Grocery Industry News

Aldi Fires the First Shot in Milk War

 As reported to us by an independent retailer located in the state of Indiana, Aldi's has been selling milk for $1.79 a gallon since the middle of August. This unheard of price was confirmed in the chains circular dated October 26, 2011 delivered to the Chicagoland area. The same circular that came to the Kansas City area has the price of a gallon of milk as $1.99. This is repeated with a very large banner on the side of our nearest Aldi's. The bare bones retailer is known for its no-frills shopping experience and low prices, but with an increasing selection of produce, meat, and dairy products, Aldi's is taking no prisoners.

Govt Reports Show Rising Food Costs

 The U.S. government released economic reports last week that gives us a chance to see just how much more we've paid for food in 2011 and to possibly forecast how much we'll spend in 2012. Although the USDA raised its 2011 price predictions last week it was not unexpected. These new projections are more in line with what has been seen in the Consumer and Producer Price reports from the Bureau of Labor Statistics in recent months. The Consumer Price Index (CPI) for all food is now projected to increase 3.5% to 4.5%, with retail food prices forecast to rise 4% to 5%. The USDA also raised its price projection for food price inflation this year, indicating that the average household will spend approximately $25 more on food this year than previously expected.

 Main dish items contributed significantly to the higher price projection for 2011, with meat, poultry and fish accounting for one-eighth of the entire food at home CPI figure and for which prices are seen climbing as much as 6.5% this year following almost no inflation the prior two years. According to the USDA: “Due to higher input costs, beef and pork prices remain significantly higher than in 2010. The beef and pork industries also downsized their inventories during the high price inflation of 2007-08, and the supply of these commodities remains low relative to demand.” As for seafood, current prices are considerably higher than 2010 levels.  Seafood prices in 2011 are still projected to rise as much as 6.5% from 2010. Egg prices remain high and are projected to climb as much as 6% this year. 

 On the independent grocery side, September sales rise by only 2.2% from a year earlier, well under that rate of inflation. But when you consider that overall retail food prices during the same month were up an estimated 6%, it's apparent that food retailers are only holding their own for the most part. Since wholesale food costs were running about 8% more than a year earlier in late summer. Bottom line, the local independent grocer is not having an easy go of it. If you are up 2%, due to inflation, you are still down almost 4%. That is a sobering fact. Constant pressures on the middle class have them spending less or similar amounts, but not more. Which makes sense, as many shoppers have a smaller household budget to work with. They have also developed several strategies to lower costs:  trip planning, coupon clipping, bulk buying and basket splitting. Shoppers are also using multiple channels and substitute brands. In order for retailers to post real sales growth, they need to count on sheer numbers of new consumers. Stores that make choices available and really work at getting into the heart and mind of their customer will continue to be their shopping destination.

Family Dollar Is Focused On Food

 Family Dollar is opening more than 500 new stores a year and expanding into urban centers. By either building new stores or remodeling existing stores, they have increased sales another 12% in 2011. They have overseen a merchandising evolution in which department stores staples like apparel and shoes have given way to fresh foods. Today, Family Dollar operates about 7,000 stores in 44 states and repots annual sales of about $7.5 billion – with more than 69.1% of revenues coming from food and consumable items. Once thought to be a beacon for low income grocery shoppers, through better marketing, merchandising, and inclusion of healthier, frozen and refrigerated food selections, the chain is squarely going after a more middle class shopper.

Wal-Mart and Facebook Team Up

 My Local Wal-Mart, the app that customizes marketing at each of the chain's 3600 US stores, will be available through Facebook before the holidays. This is to ensure that users can find maps to stores and once inside the store find special Black Friday discounted merchandise in the store. Much of the information directed at local shoppers will be from the Bentonville HQ, but it will also feature a "manager override" that will let the content be customized to local events such as Nascar races, weather, and fishing tournaments. "It will be very personalized. Right now we are concentrated on making it a very localized experience," said Stephen Quinn, chief marketing officer or Wal-Mart. "Our customers have been asking for this. Loud and clear Facebook feedback over the past two years was among the factors that led the retailer to reinstate layaway," Quinn said.

