It was quite the year for the $600 billion grocery business in 2016, with new entrants to the brick and mortar space such as Amazon and the introduction of a variety of innovations around how grocers are meeting consumers’ increasing demand for convenience. 2017 promises not to slow down at all in terms of news. Here are three things I’ll be keeping an eye on in 2017.
More Prepared Food
You’ve probably seen articles to the effect of “No One Cooks Anymore”. Littered across the internet, these headlines are clearly hyperbolic, however there is truth to the conclusion that people are spending more on dining out than ever before. People are indeed more time crunched and therefore looking for ways to simplify their meal preparations, especially weekday dinners. Look for grocery stores to continue to dedicate more time and ultimately square footage of their stores to healthy prepared grab-and-go meals.
Focus on Demographics
Greater customization is a theme across retail these days and grocery stores are getting involved by catering to their demographic base. Some investors are in fact banking on the idea that ethnic grocers are the next wave of growth for the sector. Private firms Victory Park Capital and KKR recently invested in Mi Pueblo Food Centers and Cardenas Markets – two supermarket chains that target Hispanic consumers. A similar deal took place back in October to consolidate and accelerate expansion of supermarkets that focus on burgeoning Chinese-American populations. In areas populated almost exclusively by a certain ethnicity these hyper-focused marts make a lot of sense, but in broader demographic populations with multiple ethnicities or smaller populations of one ethnicity interspersed in a more homogenous trade area – they are not broad enough. That being said, I believe more traditional grocers will take a page from these specialty markets’ playbooks by incorporating sections that cater to and reflect the mix in their demographic base. Look for the larger chains to provide selections that more accurately reflect their core customers in the coming year.
Expanding Discount Chains
Two German discount supermarket chains are making moves into the U.S. to try to grab a share of the $600+ billion grocery market. Aldi – certainly not a newcomer having opened its first U.S. store in 1976 – has plans to expand aggressively, adding 650 stores by the end of 2018 to bring its total count to nearly 2,000. German rival Lidl also has its eyes set on entering the U.S. by the end of this year and has designs on opening 150 stores along the Eastern seaboard. While some pundits have opined that these moves spell trouble for the supermarket business, I believe they are more likely competition for other discounters like Walmart and Target, who have more recently entered the supermarket space. The traditional or specialty grocery shopper is less likely to move all their business to a discounter. Look for these newcomers and traditional grocers to co-exist in the same vein as full and off-price apparel retailers, broadening the sector as a whole.
These are just three of the many market changes that I believe will be emerging in 2017. Other trends to watch will largely revolve around grocers’ use of technology and how they will continue to look to capture the business of online shoppers. More on this in future posts. Until then, please share in the comments if you have seen a trend or industry innovation that you believe will impact the grocery business.