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Monday, December 11, 2023

Supermarkets headed for the waste bin

Supermarkets that once held the hearts and wallets of American shoppers are fast losing their market.

Supermarkets that once held the hearts and wallets of American shoppers are fast losing their market.

With giant discounters like Wal-Mart now competing with supermarkets in food purchases, the U.S. Department of Agriculture says shopping habits of Americans are rapidly changing.

Traditional supermarkets that dominated the market with 90 percent of at-home food purchases in the 1990s have slipped below 69 percent, the USDA’s economic research unit says.

The most startling change came in the last six years, as Wal-Mart launched its new “Supercenters” that offer aisles of groceries along with traditional merchandise. The chain, which began offering food at its stores only in 1988, now claims about 11 percent of all U.S. purchases for food eaten at home, the agency said.

Richard George, a professor of food marketing at St. Joseph’s University in Philadelphia, said supermarkets are going through a similar shakeout as that experienced by department stores and need to revise their business strategy quickly, or lose even more customers.

George said years of no significant competition made the supermarkets too confident and they ignored the needs of their customers. “There was a little bit of complacency,” he said. “They used to say, ‘Well, people have to eat.”’

As the big box stores siphon customers, he said, supermarkets now have to find a niche in providing services or products that Wal-Mart doesn’t carry. “Wal-Mart has done a good job in election and price of its products, and it’s hard for Winn Dixie or these other supermarkets to do a better job on price,” he said.

Art Turock, a supermarket consultant based in Kirkland, Wash., said conventional supermarkets face a “death spiral” if they continue with business plans that concentrate only on their traditional selling points of low prices, fresh quality for perishables, and the variety of assortment. Today’s shopper is more likely to go to the supermarket for a specific purchase rather than stocking up for the week and wants an edited assortment of choice products. He said some surveys even indicate freshness isn’t necessarily a disqualifier for stores people pick.

“Supermarkets that are highly differentiated are going to do OK,” he said, contending supermarkets need to come up with new business plans to define their customers and change their stores to meet their needs. “It’s not too late, but they’ve got to be bold at this point,” he said. “If they stay conventional, they will be bled to death.”

Turock said the supermarket industry didn’t react quickly enough to the challenges Wal-Mart and other non-traditional stores posed, and only now are realizing how much business they have lost. Supermarkets didn’t think customers would be attracted to big box stores that paid little attention to merchandizing and didn’t display produce like supermarkets.

But the industry today is waking up to the threat, as market shares and customer trips to the store have both declined. “There’s been a lot of denial, and misunderstanding on how to respond,” he said.

Some supermarkets are fighting back. New York-based Wegman’s offers customers “great meals made easy” with meals for dinner partially prepared or fully cooked. Ranch Market in Arizona is appealing to Hispanic shoppers, while Ukrops based in Richmond, Va., has installed YMCA-style gyms and wellness centers in its food stores.

Some independent supermarkets may not survive. Forrester Research predicts that the food market share of independent retailers will drop from the current level of 18 percent to 10 percent by 2010.

Wal-Mart isn’t slowing down on its plans to take even more of the market.

Wal-Mart spokesman Marty Heires says the chain plans to add another 8 percent of floor space to its U.S. “footprint,” next year and is working on plans to open another 270 to 280 Wal-Mart Supercenters in 2006.

Of Wal-Mart’s 3,799 stores in the United States, 1,914 are Wal-Mart Supercenters. The company also plans to add from 15 to 20 stores to the 96 Wal-Mart Neighborhood Markets, which are typically smaller modeled on traditional supermarkets selling largely groceries.

What the USDA calls non-traditional stores _ mainly Wal-Mart, Target and Cosco _ have sparked price wars in some areas. USDA said its nationwide sampling of prices paid by households shows that shoppers save from 5 percent to 25 percent on the cost of dairy products and other food at the big-box stores, and the shift toward shopping at discount stores helps explain a moderate 3 percent increase annually in consumer prices over the last 20 years.

Labor unions and community groups, who are fighting Wal-Mart’s expansion plans, contend taxpayers are picking up some of the cost-savings because Wal-Mart isn’t paying good wages and health benefits to its employees. The opponents contend Wal-Mart is replacing supermarket jobs that pay an average of $16 an hour in wages and health care benefits, with jobs that pay an average of $9.68 an hour.

“For every new supercenter, two supermarkets will close,” said Nu Wexler, spokesman for Wal-Mart Watch, an anti-Wal-Mart group launched in April and financed by groups including the Service Employees International Union and the Sierra Club. “It’s what is called the Wal-Mart effect _ their presence just drives out the competition.”

“The grocery battle isn’t over,” Wexler said, noting that groups are fighting Wal-Mart expansion plans in several communities across the country.

(Contact Lance Gay at GayL(at)