Row of shopping carts outside a grocery store
Photo: Unsplash

A recent Wall Street Journal article concluded that traditional supermarkets have to find a point of differentiation fast or they’ll continue to lose ground to more price-driven competitors.

Jinjoo Lee, the WSJ’s Heard on the Street columnist, noted that according to the U.S. Department of Agriculture, supermarkets and smaller-format grocers accounted for about a quarter of Americans’ total food spending in 2022, down from about 37% of Americans’ total food spending in 1997.

Warehouse clubs and supercenters gained significant grocery dollars over that period. In recent years, aggressive share gains have been captured by discount grocers, such as Aldi, and dollar stores that emphasize value, as well as online players like Amazon that play up convenience.

Lee noted that traditional grocers have long struggled in center aisle categories where they compete directly on price against the same brands sold by their larger competitors. Meanwhile, Walmart, Costco, Aldi, and Dollar General have all elevated their fresh assortments in recent years. Lee concluded that supermarket chains need “clear differentiators, not incremental ones.”

Walmart controlled 25.2% of U.S. grocery share in 2022, followed in the top five by Costco (7.1%), Kroger (5.6%), Sam’s Club (4.7%), and Publix (4.4%), according to Chain Store Guide.

Walmart and Costco are seen benefiting from one-stop shopping appeal as well as low prices.

Club retailers like Sam’s Club, Costco, and BJ’s are also positioned to gain grocery share in part due to their membership model, according to a report by CFRA Research analyst Arun Sundaram, reported Winsight Grocery Business. Sundaram wrote in the report, “The membership model at warehouse clubs fosters strong customer loyalty, which is challenging for traditional grocers to replicate when competing with numerous other traditional grocers in the same area.”

Discount grocers such as Aldi, Lidl, and Grocery Outlet are expected to outpace the grocery growth overall due to their compelling private labels and aggressive expansion plans, according to a report from Coresight Research. The Coresight report suggests that traditional grocers offer discounts to loyal customers, invest in their own private labels, and lean into online offerings.

BrainTrust

“How many department stores and grocery stores look and feel EXACTLY the same as they did 30-40 years ago? Differentiation lies in service, quality and experience.”

Jeff Sward

Founding Partner, Merchandising Metrics


“Grocery needs to concentrate on perimeter sales with the adjacent services that make them appealing to shop at.”

Ananda Chakravarty

Vice President, Research at IDC


“Traditional supermarkets were designed for an era when the vast majority of Americans undertook big weekly, in-person shops…our shopping habits are now more fragmented.”

Neil Saunders

Managing Director, GlobalData

Discussion Questions

DISCUSSION QUESTIONS: What “clear differentiators” should traditional grocers be emphasizing to better differentiate themselves against big-box retailers, discount grocers, dollar stores, and other newer competitors? Where do you see their biggest challenges competitively?

Poll

What’s the likelihood that traditional supermarkets will continue to lose share in the grocery channel over the next five years?

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16 responses to “Can Traditional Grocers Reverse Their Share Losses?”

  1. Neil Saunders Avatar
    Neil Saunders

    Large, traditional supermarkets were designed for an era when the vast majority of Americans undertook big weekly, in-person shops. Some still do, but our shopping habits are now more fragmented, and our needs more disparate. To respond to this a whole range of different formats have cropped up from dollar stores to value supermarkets to club stores. That’s good for the consumer, but not for traditional supermarkets which have lost ground. However, supermarkets have only themselves to blame. With a few notable exceptions, American supermarkets are not particularly innovative nor are they inspiring places to shop. There is a lack of investment and thinking. Compared to UK grocers like Tesco, which has been on the front foot in terms of store format development and range innovation, US grocers are a long way behind. 

  2. Lucille DeHart Avatar
    Lucille DeHart

    This mirrors the discussion around how malls compete with the internet about 15 years ago. Grocers were the original retail innovators with dayparting merchandising, impulse displays, basket-driven add on items, register coupons, digital pricing signs, smart carts and more. Their brand offerings, presentations and tech integration is the way forward. Daily dinner emails with a break out of recipie items, proprietary chef brands, ready made lunch, snack and meal to go services, party-themed catering and more are all differentiators. It’s time to think out of the BIG box.

  3. Ken Morris Avatar
    Ken Morris

    The way to compete is to look to a model like Publix. They emphasize prepared foods like fried and rotisserie chicken, submarine sandwiches and excellent produce. They also have an organization model of employee ownership that changes the way their employees approach their job. They act like owners and not just employees which is a total game changer. Also, it doesn’t hurt that they build a new location on every other corner, once a week.

