Are traditional supermarkets dying?

Groceries are losing business to big-box chains and dollar stores. There's little room for strategy in a business with razor-thin margins.

By Kim Peterson Jul 16, 2012 1:20PM
Image: Grocery shopping (© Randy Faris/Corbis)The supermarket business is in steep decline. Last year, supermarkets sold only 51% of the nation's groceries, down from 66% in 2000, The Wall Street Journal reports. That huge drop is turning the traditional supermarket business on its head.

The grocery business has scattered. People can buy groceries from all kinds of places now, leaving supermarkets in the dust.

Wal-Mart (WMT) may be the biggest threat. The discount retailer has pushed hard on grocery offerings over the past decade, adding organic produce and matching or undercutting competitors' prices. Groceries now make up about 55% of Wal-Mart's U.S. sales, the Journal reports, up from 41% four years ago.

Target (TGT) is moving in quickly as well, revamping its stores to add freezer aisles, produce, meats and bakery sections. Its Super Target stores have the most grocery items, but 75% of stores have fresh and expanded frozen food sections, the Journal reports.

Dollar stores have also risen to meet demand. Stores like 99 Cents Only, which was taken private last year in a buyout, offer a decent array of produce and dairy items along with canned goods. At the other end of the spectrum is Whole Foods Market (WFM), a niche player that has seen unexpected success even in the economic downturn. Shares of Whole Foods have risen 320% in the past three years.

Some supermarkets are now targeting male shoppers, as the following video shows.

Post continues below.
The impact on traditional grocery stores has been dramatic. Shares of Supervalu (SVU) are now just $2.37, down more than 80% in three years. "In this economy, it's simply not acceptable anymore to have prices as far out of line as ours have been," CEO Craig Herkert told the Journal.

Shares of Safeway (SWY) haven't suffered as much, falling 20% in three years. Still, the stock is very cheap, trading at just 9.2 times earnings. Kroger (KR) has held up better, trading at about 20 times earnings.

Shoppers' habits have changed, and the supermarket is no longer the twice-a-week destination for groceries, diapers and garbage bags. They'll go to Costco (COST) for some household basics, then dollar stores for others. They'll pick up items at Wal-Mart. They'll even buy items from Amazon (AMZN), which offers packaged groceries in bulk at competitive prices.

It's little surprise, then, that the grocery business is in tumult. Winn-Dixie was bought out in December. The owner of A&P came out of bankruptcy this year but isn't publicly traded.

But where can grocery stores go from here? It's tough to cut further, with margins already razor thin. Supervalu's margins are about 4.9%, the Journal reports. There isn't much room to attempt huge changes in strategy at those levels.

As improbable as it may seem, traditional grocery stores are headed to niche status. There are too many choices and too many deals for smart shoppers, and in this economy shoppers have become very wise.

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229Comments
Jul 16, 2012 3:39PM
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I do not buy my groceries at Wal Mart!!!!!!!!!      I buy my groceries at a regular grocery store, even if I have to pay more or travel farther.  The store that I go to has better produce and  their meat is by far better.  Fresh over the counter.  Wal Mart is the reason for the demise of our small town main streets and REAL grocery stores.  The mentality of Wal Mart alone turns me off.
Jul 17, 2012 10:11AM
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We avoid Walmart at all costs. This company is hurting the economy and the execs are filling their pockets with our cash. Click the link and watch the free video "Wal-Mart: The High Cost of Low Price" ((copy/paste that in Google its a FREE video)) and decide for yourselves.

 

As far as the person saying that grocery store workers are making over $20 an hour I'd like to know where.... Wife works at Hy-Vee over 10 years now and makes a WHOPPING $10.50 an hour.

 

We will pay a little more and avoid Walmart their meat and produce are crap I wouldn't feed my dog.

Clothes are crap and most everything made in China....

 

Does anyone remember Walmart's slogan "We buy American so you can to" VERY little is American made thats sold at Walmart. Pay a little more and support AMERICAN workers instead!

Jul 16, 2012 2:36PM
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Walmart is loosing grocery shoppers in my area.  Some of it is due to not keeping the shelves stocked & some to the fact that we can get things cheaper when our regular stores run specials.

Walmart also continues to discontinue items that we want. 

Farmers markets are opening up with better produce.

More people are growing their own to avoid GMO'd products & chemical residue on/in things.

I think retailers need to wake up to what the shoppers want more of...at affordable prices!

Jul 16, 2012 11:11PM
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Just another chapter in the continuing sad real life story of how large corporations are destroying America. I honestly don't see America still being the world power within the next 10 years.

