supermarket formats but rather with specialty stores like Trader Joe’s, Whole Foods, and Fresh Market. There are further signs of life on the other end of the spectrum as there is also growth opportunities for smartly located “price” oriented stores, especially the smaller, quick in and out formats like Aldi’s and Sav-a-lot.
But it has been a proverbial month of sundays (aka, a very long time) since the days of traditional supermarket chains planning dozens of new stores in their capital expenditure plans. Today, after another tough year of “comp sales” their press releases focus more on updating existing facilities, consolidating, and the ever-euphemistic “right sizing” of the number traditional grocery stores.
I see three prevailing reasons for this dearth of growth.
- First, the sluggish economy has slowed residential growth and consequently the opportunity for new shopping centers and emerging business locations that have traditionally been fertile ground for supermarket expansion. (BTW- If you are counting on the leadership from Washington D.C. any time soon to finally get fiscal policy right and end this malaise, don’t hold your breath)
- Secondly, competition and complacency are killing traditional stores. In medical terms, the autopsy of the traditional supermarket will read something like this; “death due to over-exposure, and multiple lacerations from savvy competitors over an extended period of time”. I mentioned these competitive culprits in the opening paragraph. They are at good at what they do and they have figured out how to profitably propagate their formats and brands nationally.
- Thirdly, traditional supermarkets are closing in on the end of their product life cycle. For more than sixty years, this format has carried the load for grocery selling in the U.S. Current trends indicate that there is little doubt that the traditional supermarket needs a radical reformation, or they go the way of the drive-in theater, the eight-track tape player, and vinyl records. It should be no surprise to anyone. Incredibly, these stores are designed for a shoppers that no longer represent critical mass. The whole concept of grabbing a cart and a shopping list and spending 45 minutes to an hour shopping for food is already a rare and dwindling behavior. None the less, traditional supermarkets are built for just that type of trip. (I could bury you with facts and figures to support this contention, but I constantly strive for pithiness).
Game, set and match.
Before you ask me to check my medication, I do realize that traditional supermarkets will continue to sell groceries for many years to come. There are over 35,000 of these things out there to be amortized and the accountants alone will prolong the death of this mighty beast until the last drop of EBITDA is extracted from its veins. But the trend is clear. So the next time you see a flyer for a grand opening of a brand new supermarket, consider attending and save the balloons. Its something you can share with your grandkids someday.