August 07, 2017

The coming grocery store wars

Business Insider has a decent little piece on what Kroger's end to a 13-year sales growth, along with the announced expansion of Aldi and cousin Lidl mean for the grocery industry. It also fails to mention at all the expanding Winco Discount Foods, which is the story's biggest failure.

Going beyond the piece, I'll list who I expect to be the main "losers."

That is "traditional" dollar stores and drug stores that sell groceries. Both have had versions of "mission creep" in the past few years that will soon prove to be untenable.

In both cases, the creep is at least partially about refrigerated foods. This is an area where volume of supplies and selection both favor regular groceries, and definitely favor the trio of large-volume discount grocers Aldi, Lidl and Winco. And, of course, they're the ones expanding.

Dollar General and Family Dollar, if they're smart, will not put refrigerated sections in any more stores and will mentally start planning to shutter refrigerated sections in many stores that have them.

Their non-perishable groceries will take a similar hit to the discounter trio. For example, Aldi snack crackers are a lot cheaper AND in more varieties than dollar stores' house brands. Or, their house brands of healthy whole wheat pasta are as cheap as cheaper name brands of white flour pasta at dollar stores where you can't even find whole grain pasta.

CVS and Walgreen stores that sell groceries are, or will be, in a similar situation. They don't sell that many groceries, they don't have that robust of a supply chain as far as I know, and similar issues.

Both also face other problems.

Dollar stores? It's the same as Wally-World. More and more of them are getting more and more slovenly in upkeep. The Dollar Tree chain seems a general exception to this, and to some related issues. (And, in turn, even though Wally plus Sam's is the nation's top grocer, this is going to be a problem for it in the future.)

Drug stores? The whole idea of selling groceries, beyond the highest-margin impulse buys, is mission creep and will be shown as such with the growth of discount grocers.

Now, Winco, which for some reason isn't even on the radar of Business Insider.

If you've not been to one, here's the deal, based on my knowledge of it and Aldi, and guesstimates about Lidl:
1. As big as a full-sized Kroger, so dwarfs an Aldi or Lidl;
2. As robust of a house-lines brand as Aldi (and I'll assume Lidl from here on out) and competitive — occasionally cheaper, even;
3. In the same ballpark as a Kroger on national brands;
4. MUCH more in the way of refrigerated foods than Aldi;
5. This includes a full selection of beer;
6. A full produce section, not a skimpy area of pre-wrapped produce only;
7. As big a bulk area — and at cheaper to much cheaper prices — than a Whole Foods;
8. Employee-owned as part of low overhead.

Yes, Winco is still relatively small, and still relatively geographically restricted. But, with already moving to Texas and Oklahoma, including the DFW Metroplex and Oklahoma City, it's gotten into a few major metros outside its Western-states base, having previously expanded from its PNW core within the West to Arizona and Las Vegas.

Speaking of Whole Foods, I don't think its new owner, Amazon, will be as much of a disrupter as some think. Drone-type delivery isn't happening for some time. Heavy items like milk take bigger drones. The logistics of delivering booze and checking for IDs will be many years in the making, if ID proof on delivery is needed. Produce and meat? Pickier people, at least — like Whole Foods shoppers — want to see that stuff in person. On the produce, they still want to pinch and prod it.

That said, it will be the dollar stores who can least afford drone delivery. And, their food customers, by demographic, will be least likely to pay.


Speaking of drone delivery, and good old price wars, I have a part 2 here.


PDiddie said...

I'm a Kroger loyalist but a dissatisfied one. Here in H-Town they can no longer lay claim to lower prices (HEB wears that title and is expanding). I have an Aldi close by but their strange rules -- bring your own bags, rent a cart, etc. don't agree with my old-man sensibilities enough for their prices to lure me regularly -- and the upscale grocery stores hold no personal appeal.

Traruh Synred said...

In the'whole foods of thef duture' you'll still go to the store, but you'll have a chip in your butt. You walking in, put whatever you want in your cart and walk out. No checkers. Your chip is debited as you roll out the doors. Robots restock the shelve

No people in sight accept the occasional technician who won't know how to prepare weird veggies, but Alexa will tell you if you ask.

Whole foods might not have the best demographics for this experiment, but even Amazon could likely not afford to buy out the Waltons who have more price sensitive customers.