America is allowing itself to kill itself.

Jul 16, 2012 3:14PM
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I really dislike shopping at Walmart.  They are maybe 2 steps ahead of a thrift sttore in terms of clenliness and they are constantly out of stock on so many items.  They cut there labor force to the point that they can't replenish their aisles correctly or maintain a high level of clenliness.  I much prefer my traditional grocery store.  My favorite is Publix by far.  Walmart's prices are not really that good when it comes to groceries either.  I try and stay away and just go to Wallmart for miscellanious items such as tire plug kits and tupperward.  I do buy ammunition and things like trashcans when I need them.  Other than those types of odds and end items I hate Walmart.  I hate how they are Americas largest employer also.  It is sad and pathetic for America to say that Walmart is its largest single employer...  Society has degraded...  That is the World Economy though...  Americans have lost all their good manufacturing jobs and the know how that went with them...  WE ARE RULED BY SO FEW CORPORATE ELITES... POLITICIANS ARE JUST THEIR PAWNS WHO HAVE BEEN BOUGHT AND PAID FOR...  OUR ONLY FREEDOM IS GUNS....  IT IS THE ONLY THING KEEPING US FROM 9.00 A GALLON GAS LIKE IN EUROPE...  WHEN THEY COME FOR GUNS IT IS OVER FOR ALL OF US...  REALLY IT ALREADY IS BUT THAT WILL PROVIDE THE FINAL SEAL...
Jul 16, 2012 8:30PM
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I sometimes buy our groceries at WalMart, but I never seem to learn my lesson. The produce spoils in half the time it should, and the milk routinely begins to sour at least 4 days before the use by date. And my biggest complaint; having cashiers at 3 or 4 stations. Other than the Thanksgiving period, it's routine to see 80% of the registers empty, and then have to wait at least 10 min to start ringing out.

Jul 16, 2012 3:51PM
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  buy at a local grocery store . they been there the longest and know what moves  . i go in wall mart and they never have cashiers to check people out . get tired of waiting in line because they wont offer a decent pay to employees .   you can have your wall marts .
Jul 16, 2012 3:03PM
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I go to my local mom and pop store. Family business owned by the same family for almost 100 years. Great butcher counter excellent quality, has the fresh fruits and vegetables that make the stuff in the supermarkets and Walmart look sad. The prices are in most cases equal to the big chains and the service is far far better.  This store has recently hired more people to run the butcher shop, the deli, the registers while Shoprite and Walmart are laying off and the A&P banged up shop and moved out.  The store is always clean and neat and wonderful, and you know everyone so shopping there is not LIKE shopping with friends, it IS shopping with friends.

 

If you go to a big supermarket and especially  Walmart, you deserve everhting that you will get.

 

 

Jul 16, 2012 5:02PM
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Walmart will set up business right outside of your city limits so that they can avoid city taxes and regulations, undercut every competing business in town and dictate what you buy. Walmart only offerers second grade products and after they run the competition out of business, don't think  that they won't start charging first tier prices. Over 80% of Walmart's non food inventory comes from China. How many jobs does this create?
Jul 16, 2012 8:13PM
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I will NEVER actually EAT or WEAR anythng that comes from Walmart!!...NEVER!
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   It would help if High School kids studied agriculture, instead of wasting their time daydreaming about being the "next big star."
Jul 16, 2012 4:44PM
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If we loose the major grocery chains, we are not going to have the wide variety of products we have now. Those items you buy occasionally will cease to exist. Walmart will squeeze so many discounts out of its suppliers that they will no longer be able to afford to pay decent wages and become minimum wage and no benefit employers like Walmart. The whole economy will suffer.
Jul 16, 2012 2:52PM
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We are lucky in Michigan to have Meijers...a real super-super market that sells almost everything except large appliances and cars!  They purchase local grown produce and products made in Michigan and the US!  The local Target has revamped to a super store...but it is located next to Meijers and their prices are higher.  WalMart and Sam's Club are dirty...I mean the stores are not clean...and we have wonderful farm stands to buy locally grown blueberries, etc.  So...I feel good about supporting our LOCAL economy!!
Jul 16, 2012 4:11PM
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To the person who talked about unions, please know of which you speak. I am speaking specifically of Costco, which happens to pay better than the union jobs in my part of the country, with a better benefit package. They do this to keep their employees happy, so that they do not want or need a union.
Jul 16, 2012 3:31PM
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I hate Walmart for too many reasons to mention and I never shop there although I have one about 2 miles from my house.   I buy non-food items at Target.  I usually grocery shop at HEB and once or twice a month I make a 23 mile trek to Whole Foods.  It's more expensive, but I don't mind spending more for good quality produce, some organic,  and for humanely raised, antibiotic and hormone free meat.  I don't  understand the mentality that food has to be uber-cheap among people who are not poor and could afford to spend more.  Americans spend a much smaller percentage of their income on food than they did as recently as 20 years ago and still we want it cheaper.   What's more important than the food that goes in your body? 
Jul 16, 2012 3:45PM
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The quality of products at these types of stores simply is not there. I will continue to buy my groceries at the traditional type of grocery stores,and the specialty grocery stores. I will take quality any day over the so called bargain. The bargain really isn't a bargain in the end.
Jul 16, 2012 5:00PM
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I love Kroger, first no hamburger has Pink Slime in it, WalMart can't make that claim. Second, they are Union run, which means they pay their employees a decent, above minimum wage with benefits, again WalMart can't make that claim either.
Jul 16, 2012 8:43PM
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What a shocker...not. When you have crooked politicians who are bought off (lobbied) in order to give unfair advantages to big corporations, why wouldn't you end up with monopolies like Walmart?

