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.
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.
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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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The reason supermarkets are dying is very poor customer service, I no longer shop at Safeway of Kroger's because of their lack of concern for the customers. I've had stockers yell at me for interrupting their conversation (they appeared to be gossiping to me). More than one time I had to walk across sticky floors, or around empty boxes in the isles. I tried to return a chicken breast that was mostly fat, only to be told that I was making things up (ended up leaving the $4.00 and the slimy dripping fatty chicken at the customer service counter). On my last visit to King Soppers a middle aged clerks was hitting on my 13 year old daughter. Who really want to put up with this kind of garbage? If these kinds of things are happen in your area whould it be a wonder that supermarkets are not dying?
Walmart is ruining the free market of capitalism...They are putting small businesses out of business in record #'s...They pay most of their work force minimum wage to keep prices lower...You can not live a decent life on $8/hr...We will all be working for Walmart soon and only be able to buy necessities from them to exist...
Is this what the American middle-class wants?..I think not...
Please bring back our anti-trust laws to protect small businesses...
Vote for OBAMA in 2012 and help end the insanity of the Republican Party RIGHT WING WACKOS...
Save America for middle-class Americans...
I would hazard to guess yes. Have to keep up with the times or risk losing everything. Prices are aoaring out of sight and now rivals that of eating out.
Locally owned, locally operated grocery stores are the future and the sooner the Walmarts and Krogers of the world disappear, the better off we'll all be.
The warehouse clubs are where I do most of my food shopping. Why? Because you can't beat the price even with the cost of the membership, Also the large economy sized packages sit on my shelf just as easy as the supermarkets.
I went into my local grocer just recently and a box of cereal was much more than the warehouse prices, so were many other items I buy. The local supermarkets used to be competitive, but not anymore. Costco, Sam's Club, and BJs warehouse clubs got the supermarkets beat on the their ptices is why I tend to shop there.
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