If you’ve had a chance to read last month’s 38th Annual Retailer Survey Overview, with the Retail Insights’ 2016 Universe for Premium Natural and Organic Food, Supplement and Personal Care Sales (WholeFoods Magazine, December, 2015, page 25), you know that the Cincinnati, OH-based Kroger conventional supermarket chain is generating billions of dollars in sales from its natural and organic Simple Truth private label brand, helping drive the nearly 40% overall growth of natural and organic products within the conventional supermarket retail channel.
As if on cue, in early December, Kroger announced outstanding quarterly results, including a 5.4% increase in same-store-sales year over year. Same-store-sales reflect the percentage yearly increase for stores that were the same size, carried the same products and were in the same location as the year before. Stop and think about this for a moment. Kroger runs 2,600 stores under various brand banners in about two-thirds of U.S. states, and generates over $100 billion in annual sales. Annualized, a 5.4% quarterly increase represents more than $5 billion in new sales. Growing at this strong a pace from such a large sales base is remarkable.
Contrast this with Austin, TX-based Whole Foods Market. Its same-store-sales, or what it calls “comparable” store sales, fell by two-tenths of a percentage point in its most recent quarter. Whole Foods Market operates about 400 U.S. stores that will generate perhaps $16 billion this year, and up until relatively recently, enjoyed 6%, 8% and even 10% year-over-year increases in same-store-sales.
This apparent reversal of fortunes between the natural and conventional channels isn’t universal. Outside of Kroger, most conventional supermarkets continue to struggle to generate annual sales increases beyond the rate of inflation while several younger supernatural chains are growing more rapidly than Whole Foods Market.
So, what is Kroger’s secret sauce? In its quarterly conference call, the company credited its robust results first to its deli department, then to produce and finally to natural and organic products. Deli includes prepared hot and cold foods that are ready to eat immediately; not the frozen, refrigerated and dry groceries that traditionally have made up the pantry stock-up list, or the dinner-making ingredients that have been the main drivers of conventional supermarket sales for decades.
Changing Eating Habits
U.S. food culture has shifted away from the tradition of families eating “three square meals” together per day. Instead, it has fragmented into a flexible blend of multiple meals, snacks or a combination of the two throughout the day. We eat alone almost half the time, according to research from Bellevue, WA-based ethnographer, The Hartman Group.
We are also eating out more often. People enjoy food away from home about nine times per month, Hartman says, with millennials—those roughly 18–34 years of age—doing so closer to 10 times per month and older baby boomers hovering around eight times per month. Our view of eating out has also changed: we now consider it a daily habit rather than something reserved for special occasions.
About four in 10 (40%) of us never or rarely plan what or where to eat beforehand, with the decision often coming just an hour before making or eating the meal. And, we want variety. We no longer rely on the foods we grew up with to form our core menu. Instead, we reserve these traditional foods for special occasions and are more interested in experimenting with new flavors, ethnicities and preparations, often with someone else assembling them for us the first time and providing tips on ingredients, preparation and flavor combinations.
Following the Consumer
Kroger is well aware of this shift away from premeditated meal planning, ingredient shopping lists and pantry stocking; activities that take place largely in the center-store aisles filled with shelf-stable dry grocery items. Within the conventional grocery channel, center-store sales have been stagnating for a decade or more. Kroger has responded by enlivening and promoting its deli offerings with fresh, interesting flavors and useful preparation ideas that have captured the imaginations of its shoppers.
Shoppers who frequent Whole Foods Market and other natural, specialty and gourmet grocers certainly also have many interesting high-quality deli choices, with helpful menu ideas and preparation tips. The difference is that conventional supermarkets like Kroger are just now waking up to the expanded opportunity consumers have created through their newfound desire for a broader food experience. And since most shopping trips already occur in conventional supermarkets, the potential is huge; enough to drive the sales of a massive grocery chain like Kroger to industry-leading heights.
One of the most interesting aspects of food retailing today, to me anyway, is the diverse approaches retailers are taking to ingredient standards. While the consumer is increasingly demanding higher quality, defined at the upper levels as fresh, local and transparent—meaning, “I know where my food comes from, how it was grown or handled, who made or harvested it and how well plants, animals and people were treated in the process”—retailers are succeeding with a mixture of quality standards.
For example, a relatively recent venture-capital funded startup supernatural grocer presents its market position as gourmet natural. Yet a walk through its aisles reveals FD&C artificial colorings and dyes in its prominent bulk candy section. The store appears to be succeeding and expanding nicely, notwithstanding its inconsistent ingredient standards.
At the opposite end of the spectrum, a substantial three-store core natural independent chain has spent the last two years refining its ingredient standards and mission statement, becomingmore selective than ever, and perhaps offering the most stringent ingredient standards in the entire food industry. Its third and newest store is blowing the doors off with record sales.
Perhaps food is like fashion. While you or I would probably never be caught dead wearing the latest runway prototype from Milan, seeing the outer limits of style opens our minds and broadens our concept of what is acceptable and desirable. In the same way, mostly unattainably high food ingredient standards serve to bring up the overall average level of quality among retailers throughout all channels of distribution, moving our entire society closer to its aspirations of personal and planetary wellness, one meal or snack at a time. WF
Jay Jacobowitz is president and founder of Retail Insights®, a professional consulting service for natural products retailers established in 1998, and creator of Natural Insights for Well Being®, a comprehensive marketing service designed especially for independent natural products retailers. With 38 years of wholesale and retail industry experience, Jay has assisted in developing over 1,000 successful natural products retail stores in the U.S. and abroad. Jay is a popular author, educator, and speaker, and is the merchandising editor of WholeFoods Magazine, for which he writes Merchandising Insights and Tip of the Month. Jay also serves the Natural Products Association in several capacities. He can be reached at (800)328-0855 or via e-mail at email@example.com.
Published in WholeFoods Magazine January 2016