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Disruption in the Grocery Industry:
Millennials, New Formats and Partnerships
The grocery industry in the U.S. is changing dramatically. In the past, a single store could serve all shoppers’ food, beverage and daily shopping needs. Now consumers are buying groceries from more diverse channels. Thus, supermarkets are starting to look more like restaurants. Discount stores are looking more like supermarkets. Why is this happening now? The demographics in our country are changing, and changing fast. Grocers are starting to introduce newer formats within their own stores and forge new partnerships in order to cater to the new consumer.
The baby boomers long reign over American demographics has finally come to an end. Millennials have officially surpassed baby boomers as the largest living generation in the U.S. according to new population estimates released earlier this month by the U.S. Census Bureau and Pew Research Center. Millennials, defined as those born between the mid 1980’s and early 2000s, now account for 75.4 million of the total U.S. population. Millennials represent an overall majority of consumers in the U.S., which amounts to about 25% of the total population, and now have around $1.7 trillion in annual spending power.*
Why is this generational shift important for the food and beverage sector, especially the grocery industry? This particular group of 18 to 34 years olds possesses shopping and eating behaviors that are very different from previous generations. When dealing with food and beverage, Millennials are making healthier choices, though many also have impulsive and adventurous spending habits. The influence of new technology, and how it has been integrated into our society, can be seen as one of the major factors in this behavior. Millennials are active and connected shoppers. More than 70% of Millennials use their mobile devices while shopping, providing retailers an opportunity to connect with them via mobile commerce. In the Hartman’s Group’s Food Shopping report, “Millennials use their mobile devices to consult a shopping list, call, text or email someone in the household, search for coupons, find recipes or research price, products and brands.” They are also leading the way in favoring natural and organic ingredients, products that are locally sourced and those free of GMO’s (genetically modified organisms). This explains why Millennials tend to take a more mature approach to evaluating foods and are less swayed by traditional marketing and advertising. Also, new flavors and ingredients linking global cuisines are of high significance to Millennials, which is driven by their ethnic diversity and their instant access to information.
“More than 70% of Millennials use their mobile devices while shopping”
So how are grocers across the U.S. adjusting to this new consumer base and new purchasing power that comes with it? Food retailers are bridging the gap through hospitality, reinvention and partnerships. Despite the prevalence of technology, consumers still demand hospitality. Danny Meyer, CEO of Union Square Hospitality Group and founder of Shake Shack adds “The more high tech we get, the more ‘high touch’ people crave.” Writing reviews on Yelp is a good example. Grocers such as, Publix, Trader Joe’s, and Wegmans provide world class customer service, which is why so many people put them at the top of their list in consumer reports and supermarket surveys. Customer service is important, however, retailers must also be prepared to either redefine themselves or accept their irrelevancy. For example, the New York grocery chain, Fairway Market, filed for bankruptcy this past week. Fairway stores are known for a variety of unique offerings emphasizing fresh foods and great service. But due to increased competition from the specialty stores and evolving conventional stores, Fairway was unable to maintain enough of the consumer base to continue operating. Comparatively, Whole Foods, one of the most progressive companies in America, appears to constantly reinvent itself. Its new chain of stores, called “365”, will open its first location next month on the west coast. “365 by Whole Foods will be competing directly on price with Trader Joe’s, Kroger, Sprouts, and other similar stores”, said Jeff Turnas, president of the new chain. In order to offer lower prices, Whole Foods has developed a lower cost structure to deliver redesigned buildings and furnishings. The store will be absent of printed signs and price tags will be digital, enabling the company to make price changes quickly and efficiently. 365 will offer other perks to customers such as communal areas to enjoy craft beer and coffee. They will also offer a rewards program that gives customers free merchandise based on past buying behavior.
“The more high tech we get, the more ‘high touch’ people crave.” ~ Danny Meyer
Larger format supermarkets in the past have had problems competing with the natural, organic food movement; however, grocers such as Kroger are now challenging those specialty retailers. Kroger determined that to directly compete with Trader Joe’s and Whole Foods it would need to seek a partnership with a legitimate retailer in the specialty grocery market. Last April, Kroger Co. forged a “strategic partnership” with Boulder, Colo. – based grocer Lucky’s Market. Kroger officials said “the partnership, which closed April 1st, is designed to further enhance the best products, practices, and techniques of Lucky’s Market, combining them with the Cincinnati-based retailers scale and experience to generate more benefits for customers.” The leadership at Lucky’s Market realized that in order to accomplish their own goals and aspirations as a company they would need a partnership with a company such as Kroger. Co-founder and CEO of Lucky’s Market called the decision with Kroger “a meaningful investment in Lucky’s, which will significantly accelerate Lucky’s Market’s growth in new and existing markets.” The Lucky’s acquisition will be Kroger’s first affiliation with an independent natural food chain. This in turn will provide Kroger an effective weapon to compete within this consumer space.
The food retailing industry has seen major changes recently and will continue to do so as the new generation of Millennials progressively dominate the economy. Grocers must be able to adapt. Moving forward into the future, the grocers that will be most successful will be those that create a business plan that is strategically dynamic and able to shift with the consumer.
“Whole Foods’ new stores are unrecognizable”. by Hayley Peterson, Business Insider, 28 April, 2016 [link]
“Millennials in the grocery store: Are they really that much different from older generations?”. by Laurie Demeritt, Supermarket News, March 8th 2016 [link]
“Millennials” Pew Research Center [link] & US Census Bureau [link]
|Grocery||2016 New Stores||Areas of Expansion|
|Aldi||100-150||AZ, NM,OR, CA, WA Southeast, VA|
|Save-A-Lot||60-70||CA, FL, IL, LA, NJ, PA|
|Walmart Neighborhood Market||180-200||AR, CA, CO, FL, GA, KS, LA, NH, NJ, NC, SC, TN, TX|
|Aldi||100-150||AZ, CA, NM, TX, OR, WA|
|Kroger||50||TX, GA, IL, KY, MS, OH, TN|
|Whole Foods & 365||30||CA, TX, OR|
|Publix||30-35||FL, AL, GA, SC, NC, TN|
|Sprouts||30||AL, CA, GA, TN|
|Grocery Outlet||25||CA, NV, OR, WA|
|Trader Joes||20-30||CA, FL, TX, AL, MD, PA|
|Smart & Final|