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As consumers turn against Big Box stores, supermarkets feel the heat



The death of the Big Box store (think Wal-Mart) has been widely predicted, as for instance here, here and here.

Just about every major trend we’re following right now bodes poorly for power center retail,” says the Business Insider article. Those trends include the facts that “Americans are driving less than they have in decades. Populations are flocking to smaller, urban communities over sprawling suburbs. And consumers in their 20s and 30s increasingly prefer small, local shops to big-box retail.”

It took a little longer for this rejection of the Big Box concept to spread to the big supermarket, but now, it has. The U.K. last year saw its first decline in supermarket sales in two decades, and America isn’t immune: “U.S. supermarkets are stuck in time-warp,” announced, adding, “The bland midmarket, hi-lo, be-all-things-to-all-men strategy is not working.”

Speaking of Mid-Market and supermarkets, today’s San Francisco Chronicle has a front page article, “Trying to mimic Ferry Building on Mid-Market” [link not yet available], that tells the story of how a big supermarket, Market on Market, faltered, precisely because it tried to “be-all-things-to-all-men.” A little background: The Mid-Market stretch of S.F.’s Market Street has for years been a sorry spectacle of homelessness, drug dealing, prostitution and low-end stores. That all began to change when San Francisco persuaded Twitter to headquarter there (in exchange for controversial tax benefits). Now, Mid-Market is becoming a yuppie haven: rents there are going up as fast as anywhere in the city. Mid-Market had never had a nice supermarket. So the owners of Market on Market thought the time was ripe to open one.

Turns out their assumptions were wrong. Those young tech workers don’t want a big supermarket. They want what Whole Foods offers: ready-to-eat food, often impulse-driven, and small, specialty cubicles run by independent purveyors: a pizzeria, ramen shop, créperie, sushi bar, fish monger, tea shop, microbrewery and so on. They want, in other words, to feel as though they’re in the marketplace of some old European village. So that’s what Market on Market will now offer them: similar to what famous Ferry Plaza has been offering shoppers for many years.

San Francisco being the trend-setter it is, this movement likely will spread around the country, first to other urban areas and then to hipper suburbs. It’s reflective of the same yearning for authenticity and quality we see in the wine industry and the consumer’s preference for wines of terroir, connected to the land and owned by a family—wines with stories that make people feel more human. I know that, speaking for myself, it’s almost unbearable to shop at Safeway anymore. The place just seems like, well, it’s stuck in a time-warp from 1965. Whole Foods is much more in my comfort zone (although it’s more uncomfortable from a dollar point of view); and Rockridge Market Hall is even more of a trip for me: I can’t exactly explain the exaltation I feel when shopping there, but where Safeway feels pedestrian, Market Hall feels like a trip to the Marché International de Rungis without leaving Oakland.

It always surprises me to see so many young people thronging my local Whole Foods: I wonder where they get the money. But they do, and whatever their financial situation maybe, it’s clear that they’re voting with the wallets for higher quality food, the feeling of being philosophically and organically connected to what they put into their bodies, and a more welcoming shopping experience. The wine industry could learn from this example.

  1. That’s quite a bubble dweller post. As much as I’d like to see Bi-Rites on the corner of suburban Dallas, it’s not going to happen.

    A typical young couple you see thronging at Whole Foods is making ~ $250K/year. The median income for a family of four in the US is ~ $50K.

    The country’s largest seller of wine – Costco – has seen its stock grow by 50% over the past three years. Whole Foods has dropped more than 40%.

    For better or worse, cheap wins.

  2. Bob Henry says:

    On the subject of alcoholic beverages in supermarket chains, see what has been proposed by Kroger (d.b.a. Ralphs in southern California).

    From The Wall Street Journal “Money & Investing” Section
    (January 30-31, 2016, Page B4):

    “Kroger Booze Plan Sparks Industry Fight;
    Plan calls for a privately held distributor
    [Southern Wine & Spirits] to oversee how much display
    brands get in groceries”

    By Tipp Mickle and Ilan Brat
    Staff Reporters

    Kroger Co. has started a booze-fueled brawl with the alcohol industry with a plan to change how the country’s largest supermarket chain organizes beer, wine, and liquor on its store shelves.

    The proposal would do away with a decades-old system in which the biggest alcohol producers such as Anheuser-Busch InBev NV and Diageo PLC were tapped by Kroger and other grocers to be “category captains,” dispensing advice and influence about how much shelf space and prominence to give brands ranging from Budweiser to Robert Mondavi to Smirnoff.

    [Shelf space assignments based on a planogram.* ~~ Bob]

    Instead, the plan, introduced late last year, calls for a privately held distributor, Southern Wine & Spirits, to oversee how much display brands get in the grocery aisles of the more than 2,600 Kroger stores in 29 states.

    It also asks the alcohol companies — not Kroger — to pay Southern for the service. Previously, manufacturers financed their own analysis. Southern said other retailers, some of whom have been inquiring about the program, could be included in the new arrangement. Southern declined to disclose which grocers asked about the program.

    Several large supermarket chains contacted for this article declined to comment or didn’t respond to a request from comment.

    Retail consultant Jim Hertel, senior vice president at Willard Bishop, a unit of Inmar Inc., said that if the program succeeds others may emulate it, especially large retailers such as Albertsons Cos., and Ahold NV and Delhaize Group, which are merging. “People will look at this, if it’s successful, and figure out if it’s something the industry rallies around,” Mr. Hertel said.

