Consumers' changing habits challenge traditional supermarkets

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Posted: Monday, April 22, 2013 12:00 am

Like increasing numbers of grocery shoppers, Ty Rushmeyer doesn't have a regular store.

The 28-year-old and his wife shop at a local grocery chain once a week, but they also stock up their pantry at Target. Then there are “fun runs” for unique products at Trader Joe's, Whole Foods, an Asian market, a local co-op and, in season, the farmers market.

“We're looking for healthier options,” Rushmeyer said. “But we're also deal-seekers. We know which store has the best price for each item.”

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Welcome to the new grocery landscape, in which traditional grocers are less able to count on loyal customers who buy everything they need in one visit. Instead, shoppers are spreading their money around and constantly looking for deals. Traditional grocers are getting squeezed, not only by Target and Walmart, but also by co-ops, farmers markets, specialty gourmet stores, budget grocer Aldi, dollar stores and drugstores.

“Consumers are constantly comparing from retailer to retailer,” said John Rand, a supermarket analyst for Kantar Retail in Cambridge, Mass. “If a store starts to slip because its prices are out of line or quality is suffering, people will quickly move on.”

Traditional grocery stores nationwide have lost 15 percent of their market share in 10 years, said Phil Lempert, a food industry consultant at SupermarketGuru.com.

Although shopping habits have been shifting for a decade, the recession accelerated the change. Everyone is a value customer now, analysts say, and traditional grocery stores are finding it difficult to compete on price.

One solution is to offer a bigger assortment of products. Target and Walmart stores typically stock far fewer items than does a traditional grocery store, and Rand said discounters are more likely to run out of a particular item.

The increased range of shopping options is changing the grocery business in many ways. Square footage allocated to groceries grew 5.7 percent from 2005 to 2011, according to the Food Marketing Institute, but the increase was at supercenters, convenience and dollar stores, warehouse clubs and discounters/liquidators. Traditional supermarkets decreased their space allotment.

Home-improvement store Menards, which has stores in 14 states, now devotes about six aisles to groceries as well as a refrigerated section with pizza, milk, cheese and eggs.

At Walgreens, food and beverage items now make up 20 percent of the merchandise, and the company plans to allot more space, said Jim Jensen, divisional vice president. “Food, along with beauty and health items, gets customers to visit the store more often and buy more,” he said.

In the past, traditional supermarkets relied on coupons to accomplish the same thing — get customers to buy more. But that strategy holds less appeal for shoppers today. Redemption was down 17 percent nationally in 2012, which Lempert describes as a paradigm shift rather than a blip.

“People perceive value differently now,” he said. “In the recession, they discovered places that didn't accept coupons, like warehouse clubs or liquidators, where the prices are low enough that they didn't miss them.”

Still, low prices, with or without coupons, are no guarantee of attracting harried shoppers.

“Consumers are looking not only at their wallet, but also the clock and the gas gauge,” said consumer behavior analyst Paco Underhill. “They don't always need to choose from 15 types of pasta in a supermarket. Three is enough when you're time-crunched.”

Indeed, it can be quicker to pick up milk and eggs while you're already getting paint at Menards, gas at a convenience store, or a prescription at Walgreens or CVS.

With the competition adding food to increase sales and store visits, Rand said, traditional grocers are going through another phase of their life cycle. Analysts are waiting for them to find a new path to revitalize and strengthen them.

“They're going through a difficult patch,” he said. “But it's way too soon to write them off.”

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