Wal-Mart Seeks Urban Growth

 As Wal-Mart is struggling to get approval on its very first store in NYC, a report leaked by the Alliance for a Greater New York, says the company would theoretically like to have over one hundered stores in the five boroughs. Wal-Mart's Vice Chairman, Eduardo Wright, stated that the company stood to increase its sales between $80 and $100 billion by reaching its national average market share in urban markets. Wal-Mart's share of the grocery market in the US is 21%. To achieve that market percentage, NYC, which is the largest consumer market in the US, is potentially the largest portion of this growth. The report goes on to outline how the company may reach this goal: 114 of the new Wal-Mart Express stores, averaging 15,000 square feet; 34 Wal-Mart Markets, averaging 35,000 square feet; and 11 Supercenters averaging 100,000 square feet.

Social Media, Web Deals and Shoppers 

 With the popularity of Facebook, Groupon and other sites, shoppers are scouring the net in search of deals. September 13, 2011 saw Whole Foods offering one million 50% off coupons through the LivingSocial website. The deal was $20 dollars of groceries for only $10. The Texas based chain sold out early that afternoon. Festival Foods in Kansas City offered a free $10 off coupon on purchases of $40 or more through the Muncharoo website in October. Deal sites are typically strong on food and consumable promotions, but they typically are for small restaurants or ready to eat foods, not grocery store chains. The offered discounts are typically not as steep either.

 A growing trend has retailers using Facebook pages to offer deli specials, discounts on special buys, and a way to keep their finger on the pulse of their customers. This piggybacks on major manufacturers and brands using Facebook and similar services to offer coupons and product news to their customers. As more stores use social media and websites to promote their goods and services, Bloomberg News predicts this trend will become mainstream, especially if the economy continues to suffer. 

Expansion, Expansion, Expansion 

 Trader Joe's has expanded from its original 20 locations in southern California, to opening roughly 40 new stores a year. The private company now has more than 360 locations, in places like New York, Boston, Chicago, Kansas City, and Des Moines. Estimates have their sales at $8 billion for last year. The smallest store, located in Boston, is roughly 5000 square feet, but the chain opened up a 13,000 square foot location in Hollywood last year. The chain is seeking to increase the size of their stores from the average 12,000 square feet to 15,000 square feet and larger according to retail consulting firm Strategic Resource Group. A spokesman for the group, Burt Flickinger said, "Trader Joe's can make double or triple the sales volume a week, while checkmating competitors." They will do this through building new stores and renting bigger retail spaces in larger markets. Stores in Silver Lake and Eagle Rock have already expanded. Many retailers are experimenting with smaller format stores that can easily slide into urban areas with lower rents. Following this, the Fresh & Easy chain is planning to open up approximately 50 new stores, averaging 10,000 square feet, next year. In other expansion news, Dollar General is planning a major expansion of their Dollar General Markets into approximately 70 new markets. Reuters reports that five new markets will open up in Las Vegas. These will be the first new stores opened since 2007 and the first for the chain within the state of Nevada. 

Consumer News

 According to SymphonyIRI's latest surveys: OF HOLIDAY SHOPPERS... 

11% will spend less on spirits.
16% will spend less on foods.
26% will spend less on gifts.
32% will use shopping lists. They will not deviate from this list.
42% will use coupons from manufacturer websites.
44% will use coupons from retailer websites.
44% feel they are financially worse off than they were last year.
70% are concerned about the price of food.
73% will start prior to December 1st.
74% will spend less than $800.
79% will have made their grocery shopping decisions prior to entering the store.
81% will shop via the internet. That is up from 54% last year.
88% will shop at their local grocery store for holiday meals!

Do not underestimate the importance of the internet or reaching your customer early and often. According to these numbers they are well on their way to planning out every aspect of their holiday. Influence each and every shopping trip to ensure your success.

Economic News

 5.8 million Americans received some sort of food related benefits in August 2011, setting a new record. This figure was released by the USDA's Food and Nutrition Service. EBT, SNAP, and food stamps fall under these benefits. This figure is 1.1% higher than reported for July, and 8.1% higher than reported for the preceeding year. 

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