    Another way to compete: differentiate through data. Traditional grocers need to understand their customers in a way that membership and dollar chains can’t. They could do this through SKU-level data that helps place merchandise in the most profitable areas of their stores. And by stores, I mean possibly different placement for each location. Grocers with the flexibility to make adjustments store by store will gain an advantage over huge chains that run solely from HQ. Look at video analytics, AI, and improved interactions with customers for ways to accomplish this.

  4. Dr. Stephen Needel Avatar
    Dr. Stephen Needel

    Two thoughts – first is that Walmart IS a traditional grocer and failing to treat them like one is a fundamental mistake (and I’ve been making this point since back in the 90s when I first met Rick and Al). They differentiated themselves from other grocers based on price. Second, as Ken says, the Publix model of service, deli, and prepared foods may be a great differentiator from other store models. And if Lorin Drake is reading, Publix seems to do it better than anyone else in the South.

  5. Ananda Chakravarty Avatar
    Ananda Chakravarty

    Consumers buy their food from many places. It’s never one stop. However, the challenge isn’t so much the dollar stores and big box grocers that are chipping away as it is restaurants and the revitalization of the travel industry since the pandemic. Grocery needs to concentrate on perimeter sales with the adjacent services that make them appealing to shop at. When your deli guy knows what you want ahead of time or your baker has your fresh rolls right out of the oven, consumers will come back for more- and buy other items along the way. Grocers need to capitalize on their strengths and these will gift them with a differentiating experience. I can always pick up my soda and chips at the nearest convenience store, gas station, dollar store or even hardware store nowadays…

  6. Jeff Sward Avatar
    Jeff Sward

    Funny how “traditional grocery stores” and “traditional department stores” are interchangeable in this conversation. And the lack of evolution in both cases is remarkable. How many department stores and grocery stores look and feel EXACTLY the same as they did 30-40 years ago? Differentiation lies in service, quality and experience. It does not have to be an all or nothing proposition. Traditional grocery stores can choose to compete on price in some categories (center aisle) but still offer higher margin and more expensive product in other categories (anything fresh). Whole Foods is more price competitive than they used to be. They also offer a range of product that is a tier above in both quality and price than other grocers. They may not be growing robustly, but they have a role. The boring middle may not ever rise to the level of remarkable, but they can at least be interesting.

    1. Gene Detroyer Avatar
      Gene Detroyer

      Yes, lack of evolution is the problem. But, it is not just related to grocery and department stores. It is related to almost every industry. The problem is successful companies tend to embrace their success, and the way they got there long after it is not successful anymore. Legacy assets, organizations, and mindsets are the killers.

  7. Gene Detroyer Avatar
    Gene Detroyer

    If traditional grocers did what was necessary to hold shares, they would no longer be traditional grocers. As Neil notes, shopping is differnet today. It is because people have differnet priorities and many alternatives are available. Today shoppers utilize an average of almost five food grocery alternatives. It is certainly not your mother’s shopping trip.

    People use multiple banners to fit their needs. For us, Trader Joe’s, Whole Foods, and a close-by traditional supermarket are where we go. And don’t forget Fresh Direct and even regular Amazon for non-food grocery basics.

  8. Matthew Pavich Avatar
    Matthew Pavich

    Yes – traditional grocers can gain back some share loss, but there will be some winners and a lot of losers in the process. As others have stated, the key will be to differentiate and to offer something that doesn’t exist ‘in the bland middle’ as consumers will continue to shift both upwards and downwards. We’ll also see more M&A which will consolidate some power among fewer, more robust competitors. Finally, grocers have a say in their own future and the ones making the best investments to become tomorrow’s winners are more likely to thrive and survive than those who are not thinking ahead or investing in the most advanced capabilities.

    1. Gene Detroyer Avatar
      Gene Detroyer

      Yes, we will see more M&A (Kroger & Albertson). That is a sure sign that that part of the industry is on the downside of the Product Life Cycle.

  9. Doug Garnett Avatar
    Doug Garnett

    The world is changing. Each market needs to study its particulars and specifics in order to fund its own unique way to offer something important enough to customers that they’ll choose to shop in their store. Many markets are able to do this with shelves stocked with carefully and wisely curated assortment. Some have specially prepared goods. The biggest weakness in their competition, though, comes in locality. So what uniqueness in the community can be leveraged and give them a significant advantage. (As a caution, don’t thin “Shop Local” campaigns will do this.)

  10. Mark Self Avatar
    Mark Self

    large tradition supermarkets are boring. Always have been, always will be. With Wal Mart and others undercutting them, I do not see this “ship” being righted. More share loss to follow.

  11. John Karolefski Avatar
    John Karolefski

    It’s probably a losing battle because shopping has changed and price nowadays is ultra important. However, traditional grocers can minimize share loses by offering shoppers
    outstanding customer service and the best produce department in their area.