    The proposal has sparked a brouhaha between Kroger, which wants to simplify its system for managing the beer, wine and liquor section of its supermarkets, and the alcohol manufacturers, which would lose power and could incur new expenses.

    Kroger wants to be able to rearrange store shelves more frequently to reflect changing consumer tastes by adding fast-moving, new craft brands such as Not Your Father’s Root Beer, and making seasonal changes like shifting space in August from heavy Chardonnays to light Pinot Noirs.

    Kroger currently makes these changes up to twice a year, but it is executed inconsistently across its outlets. “Our goal is to better respond to customer needs and more quickly bring new, innovative adult beverages to market,” said Kroger spokesman Keith Dailey.

    The liquor, wine and beer industry prefer the existing system in which they have more direct say in shelf placement. This can significantly influence sales. They also object to the fact that, for the first time, the new system would ask the alcohol industry to pay quarterly fees based, in part, on how much volume a store carries.

    In a rare show of agreement across the alcohol industry, trade associations representing liquor, wine and beer, and several alcohol-distributor groups all sent letters to federal regulators last month questioning the legality of the Kroger plan. Prohibition-era laws ban alcohol manufacturers from giving retailers anything of value to keep them from marketing too aggressively.

    “It appears, among other things, to run afoul of the prohibitions related to providing items of value to a retailer,” wrote the Distilled Spirits Council of the United States and Wine Institute. The Alcohol and Tobacco Tax and Trade Bureau, which regulates the industry, said it is reviewing the matter.

    Brewers Association Director Paul Gatza, who represents craft brewers, say it is a “pay-to-play” system. If Kroger’s plan is approved, “what stops every other grocer from doing the same thing?” he asked. “Then it costs a lot of money to get on the shelves.”

    Craft brewers are especially wary. They fear the plan will cut into their margins and squeeze them off the shelf. “For a start-up company, good luck trying to get into Kroger with this plan,” Mr. Gatza said.

    A spokesman for Southern said the fees would be voluntary and are designed to offset the estimated $12 million it would cost annually to provide shelf-planning services for Kroger. He said manufacturers who don’t pay into the program wouldn’t be “adversely affected.”

    Mr. Dailey said the new plan is legal because the fees would be voluntary and would be paid to Southern, a distributor. He said Kroger wouldn’t profit from the program. “This absolutely is not an introduction of slotting fees,” he added.

    Southern said it would re-evaluate the program if no one, or too few, pay for the service. Kroger said it selected Southern partly because it believes the company could provide unbiased advice. It is unclear whether this was an open-bid process.

    Manufacturers of products such as peanut butter and toothpaste are accustomed to paying some supermarkets so-called “slotting fees” to stock new products.

    Securing approval for the program won’t be easy. In addition to the Alcohol and Tobacco Tax and Trade Bureau, Kroger and Southern also must ensure the program complies with state laws. In Ohio, the Division of Liquor Control last month said it believes the program would violate a state law banning manufacturers from providing something of value to retailers.

    Southern and Kroger plan to meet with Ohio regulators in the near future. Southern said the regulators didn’t have all the facts of the new plan.

    Kroger has the highest concentration of stores in some parts of the Midwest, the South, the Pacific Northwest and Southern California. It depends on state laws, but Kroger wants this change to apply to all stores.

    Kroger made similar changes to its shelf planning for other store sections such as coffee and cereal 4 1/2 years ago.

    Mr. Dailey said relying on one organization that isn’t a large manufacturer to analyze consumer data and recommend changes to shelves has yielded big benefits. Packaged food sales from the stores’ center aisles have increased at a time when other grocers are losing sales in that section to perishable foods sold on the perimeter, he explained.

    Packaged-goods manufacturers pay a mandatory fee to the independent organization planning the shelves in the rest of center of the store, Mr. Dailey said.

    Several large packaged food and household-care goods manufacturers contacted for this story declined to comment on their relationship with Kroger.

    [* ]

  3. Bob Henry says:

    Update on Kroger . . .

    From The Wall Street Journal
    (May 3, 2016, Page Unknown):

    “Kroger Drops Plan to Charge Alcohol Suppliers for Shelf Display;
    Craft brewers expressed concerns over a possible pay-to-play system that favored large brands”

    By Tripp Mickle
    Staff Reporter


    “Kroger Co. has dropped a controversial plan to charge alcohol suppliers for how it organizes beer, wine and liquor on store shelves.

    “Instead, it will pay a third-party provider to manage display space for alcohol beverage brands at more than 2,600 Kroger stores across 29 states.

    “The change comes less than three months after the Alcohol and Tobacco Tax and Trade Bureau, which regulates the industry, clarified its rules and threw the legality of Kroger’s initial plan into doubt.

    “Initially, Kroger wanted the alcohol industry to pay quarterly fees based, in part, on volume to Southern Wine & Spirits, which would handle shelf planning for the supermarket chain. However, prohibition-era laws designed to discourage aggressive marketing of alcohol ban manufacturers from giving retailers anything of value.

    “The Kroger plan met fierce opposition from alcohol producers who worried the fees would be illegal and costly. Craft brewers also expressed concerns that it would create a pay-to-play system that favored larger producers who could spend more on displays.”

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