The year 2017 was in some respects the worst year ever for the retail industry because it had a record number of announced store closings — at least 6,700 — and a large number of bankruptcies at major retail chains, including Toys ‘R’ Us. The trend of store closings continued in the first week of 2018 with the announcement of 114 Sears, Kmart, and Macy’s store closings.
Somehow, though, the grocery retail industry has mostly escaped the bad news. On the surface, the industry’s fortunes should be similar to the fortunes of clothes and electronics retailers, among others, because people can order food online rather than shop in stores just as they can order other products online. In fact, many business publications predicted in 2017 that the grocery retail industry could follow in the footsteps of department stores in 2018. Business Insider projected that the industry could be headed toward a “retail apocalypse.”
“The American grocery store has so far been mostly immune to the ravages of online shopping and the all around apocalyptic outlook facing the nation’s retailers,” reported Bloomberg. “But a war is coming to the staid supermarket, and that could mean more consolidation, bankruptcies, and falling prices.”
Will 2018 be the same kind of year for the grocery retail business that 2017 was for department stores, clothing retailers, and electronics retailers? Based on some statistics, the answer is “it’s very possible.” Based on other statistics, the answer is “no.”
Analysts who have negative forecasts for the grocery retail business point out that the industry has emulated other retailers in recent years by dramatically expanding the number of food stores, particularly discount stores, and dramatically reducing prices. The Businessweek article has charts that show the increase in stores in 2016 was at least three times higher than in any of the previous four years, the number of stores opened by three “dollar” chains has exploded since 2011, and the price deflation in the past two years is the highest since the 1950s.
In addition, Lidl, a German discount supermarket chain with 10,000 stores in Europe, opened its first U.S. store in 2017 and plans on opening dozens of others in 2018. Lidl’s German rival Aldi has ambitious expansion plans to compete with Lidl. A chart in the Business Insider story shows that Lidl, Aldi, Dollar Tree, Dollar General, and Family Dollar have less than 5 percent of the U.S. food retail market, but analysts expect that to increase. This could means more price drops.
Amazon’s acquisition of Whole Foods Market in 2017 and its plan for high-tech grocery stores that replace checkout lines with technology that enables customers to pay for food via their smartphones as they select products could also contribute to a possible “apocalypse” in the grocery retail industry.
The amount of retail space now devoted to food sales — 4.15 square feet person — is almost 30 times higher than it was in 1950 and is at a record high, but grocery sales are declining. Business Insider says this combination of supply exceeding demand as well as the lower prices were major factors in what happened at department, clothing, and electronics stores in 2017.
Online Growth Anticipated
Although there are many similarities between the overall retail business and the grocery retail business, there is one major difference — the percentage of online spending.
Online sales accounted for 11.7 percent of sales in the retail industry in 2016, reported Internet Retailer, which excluded cars and gas from its figures because they aren’t bought online. At the same time, only 3 percent of groceries were bought online, according to the market research firm Statista. The online sales percentage disparities are why e-commerce is less of a threat to grocery stores than department stores, reports Business Insider.
“Shoppers have been slow to migrate online for their grocery shopping needs,” the Business Insider article says. “Food accounts for less than 1 percent of total online sales in the US, according to a recent Goldman Sachs report.”
How long will Americans hesitate to buy grocery food online? Not long, according to Statista, which projects that 10 percent of grocery store sales will be online sales by 2020 and the online grocery store business will increase from $12 billion in 2016, the most recent year figures were available, to $29.7 billion in 2021.
Americans have dramatically changed their attitude toward shopping online for groceries in recent years. In 2013, 14 percent of retail transactions were “influenced by what the consumer had seen online,” reports a survey by Deloitte, a Big Four accounting firm. Less than four years later, digital experiences influenced 56 percent of purchases with groceries lagging only slight behind at 51 percent. This means that people are becoming more comfortable shopping for groceries online even if they haven’t yet increased their actual online buys by that much.
The ongoing trend toward more online shopping, Lidl’s plan to open dozens of stores, and Amazon’s plan for more high-tech/no-line stores are among the changes expected in the grocery retail business in 2018. Other projected changes include:
Tough Times For Kroger:
Kroger is the largest grocery store food chain in the U.S. It has 10.2 percent of the U.S. food retail market share. Walmart, which has 21.4 percent of the market share, is first in retail market share, but is not considered a grocery store food chain per se. Albertsons is third at 5.2 percent. Krogers had a 13-year streak of quarterly same-store sales increases from 2004-2017, but had declines in the latter quarters of 2017. Declining prices could hurt Kroger, whose prices are about 22 percent more expensive than Aldi’s prices.
More Shopping Trips:
The number of trips rose in 2016 for the first time in at least 10 years, Businessweek reported. The change in behavior means that Americans want more fresh food so they are shopping more and buying fewer items per trip.
Amazon’s growing involvement in the grocery retail industry has spurred food chains to improve their delivery service, reports the food industry publication FoodNavigator. A Dutch supermarket chain is making deliveries within two hours of orders being placed and is testing delivering food to downtown business districts within 15 minutes via bicycle couriers.
More “Curbside Pickups”:
Walmart has expanded its click-and-collect program, which lets customers pick up groceries at Walmart stores that they have ordered online. Walmart and Target also have what the industry calls a curbside pickup program that lets customers receive groceries they’ve ordered online in a designated parking area. The groceries are brought to their cars by store employees.
More In-Store Events:
Last year, Wealth Authority posted articles on how retail stores and toy stores had a better chance of success if they had in-store events. Forbes magazine reports that grocery store chains are also increasingly hosting events such as Food And Wine Fridays to boost business and encourage people to go to their stores.
The grocery retail business has been changing rapidly in the past few years. It might avoid an “apocalypse” in 2018 or any other future year, but there is no question that it will almost certainly continue to rapidly change in 2018 and beyond.