  12. Craig Sundstrom Avatar
    Craig Sundstrom

    As difficult as it can be, at times, to differentiate yourself against a competitor, that’s nothing compared to trying to differentiate yourself from ALL competitors. Can a company somehow offer a store that offers an intimate, big-box, low price, full service experience?? No. As much as it’s criticized, I still think the best approach is refining what they have now; “success” will not be measured in share gains, but in minimizing share losses.

  13. Richard J. George, Ph.D. Avatar
    Richard J. George, Ph.D.

    Since Michael Cullen opened America’s first supermarket, King Kullen, almost a century ago, traditional supermarkets have trained their customers that price was the key trading variable. Unfortunately, their focus on price with no other significant differential advantage, has left them in the crosshairs of a variety of divergent competitors.

    To successfully compete they need innovation, real differential advantage & a bonafide internet (including delivery) offering.

  14. Brad Halverson Avatar
    Brad Halverson

    Operating in the grocery middle is even more pressure filled. Being everything grocery to most shoppers is difficult because building true loyalty with your customer segments over the long-haul is not only challenging or expensive, but can be seen as disingenuous to both your price sensitive shoppers and quality shoppers.

    Traditional grocery stores are better served executing well in whatever camp their trade area dictates for the highest revenue, profit upside and marketshare. If being more price focused in one community is the answer, then prove it to customers, design your stores and merchandise your products accordingly with signage. If it’s better quality in another community, then highlight your better products, design your store as more experiential to give customers something more.

16 Comments
oldest
newest
Neil Saunders
Neil Saunders
7 days ago

Large, traditional supermarkets were designed for an era when the vast majority of Americans undertook big weekly, in-person shops. Some still do, but our shopping habits are now more fragmented, and our needs more disparate. To respond to this a whole range of different formats have cropped up from dollar stores to value supermarkets to club stores. That’s good for the consumer, but not for traditional supermarkets which have lost ground. However, supermarkets have only themselves to blame. With a few notable exceptions, American supermarkets are not particularly innovative nor are they inspiring places to shop. There is a lack of investment and thinking. Compared to UK grocers like Tesco, which has been on the front foot in terms of store format development and range innovation, US grocers are a long way behind. 

Lucille DeHart
Lucille DeHart
7 days ago

This mirrors the discussion around how malls compete with the internet about 15 years ago. Grocers were the original retail innovators with dayparting merchandising, impulse displays, basket-driven add on items, register coupons, digital pricing signs, smart carts and more. Their brand offerings, presentations and tech integration is the way forward. Daily dinner emails with a break out of recipie items, proprietary chef brands, ready made lunch, snack and meal to go services, party-themed catering and more are all differentiators. It’s time to think out of the BIG box.

Ken Morris
Ken Morris
7 days ago

The way to compete is to look to a model like Publix. They emphasize prepared foods like fried and rotisserie chicken, submarine sandwiches and excellent produce. They also have an organization model of employee ownership that changes the way their employees approach their job. They act like owners and not just employees which is a total game changer. Also, it doesn’t hurt that they build a new location on every other corner, once a week.

Another way to compete: differentiate through data. Traditional grocers need to understand their customers in a way that membership and dollar chains can’t. They could do this through SKU-level data that helps place merchandise in the most profitable areas of their stores. And by stores, I mean possibly different placement for each location. Grocers with the flexibility to make adjustments store by store will gain an advantage over huge chains that run solely from HQ. Look at video analytics, AI, and improved interactions with customers for ways to accomplish this.

Dr. Stephen Needel
Dr. Stephen Needel
7 days ago

Two thoughts – first is that Walmart IS a traditional grocer and failing to treat them like one is a fundamental mistake (and I’ve been making this point since back in the 90s when I first met Rick and Al). They differentiated themselves from other grocers based on price. Second, as Ken says, the Publix model of service, deli, and prepared foods may be a great differentiator from other store models. And if Lorin Drake is reading, Publix seems to do it better than anyone else in the South.

