Shelf Talk: Future of grocery retail, Costco in China, private label growth, and bear taste testing

 Grocery Retail

Saving your grocery store: A long article on challenges in grocery retail -- and some ideas for solutions. And a long-ish summary follows. The story focuses on the effort at Illinois supermarket Niemann Foods to reimagine the grocery store, with help from LA design firm Shook Kelley.

The result was Harvest Market, which opened in 2016. It does what online grocers can’t do and what most conventional grocery stores can’t seem to do: Offer an enjoyable, fulfilling shopping experience for people who want to enjoy food.

A portion of the article talks about Shook Kelley’s challenge in “redirecting the attention of older male executives, scared of the future and yet stuck in their ways, to the things that really matter.” I agree that the industry’s emotional comfort with the status quo is a problem. It ignores the opportunity to create better shopping experiences. And a big part of that is the revolving door of the kinds of people who tend to run supermarkets -- executives who don’t look very much like the people who actually shop in their stores.

“For years, grocery stores never had to advertise, because the largest companies in the world — Proctor and Gamble, Coca-Cola, Nestle — did their advertising for them… People came to supermarkets to buy the foods they saw on TV. But Americans are falling out of love with legacy brands. They’re looking for something different, locality, a sense of novelty and adventure.” Kellogg’s and General Mills don’t have the pull they once had.

“When their sales flag, grocery sales do too — and the once-bulletproof alliance between food brands and supermarkets is splitting. For the past two years, the Grocery Manufacturers’ Association, an influential trade group representing the biggest food companies in the world, started to lose members. It began with Campbell’s Soup. Dean Foods, Mars, Tyson Foods, Unilever, Hershey Company, the Kraft Heinz Company, and others followed. That profound betrayal was a rude awakening: CPG companies don’t need grocery stores. They have Amazon. They can sell directly through their websites. They can launch their own pop-ups.”

Some elements of Niemann’s Harvest Market:

• Aisles are replaced with “perceptual rooms” “to draw customers through an implied sequence of actions, tempting them towards a specific purchase” leading customers to “zig-zag, meander, revisit”

• More prepared foods: Says Kevin Kelley of Shook Kelley, “I tell my clients, ‘In five years, you’re going to be in the restaurant business, or you’re going to be out of business.’” Harvest has a restaurant with 40 seats plus a bar and a simulated living room with board games. And a wine bar open until midnight.

• Creating emotional hooks: Rich Niemann, president and CEO of Niemann, runs a small cattle ranch, and is passionate about ranching and farming. They brought this emotion to the store. Harvest Market has vintage John Deere tractors outside the store, imagery of combines, in-store butter churning, and produce in wooden crates from local farmers who deliver directly to the store, eliminating distributors.

Ultimately, the goal is just “two more dollars per trip for every fifth customer -- that’s what victory looks like.” Or, an average of an extra $0.40 per trip might be enough to save brick and mortar grocery retail. (New Food Economy & Longreads)

Online grocery shopping continues to be rare. A new Gallup poll indicates only 19 percent ever buy groceries online, dropping to 11 percent who say they buy groceries online at least once a month. In 2017, the numbers were virtually the same: 16 percent buy online, and 9 percent at least once a month.  (Gallup, reported by Progressive Grocer)

But what is changing: meals away at home. Consumers now spend more than half (51 percent) of their dollars on food in restaurants. “There are two important drivers for the industry from a consumer perspective — convenience and socialization... Particularly looking at quick service, which has grown much more quickly than table service. There’s a greater focus on the off-premise market including carryout, drive-through, delivery, curbside and even food trucks.”
A similar trend happened when the economy was booming in the mid-00s, then reset after the 2008 financial crisis. Grocery retail should have a close eye on this. (CNBC, NRA, where R=Restaurant)

That's especially true because the “golden age of dining out in America” is ending. A new book by food journalist Keith Alexander explains why, pointing in part to oversaturation of restaurants, especially “fine casual dining.” “There are too many restaurants. There hasn’t been a recession since 2008, and a recession gets the people who aren’t serious out of the way. Austerity breeds creativity.”
(Article: WaPo, Book: Burn the Ice: The American Culinary Revolution and Its End)

 Private Label

Private label is growing, with its food sales up 7% in 2018 vs. 2013. Grocery retailers are outpacing Walmart on this front. In food in general, private label brands are growing 3x faster than national brands. In refrigerated, the multiple is stark: 22x. (Reuters)

“In 2018, sales of private-label brands at grocery stores, which would include places like Kroger and Publix, were $75 billion, up 1.5% from a year earlier. For online grocers, private brand sales surged an incredible 80.2% in 2018, the report said. At convenience stores, like 7-Eleven, they were up 12.5%.” (CNBC)

Target must have noticed this trend. Under its new Good & Gather brand, they are introducing 650 organic food products to its stores on September 15 and eventually over 2,000 products by the end of 2020. Consumers love Target for what they’ve brought to fashionable items under exclusive offerings, and Target has never quite gotten there with grocery. Perhaps this will change that. (Target)

“There’s room for growth in Target’s grocery department, which currently accounts for 20% of its sales. Good & Gather is capitalizing on the trend of retailers developing their own food brands to attract younger customers, and keeping things in-house can cut back on the cost of stocking more established names. It seems to be working: 

• Kroger’s in-house brands generated $22 billion, or 18% of its total revenue, last year. 

• Albertsons said its private label food items made up about 25% of 2018 sales. 

• Nielsen reports that private label foods are growing faster year-over-year than CPG giants like Heinz and Conagra.”

(WSJ $, summarized by Retail Brew)

 Costco

Welcome to China: Costco shoppers in Shanghai are laughing at trade wars alongside 50 pound sacks of flour and 8 foot tall teddy bears. Demand was incredibly high: “The crush forced Costco to shut its doors just after 1 p.m., eight hours earlier than scheduled. A phalanx of police and security guards blocked people from entering, and some were still trying to get in as a light rain began falling at dusk.” People waited 3 hours for parking spots.

“‘Only exit, no entrance!’ a bullhorn blared in a looped recording. The local police issued a bulletin admonishing residents to ‘avoid going’ to Costco, along with photos of officers closing an adjacent road. As the sun set, a group of police officers could be heard telling a Costco executive how to manage crowds.” (WSJ $)

“Costco’s looking to sail around the $75 billion in retaliatory tariffs on U.S. imports Beijing announced last week. The retailer plans to substitute some Australian produce for similar products from the U.S. About 50% of its merchandise for the China store will need to be sourced from outside of the country.” (Retail Brew)

Also, video from inside the store: Twitter.

In case you were wondering, it cost Costco $80M to open a new warehouse (2013), despite being deceptively simple. And new stores average under $100M in revenue during their first year of operation, with revenue ramping up over time, averaging $173M per year for its oldest stores. (Motley Fool)

And, of course, you can buy interesting, huge things there. For example, this 72 pound wheel of cheese for $900. (It’s only $12.50/pound.) (CNN, item page at Costco)  

🎲 Unrelated but interesting/funny

Bear honey testing. A bear kept raiding an agricultural engineer’s stash of honey. So he “used this bear's night raids as a test to determine which type of honey was the best. In multiple, double-blind trials, ‘Big boy’ always preferred the rare, expensive anzer honey; followed closely by chestnut, flower, and pine-wood honey.” (Photo & discussion: Reddit, Video (in Turkish,) I think: YouTube)
 

Have a great weekend, and until next time,
Scott Sanders