The ripple effect of a more competitive retail market
April 5, 2015
KANSAS CITY – The news the past few weeks has been highlighted by a series of high profile strategic shifts taking place among food retailers. Most notably, Wal-Mart Stores, Inc. is in the process of shoring up its business while Target Corp. retools its business and even Kroger is eyeing strategies to keep pace with the changes taking place in the category.
All of the changes are occurring against the backdrop of more companies entering the U.S. grocery category. On April 2, the Washington Business Journal reported German discount retailer Lidl is laying the groundwork for expansion into the United States. The company has acquired office space in the Washington, D.C., area for a corporate headquarters and has been in the process of acquiring retail store space as well as distribution sites in the United States. To understand Lidl’s business model, simply look at Aldi. Both companies focus on being low-price leaders.
In an April 1 presentation, Greg Foran, president and chief executive officer of Wal-Mart U.S., discussed his plans for reinvigorating the company’s business in the United States. One initiative involves changes to the layout and design of both its Supercenter and Neighborhood Market store formats. In Neighborhood Markets, for example, the company plans to add bakery and deli sections to some stores in an effort to bolster the number of fresh offerings.
For its part, Target Corp. is in the process of shifting its food mix toward products focused on wellness and freshness.
“Our guest has told us they expect to have food in our stores, but they’d like us to offer more choices that support their wellness goals: more natural products, more organic, more gluten-free,” said Brian Cornell, chairman and c.e.o. of Target in a March 3 presentation. “Items that have simple, cleaner ingredient labels.”
The Kroger Co. has been at the forefront of the wellness trend with the unquestioned success of its Simple Truth line, and the company is continuing to look for ways to improve its wellness-oriented offerings. In a March 25 presentation, Mike Ellis, president and chief operating officer, noted the retail price spread between a conventional products and its natural or organic counterpart was once “pretty wide,” but has narrowed.
“The price compression, I think, has helped move more people into that area,” he said. “But today, you look at some of the items that are just on fire — chia, quinoa, dairy, plant-based dairy products are really big, soy, almond types of things, large pack yogurt, organic berries, frozen and fresh…
“It’s just on fire right now. And for us, trying to stay connected and have the right products at the right prices has been a lot of work, but I think we are getting a piece of that.”
Many of these changes are already being felt by food and beverage companies, and it is clear the trend is going to continue. In many ways, retailers are redefining their businesses, and consumer packaged goods companies are going to have to keep pace. Such endeavors mean C.P.G. companies also are going to have to redefine their businesses going forward.