Despite Overstoring, Deflation, ShopRite Still Rules $98B Market

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It was the most rugged year in recent memory for most of the 76 multi-store retailers that competed in the highly overstored $95.73 billion Food Trade News market. While the competitive climate remained at a fierce level, the biggest negative impact came from deflation which primarily was felt in lower commodity prices in milk, eggs and meat. Milk, in particular was impacted by lower wholesale pricing, but also significant price cuts made by certain retailers featuring their products at below wholesale price levels. Deflation was also the primary cause for the smallest level of increase in overall grocery spending (by dollars) since we began publishing market studies in 1979.

And for an extra bitter pill, food retailers with stores in Philadelphia suffered sales declines of as much as seven percent because of the city’s 1.5 cents per ounce beverage tax on sweetened and diet drinks which took effect on January 1.

Typically, if you were a retailer whose store counts remained the same as last year, you were likely looking at identical stores sales of between negative 0.5-1.5 for the 12-month period ended March 31, 2017.

“It’s the most unpredictable food retailing climate we’ve seen since the 2008 recession,” said an executive at one of the Mid-Atlantic’s largest chains. “Virtually all of the Mid-Atlantic marketing areas are overstored with a diversity of retail choices giving consumers plenty of options. As a traditional supermarket operator, we’ve been slower than other channels to gain appeal to a changing consumer profile that includes millennials and Gen-Y shoppers. And even though the impact of Amazon may still be small and hard to measure in the food sector, I think all merchants know that Amazon’s share is growing annually and will continue to increase. The pressure on being a conventional chain has never been so significant.”

The intensity isn’t likely to lessen in the near future either, with Lidl ready to open approximately 50 stores beginning later this year in Delaware, New Jersey and Pennsylvania alone when its northernmost distribution center in Cecil County, MD is completed. The German discounter made its U.S. debut on June 15 when it opened 10 stores in Virginia, North Carolina and South Carolina. All told, Lidl expects to have about 100 stores open in an eight-state area ranging from New Jersey to Georgia within the next 12 months.

Of course, there were a few merchants that made sales progress during the past year by either increasing same store sales or acquiring other retailers to expand their bases. Lidl’s chief rival Aldi opened 11 stores in the market during the 12-month period ended March 31, 2017 and continued to make significant gains in the discount channel. Weis Markets also had a solid year in upping its ID sales, while adding to its corporate roster, the majority of which stores were located in Maryland and Virginia (out of the Food Trade News region)

Others that enjoyed modest sales increases either through the addition of new stores or solid same store sales gains included market leader ShopRite, Costco, Trader Joe’s, Key Food and Wal-Mart. Additionally, CVS had a strong year of revenue growth, primarily by taking control of Target’s 147 pharmacies in the region.

Some retailers felt the cold slap of market reality. Acme’s ID sales languished, particularly in Northern New Jersey, as it continued to tackle difficult challenges related to its 2015 purchase of more than 70 former A&P stores. Fairway Market, which got a semi-fresh start last July after exiting bankruptcy, failed to regain in previous funky mojo and also found the competitive climate daunting. Another organization, whose core business is centered around the five boroughs of New York City, Associated Stores Group (ASG), once again showed a decline in its independent retailer base and saw its overall volume drop. The good news for Whole Foods – it opened six new stores in the 70-county region; however, its recent trend of negative ID sales continued. Better news may be forthcoming with the announcement that Amazon will be acquiring the Austin, TX-based retailer. That earthquake-like news is almost certain to create major changes at WFM beginning next near. Target also struggled with same store revenue and lost total sales when it sold its in-store pharmacy business to CVS.

One more dose of reality to ingest: of the 296 A&P stores that were put for auction in October 2015, about 60 percent of those supermarkets were acquired by retailers that sell food. Most of those stores were reopened during last year’s market study which ended on March 31, 2016 and many were challenged to significantly surpass A&P’s individual store volumes during its near end-stage of existence (6-12 month before bankruptcy). This year approximately 20 more former Tea Company stores reopened as supermarkets (most notably ShopRite units in the Philadelphia area and on Long Island).

So what’s the takeaway? Except for ShopRite, Uncle Giuseppe’s and an additional handful of former A&P stores acquired by independents, almost all the other buyers have noted they did not achieve the sales bump they were expecting.

And where did those sales “disappear” to? The consensus of merchants in the Metro New York and Delaware Valley Markets believe that much of that volume had already shifted to other existing operators before A&P’s official exit. Additionally, most retailers sought a quick turnaround, reopening in poor to mediocre conditions coupled with having to hire former A&P associates (where the culture and store conditions had been eroding for years); that often meant the acquiring merchant did not offer enough of a perceived upgrade to steer those displaced consumers back to the A&P locations where they had once shopped.

Our annual retail market survey measures sales for the 12-month period ended March 31, 2017 and covers a 70-county territory ranging from Litchfield County, CT to Cape May County, NJ on a north-south plane and from New Haven County, CT to Franklin County, PA on an east-west plane.