We need to take the money out of politics, along with the spoiled rich, unaccountable, out of touch, fortunate son, dirty insider trading pieces of dirt, who have rigged the game and torn our country apart, while they and their corporate frat buddies have gotten obscenely wealthy of the working class.

There are so many politicians who have openly broken so many laws and trusts, why haven't we arrested them yet? Oh, that's right, they are above the laws meant for us commoners. A hundred years ago, we would have already tried them for treason at the end of a rope.

Our country is just to short on real men who will stand up for it's citizens I guess. They have emasculated and weakened our boys to the point of no return. To bad our military backs our politicians instead of our people. It's been a full on class war for many years, and we have already lost. 

The Dems and Reps have tagged teamed us to death. Why anyone still votes for their sorry lying tails is a mystery to me. When will people finally see what they have allowed both rotten parties to do to us by voting for them?

Keep on backing them if you're that blind. It's probably to late to interrupt your reality with any truth logic or reason anyway. Just know that you're support, is part of the problem, not the solution. 

Obama and Romney are both dirty and neither one deserves any support at all. We need honest governing, and real working men in offices, who would do a better job for far less money, to insure the dirty Banks and Corporations can't buy them off. Why do these idiot rich guys want these jobs anyway? To serve us? No, to fleece us! They are greedy rich corporate profiteers who profit off of their offices, insider connections, and they get richer and bolder in their misuse of power every day!

ARREST THEM....Not vote for them!

  
Jul 16, 2012 4:42PM
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Our local grocery/meat market went out of business a few months ago and I am bummed!  Now my choices are Walmart, Kroger, and Aldi.  We don't starve... and they are less expensive, but I miss the quality meat and local produce that I had access to previously:(  I guess I'll have to expand my garden next year...
Jul 17, 2012 8:32AM
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It is no wonder they are going under.  Sears, J.C. Penny's and scores of others all make the same mistakes.  They try to compete with the big discount chains by cutting service and quality of goods, while tacking on hidden fees.  Many people shop at the likes of WalMart because they have no choice.  There are many small towns(10-30,000 population) in america where there are no other stores for food, clothing, appliances, toys, or gardening supplies. Throughout small town america, WalMart has systematically driven small businesses out of business.  Now they are targetting their larger rivals such as Meijers, Target, etc..  Their competition falls into the trap of trying to out WalMart, WalMart and they shaft their customers at every turn.  Kohl's has perpetual sales but their $69 Dockers marked down 55% to $32.95 are still higher than most other stores everyday prices; but customers fall for it because its a "sale".  Spartan stores in MIchigan have a YES card.  With that card you get discounts and sale prices advertised in the paper.  Without the card you can't get publically advertised sale prices.  The card is used to track everything you buy and create a personal data base on you.  What do you buy, how often, at what price point - everything including you sanitary products and your perscription medicines(although they say the latter are kept separetly).  Great product to market to other firms or groups who want to know all about you.  Maybe someday in the future the Mayor of New York will have that data and arrest people who eat to much sugar.  Coupons - think about it.  Do you really think in this competitive market with "razor thin profit margins" that they are actually selling anything below a profitable price point.  Ultimately, only consumers can put a stop to this crap - stop shopping at the places that are ripping you off and spend the small extra amount needed to patronize anyone who is willing to give you and honest product or service at a fair price. 
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