Feeling Good About Being a Grocer According to Progressive Grocer’s 84th Annual Report of the Grocery Industry, total 2016 sales for stores with $2 million or more in annual revenues increased 3.0% to $668.68 billion. An increase almost twice as much as 2015’s 1.7%. Sales per store were just shy of $17.5 million during 2016, approximately a 3% increase over 2015’s $17.0 million, which only increased 0.09% from 2014. With these results, 45.5% of the grocers surveyed for the report said they were more optimistic about the retail climate for supermarkets during 2017, compared to 32.9% who were optimistic for 2016.

How Will So Many Stores Survive? Grocers may be optimistic about 2017, but they are facing a number of challenges, such as more dollar stores and pharmacies selling food, continued deflation of food prices and the expansion of European-based chains, ALDI and Lidl, into the US. The biggest challenge, however, is likely to be Amazon’s announcement during June 2017 of its intention to buy Whole Foods. Its 431 locations automatically provide Amazon with brick-and-mortar outlets to increase its share of the grocery market. If that wasn’t enough to disrupt the industry, ALDI is planning to have 2,500 US locations by the end of 2022 and Lidl will open 20 stores during summer 2017 in South Atlantic states, with plans for a total of 100 in these states by summer 2018.

Raging Competition Well-established US grocery chains must be prepared to fight for market share, as deep-discount stores’ share of store-brand (or private label) products was more than 200% of major food sales channels’ share for the 52 weeks ending April 29, 2017. According to the Q4 2016 American Customer Satisfaction Index (ACSI), competition in the supermarket channel is fierce, as there was very little difference in the scores of the top 5: Trader Joe’s, 86; Publix, 84; ALDI, 83; H-E-B, 83; and Wegmans, 83. In the latest Market Force survey, Wegmans and Publix were tied for first, with Trader Joe’s a close second, while Morning Consult’s Most Loved Brands Spring 2017 survey ranked Kroger first, but Whole Foods was just a few percentage points behind.

More Consumer Choices Battered the Industry Although only 19% of US Internet users purchased groceries online during 2016, Unata and Brick Meets Click forecast a significant increase to 31% during 2017, with Nielsen predicting 20% of all grocery shoppers’ dollars being spent online by 2026. Progressive Grocer’s survey of grocers for its 84th Annual Report of the Grocery Industry found that 22.5% offer a click- and-collect service; 18.3%, curbside delivery; 16.9%, third-party home delivery (e.g. Instacart); and 14.1%, store- supported home delivery. According to Cardlytics, consumer spending on meal kit services (Blue Apron, etc.) increased 236% from 2015 to 2016; however, the Cardlytics study found that approximately 75% of subscribers cancelled the service within 12 months.

Trying to Stay Ahead of Shoppers According to Progressive Grocer’s 70th Annual Consumer Expenditures Study, 5 factors are driving consumer shopping: Fresh produce and protein; healthy-eating; selections for events, parties and celebrations; on-the-go convenience; and new, small brands. Although 70% of consumers made meals from “scratch” at home during 2016, 34% chose pre-prepared meals from a grocery as takeout or to eat at the store. According to 2017 research from The Hartman Group, 45% of Millennials said “best prices” and “offers, coupons and promos” are important factors when considering a particular grocery brand.

Organic Continues to Go Mainstream The Organic Trade Association reported that 2016 organic food sales were approximately $43 billion, an 8.4% increase ($3.3 billion) from 2015, accounting for 5.3% of total US food sales. Almost 40% of 2016 organic food sales were fruit and vegetables, increasing 8.4%, while organic meat and poultry registered its largest-ever annual increase, or 17% ($991 million). An April 2017 Morgan Stanley survey found that more than 67% of Millennials and 44% of Baby Boomers said they bought natural/organic groceries during the past 3 months.

Advertising Strategies To remain competitive, independent supermarkets must seriously consider curbside delivery, third-party home delivery and/or store-supported home delivery, any of which can be promoted with a free or discounted first delivery on TV and social media. Other competitive opportunities for independent supermarkets and local, small chains are highlighting selections for events, parties and celebrations and new brands of specialized and/or gourmet-type food items. Clearly, the market for organic foods is growing, and with much more room for growth. Local, organic supermarkets/groceries must promote themselves aggressively, as more of the major chains add organics, and to highlight locally-sourced organic foods.

New Media Strategies With pre-prepared meals from supermarkets increasing in popularity, stores may want to shoot and post videos that show their “chefs” or those preparing the meals using locally- sourced food, how they make them fresh and healthy, herbs instead of salt, etc. With major supermarket chains generating millions of YouTube views, independents and local chains should take advantage of consumers’ interest in supermarket YouTube content and create their own that distinguishes their store and selection from the major chains. Independent and organic grocers must be conscious of new technologies, such as Infarm’s vertical farming system that can be placed in a store with fresh, growing herbs, for example, that shoppers pick, and add these technologies to gain a competitive advantage.