Taking Stock

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40 Years Later – What A Short, Sweet Ride It’s Been

Favorite bands/singers, 1978: Rolling Stones, Grateful Dead, The Beatles, Bob Dylan, The Band, Bruce Springsteen, Gram Parsons. Favorite bands/singers, 2018: Rolling Stones, Grateful Dead, The Beatles, The Band, Bruce Springsteen, Gram Parsons and a few newer artists such as Dawes and the Avett Brothers. Favorite foods, 1978 – salmon, turkey, Texas barbecue and Chinese food. Favorite foods, 2018 – salmon, turkey and Texas barbecue (although not very often anymore, and Chinese food has been eliminated). I’ve also learned to love most seafood (although not sushi) and to also eat more chicken and veggies.

So, I’ve evolved – kind of. The grocery industry has also evolved – kind of, too.

For the past 40 years, twice a month I’ve written this column which has tried to deliver a combination of news, opinion and humor in a different type of format which hopefully captures the key events of our marketplace which began with Baltimore-Washington and Philadelphia and has now expanded throughout the Northeast and parts of the Southeast.

Yes, there has been tremendous change during the course of those 960 editions, and the rate of evolution continues to advance more quickly than ever. But, fundamentally, has the industry really changed that much?

In the 1980s we devoted a lot of space to the rapid growth and penetration of club stores; in the 90s, the combination of Walmart’s clout and Wall Street’s emerging presence in the grocery business (Wal[l] Street sandwich) created tremendous pressure on the overall business; in the 2000s, more penetration from alternate channel retailers (dollar stores, drug chains, mass merchants) using groceries as a spearhead created significant overstoring in most markets by merchants that operated with many differentiated styles. Over the past decade, the use and application of technology has exploded and now it’s imperative that all retailers deploy a digital/ecommerce component if they want to survive.

But at the root of survival is attention to fundamentals. And, then, to what level you can execute and ultimately sustain. I read with great interest the comments made by retiring Ahold Delhaize CEO Dick Boer at the company’s annual meeting earlier this month when he told shareholders that “some people say that they do not see a future for physical stores. I totally disagree with this. Because stores still matter – and that will be the case in the future, too.”

I’ve disagreed with many of Boer’s philosophies over the past few years – most of them regarding his company’s “process first, people second” go to market approach. But, in this case, he nailed it. While ecommerce sales may spike to 20 percent of the total food pie by 2025 (I believe this is optimistic, but possible), stores are always going to be the centerpiece for purchasing food. Traditional bricks & mortar retailers may have joined the party a bit late, but those that can afford to and are interested in survival and future prosperity, are combining their physical stores with their emerging digital acumen to offer “click & collect,” and meal solutions options in their stores.

Of course, it would be naive to think that retail diversification, advanced technology and generational shifts/changing shopping patterns are not important factors. Certainly, they are; but at the end of the day, consumers still want convenience, price and service – something that hasn’t changed since Michael J. Cullen founded King Kullen in 1930.

In our marketing area, which retailers consistently score the best, not only by best executing the core fundamentals of the business (clean stores, in-stock conditions, trained and friendly associates), but also in offering the customer a clear point of difference (price, variety, convenience/ease of ordering)?

In my opinion, those larger merchants that have the highest batting averages because they’ve more skillfully checked off the most boxes (and in no particular order) are: Wegmans, Kroger (Harris Teeter), ShopRite, Whole Foods, Costco, Trader Joe’s, Aldi, Wawa, Walmart and Amazon. Others like the Ahold Delhaize USA, Albertsons, Weis, BJ’s, and Target have the potential to reach that upper echelon but fall short in certain key areas.

Entries on my leaderboard (except for Walmart whose price image is overwhelmingly dominant) all share a common component: consumers are satisfied with, and in some cases, enjoy the transactional experience in those stores. And by successfully executing the fundamentals, all of those operators continue to reap the benefits of continued year-on-year sales growth and better loyalty than most of their peers. As diverse as the retailers on my list may be – and there’s a huge difference between visiting the service seafood department at Wegmans and ordering a case of diapers from Amazon – the takeaway experience is very similar: consumers feel like their choices have been rewarded with a positive experience.

As uncertain as these times are for many traditional retailers, they should be reminded that things really do change. Wall Street (private equity) has virtually exited the business. The last major PE industry deal was in 2016 when The Fresh Market was sold to Apollo Global and that deal hasn’t reaped much yet. Lone Star Funds, the king of bankruptcy, saw its supermarket entity – Southeastern Grocers – go the Chapter 11 route last month. And after 12 years, it seems like Cerberus Capital will finally become unencumbered from Albertsons later this year when the Boise, ID chain merges with Rite Aid and goes public.

Even Walmart went through challenging times over a five-year period (2011-2016) when other retailers learned how to better compete against the discounter’s price model and the Bentonville Behemoth continually shot itself in the foot by executing poorly at store level and becoming entangled in too many legal issues.

And the industry will continue to evolve. How many meal solutions companies can survive? How many grocery delivery firms will be able to compete effectively in the long-term with Amazon and an aggressive growth plan from Walmart/jet.com? Soon there will be two drug chains nationally, not three. Will Sam’s Club be around in five years?

Clearly there’s a place for the traditional grocer that operates 50,000 square foot stores and can execute those aforementioned fundamentals at a high level. The more important questions might center on whether other factors will create a derailment. Does the traditional grocer, especially those that operate regional chains or independents, have the capital to invest for future needs? Along with capital, how quickly can that merchant adapt to the swiftly changing technological landscape? And finally (and this applies more to independent retailers and other small chains), do they still have the energy and mettle to want to play in an increasingly competitive and expensive arena? And in the case of family-owned companies, is there a next generation interested in and/or capable of assuming leadership?

While it’s easy to get caught in the hype of cynicism or negativity given the intense competitive landscape and fear of ecommerce hijacking grocery shopping, there will always be a place – and a significant one – for the traditional supermarket to exist and thrive.

As Dick Boer said, “Stores still matter.” And people do, too.

It’s what’s kept and what continues to keep this industry so great and has made my 40-year journey so enjoyable!