Ananda Chakravarty
Ananda Chakravarty
7 days ago

Consumers buy their food from many places. It’s never one stop. However, the challenge isn’t so much the dollar stores and big box grocers that are chipping away as it is restaurants and the revitalization of the travel industry since the pandemic. Grocery needs to concentrate on perimeter sales with the adjacent services that make them appealing to shop at. When your deli guy knows what you want ahead of time or your baker has your fresh rolls right out of the oven, consumers will come back for more- and buy other items along the way. Grocers need to capitalize on their strengths and these will gift them with a differentiating experience. I can always pick up my soda and chips at the nearest convenience store, gas station, dollar store or even hardware store nowadays…

Jeff Sward
Jeff Sward
7 days ago

Funny how “traditional grocery stores” and “traditional department stores” are interchangeable in this conversation. And the lack of evolution in both cases is remarkable. How many department stores and grocery stores look and feel EXACTLY the same as they did 30-40 years ago? Differentiation lies in service, quality and experience. It does not have to be an all or nothing proposition. Traditional grocery stores can choose to compete on price in some categories (center aisle) but still offer higher margin and more expensive product in other categories (anything fresh). Whole Foods is more price competitive than they used to be. They also offer a range of product that is a tier above in both quality and price than other grocers. They may not be growing robustly, but they have a role. The boring middle may not ever rise to the level of remarkable, but they can at least be interesting.

Gene Detroyer
Gene Detroyer
  Jeff Sward
7 days ago

Yes, lack of evolution is the problem. But, it is not just related to grocery and department stores. It is related to almost every industry. The problem is successful companies tend to embrace their success, and the way they got there long after it is not successful anymore. Legacy assets, organizations, and mindsets are the killers.

Gene Detroyer
Gene Detroyer
7 days ago

If traditional grocers did what was necessary to hold shares, they would no longer be traditional grocers. As Neil notes, shopping is differnet today. It is because people have differnet priorities and many alternatives are available. Today shoppers utilize an average of almost five food grocery alternatives. It is certainly not your mother’s shopping trip.

People use multiple banners to fit their needs. For us, Trader Joe’s, Whole Foods, and a close-by traditional supermarket are where we go. And don’t forget Fresh Direct and even regular Amazon for non-food grocery basics.

Matthew Pavich
Matthew Pavich
7 days ago

Yes – traditional grocers can gain back some share loss, but there will be some winners and a lot of losers in the process. As others have stated, the key will be to differentiate and to offer something that doesn’t exist ‘in the bland middle’ as consumers will continue to shift both upwards and downwards. We’ll also see more M&A which will consolidate some power among fewer, more robust competitors. Finally, grocers have a say in their own future and the ones making the best investments to become tomorrow’s winners are more likely to thrive and survive than those who are not thinking ahead or investing in the most advanced capabilities.

Gene Detroyer
Gene Detroyer
  Matthew Pavich
7 days ago

Yes, we will see more M&A (Kroger & Albertson). That is a sure sign that that part of the industry is on the downside of the Product Life Cycle.

Doug Garnett
Doug Garnett
7 days ago

The world is changing. Each market needs to study its particulars and specifics in order to fund its own unique way to offer something important enough to customers that they’ll choose to shop in their store. Many markets are able to do this with shelves stocked with carefully and wisely curated assortment. Some have specially prepared goods. The biggest weakness in their competition, though, comes in locality. So what uniqueness in the community can be leveraged and give them a significant advantage. (As a caution, don’t thin “Shop Local” campaigns will do this.)

Mark Self
Mark Self
7 days ago

large tradition supermarkets are boring. Always have been, always will be. With Wal Mart and others undercutting them, I do not see this “ship” being righted. More share loss to follow.

John Karolefski
John Karolefski
7 days ago

It’s probably a losing battle because shopping has changed and price nowadays is ultra important. However, traditional grocers can minimize share loses by offering shoppers
outstanding customer service and the best produce department in their area.

Craig Sundstrom
Craig Sundstrom
7 days ago

As difficult as it can be, at times, to differentiate yourself against a competitor, that’s nothing compared to trying to differentiate yourself from ALL competitors. Can a company somehow offer a store that offers an intimate, big-box, low price, full service experience?? No. As much as it’s criticized, I still think the best approach is refining what they have now; “success” will not be measured in share gains, but in minimizing share losses.

Richard J. George, Ph.D.
Richard J. George, Ph.D.
7 days ago

Since Michael Cullen opened America’s first supermarket, King Kullen, almost a century ago, traditional supermarkets have trained their customers that price was the key trading variable. Unfortunately, their focus on price with no other significant differential advantage, has left them in the crosshairs of a variety of divergent competitors.

To successfully compete they need innovation, real differential advantage & a bonafide internet (including delivery) offering.

Brad Halverson
Brad Halverson
7 days ago

Operating in the grocery middle is even more pressure filled. Being everything grocery to most shoppers is difficult because building true loyalty with your customer segments over the long-haul is not only challenging or expensive, but can be seen as disingenuous to both your price sensitive shoppers and quality shoppers.

Traditional grocery stores are better served executing well in whatever camp their trade area dictates for the highest revenue, profit upside and marketshare. If being more price focused in one community is the answer, then prove it to customers, design your stores and merchandise your products accordingly with signage. If it’s better quality in another community, then highlight your better products, design your store as more experiential to give customers something more.