"The traditional [supermarkets] just fell into the abyss," said Wendy Liebmann, president of WSL Strategic Retail. "They just never understood they couldn't win the price battle and so there's been a lot of other players coming up and filling the air space. Wal-Mart gave consumers the basics, just like the traditional markets, and this left a big gap open. Consumers are saying, `Wal-Mart is fine for basics, but what about my desire to learn to gourmet cook?"'
NO BIG NAMES
Sprouts Farmers Market opened in the shell of a shuttered Office Depot store in Arizona three years ago, operates 10 stores and plans to open six more in 2005. Known for high-quality produce, Sprouts shuns big-name brands like Pringles or Coca-Cola, opting instead for unique specialty gourmet items.
Whole Foods Market continues to find a niche by owning a position in the organic supermarket space and has opened 167 stores nationwide with plans for 400 stores by 2010.
Fresh Market, a 47-store family grocer out of North Carolina, offers a high-end, gourmet-inspired product mix. Shoppers can walk the entire floor of the scaled-down store in less than a minute; wine galas and recipe demonstrations by professional chefs lure a loyal base of customers.
Lunds Food Holdings, which operates 12 Byerly's and Lunds stores, decided to fight against the spread of the supercenter-shopping culture by tapping into another rampant cultural phenomenon: foodies. In the summer of 2004, the chain sought out the kind of people who can spend hours debating the merits of sea vs. table salt and poaching vs. boiling, hiring them to do what they do best-cook and talk about food-in each of the chain's 20 stores. It's "a selling weapon for us," said spokeswoman Michelle Croteau.
Such approaches illustrate just how divided the grocery category is today, according to Neil Stern, senior partner, Chicago-based McMillan Doolittle, a retail-consulting firm.
"Traditional supermarket chains like Kroger grew by offering broad selections of brands to a broad customer demographic and they are stuck in the middle. Before Wal-Mart, when the middle was competing against the middle, that worked, but now it's a dizzying display of specialty chains, a Whole Foods or an Aldi, a Wal-Mart or Super Target."
Although the industry's big chains are testing out new formats-lifestyle stores, occasion-based stores, hybrid specialties-rolling out big ideas into thousands of stores is a much bigger challenge, requiring greater capital investment and more risk. Meanwhile, traditional supermarkets have still failed to forge emotional connections with consumers beyond price messages.
"They've spent decades turning co-op dollars into ads and they don't know how to spend money on marketing," Mr. Stern said. "That takes a skill set and a kind of development that is not resident in a lot of these guys. It's always Coke is on sale for $2 a case."