Grocery store wars: Indianapolis shoppers to profit from foodie fight

Central Indiana grocers are waging a fierce food fight. And if you happen to be a foodie — or just frugal — there's a good chance they're fighting over you.

Food retailers from supercenter operator Wal-Mart to the tiny four-aisle stores of Aldi are grabbing for bigger shares of the consumer's food dollar with a new round of store expansions in the Indianapolis area.

At least 18 stores are under construction or planned, plus numerous store remodelings, at a construction tab that likely tops $200 million.

The surge in bricks-and-mortar investment is a response to a growing "foodie" culture, in which consumers shop more often, frequent multiple stores and increasingly search out gourmet, organic and other specialty items. At the same time, shoppers want low prices and reward stores that offer them, forcing retailers to keep costs down even as they spend heavily on new stores.

"Indianapolis is an intensely competitive market. The pressure to survive has increased," said Jeff Burt, a regional president for Kroger Co., which will spend $45 million on Indianapolis store expansions this year, double its normal capital budget. Among Kroger's new offerings: an in-store cheese shop run by Murray's Cheese, a Greenwich Village, N.Y., cheesemonger.

What's sure to come out of this wave of expansions is a renewed focus on price-cutting and product promotions, as retailers try to lure shoppers into their new or remodeled stores.

Think milk and soft drinks at throwback prices. Bananas for a pittance. Eggs at devil-may-care costs.

"You'll get more item price promotions, and it will get fairly aggressive," predicts Peter Whitsett, executive vice president for merchandising and marketing for Michigan-based Meijer, which is opening two more megastores this spring to add to its nine stores in Indianapolis. More than half of Meijer's store sales come from groceries.

Indy a tough market

The grocery business has always been a low-margin, intensely competitive affair, especially in Indianapolis. Its central location in the country puts it in line for geographic expansions by numerous regional chains, while its stronger-than-average economy makes it a place grocers want to be.

"Grocery chains are like sharks," said Richard Feinberg, a professor of consumer sciences and retailing at Purdue University. "They move and grow or they die. They have to continue to expand, and Indianapolis is a ripe market for the growth of new chains and the rebirth of old chains."

The latest major new entrant entering Indianapolis' waters: Pittsburgh-based Giant Eagle Inc. The 218-store regional chain has staked out a spot at 116th Street and Spring Mill Road in Carmel for its first area store. More are likely to follow, though Giant Eagle is keeping its plans under wraps.

Foodies are clearly the kind of customers Giant Eagle has in mind. Its new-version supermarket coming to Carmel is "inspired by the open-air markets of Europe" and "will help customers to cultivate their passion for food" with appearances by celebrity chefs, said Giant Eagle spokesman Rob Borella.

Cooking enthusiast and vegetarian Melissa Rice, 54, Carmel, said she's eager to see what Giant Eagle has to offer when it opens next year.

"I'm excited about it," said Rice, who checked out Giant Eagle's website after she heard about its Carmel store plans. Rice shops for her family primarily at Whole Foods, but hits Kroger and Marsh for certain brands and goes to Meijer when she needs to pick up non-grocery items.

"I think the (existing) local grocery stores have something to be concerned about" with the coming new competition from Giant Eagle, Rice said. "It'll definitely be an opportunity for them to step up their game."

Fragmented market

Even having an attractive new grocery concept in town, however, won't cause cost-conscious shoppers to suddenly start spending a lot more on groceries. (The average Indianapolis shopper's weekly grocery bill runs $108-$137, according to Scarborough, a market research firm.) So that leaves grocery chains vying to grab market share from each other, even as many are expanding.

Tracking grocery market shares is tricky because consumers spread their shopping dollars around in multiple stores and often shift their shopping patterns. But it's clear that Indianapolis is a fragmented grocery market.

According to one measure by Scarborough, which traditionally has been used by The Star to reflect market share in the grocery industry, four chains controlled about 80 percent of primary grocery store spending in 2013. The Scarborough data show Kroger has increased its leading market share from 35 percent to 37.6 percent in the past two years in a survey that asks grocery shoppers where they spent the most money in the previous week. Wal-Mart, which is adding eight smaller neighborhood market stores locally, had a 22.6 percent share in that survey, with Meijer at 13.3 percent and Marsh at 7.8 percent.

Longtime hometown grocer Marsh, which was bought in 2006 by Florida-based turnaround specialist Sun Capital Partners, saw its market share as a primary shopping destination slip from 14 percent in 2011 in the Scarborough survey.

Marsh said in January that it was closing nine under-performing stores, or 9 percent of its total holdings, including five in the Indianapolis area.

But "we're getting stronger and better," Marsh spokeswoman Connie Gardner said in an email. The 83-year-old chain plans to remodel 25 percent of its stores this year, she said. It's also opening a new $7.5 million supermarket this spring in Axis, a luxury apartment and retail project under construction Downtown.

"Other grocery stores have come and gone since we started in business," Gardner said, "and dealing with competition is nothing new to us."

Marsh's new store at Axis won't be Downtown's newest grocery for long. Flaherty & Collins Properties, which is developing Axis, plans to soon reveal the name of another supermarket that will lease 40,000 square feet in a planned 28-story apartment tower being built on the former Market Square Arena site next to the City-County Building.

With so much new grocery construction underway, market shares can shift quickly, given how today's consumers eagerly embrace retailers that offer novel food shopping concepts, said Michael Bills, a retail specialist and executive in residence at Ohio State University's Fisher College of Business.

"The average consumer today knows a lot more about food tastes than they did 10 years ago," he said. "There's a willingness to shop other formats and a demand for quality and freshness."

That may embolden chains such as Giant Eagle to think they can break into a new market and make a go of it even against established grocery brands.

Jason Borneman, a 36-year-old software engineer who works Downtown and lives on the Eastside, said he and his wife seldom shop at Marsh now, but he sees himself becoming a regular at Marsh once its store at Axis opens across the street from his office.

"It's another opportunity to comparison-shop," Borneman said. "And it's a chance for me to ease the shopping burden" on his wife, he added.

The Bornemans are hardly loyal to one store. They shop at a neighborhood Kroger, subscribe to Green BEAN Delivery of organic and natural foods, and drive regularly to a Trader Joe's on the Northeastside for specialty items.

To compete against the large chains that dominate the Indianapolis market, plus a growing number of natural foods stores, even small grocers must innovate and offer the specialty foods many shoppers want.

The German-owned Aldi Inc. discount chain added a 40-product organic and natural food line in January. Aldi will break ground this year on three stores, bringing its Indianapolis-area store portfolio to 18.

Aldi regional vice president Laura Bauer said she thinks the new natural foods line and Aldi's cut-rate prices will help keep shoppers coming in the door. (Aldi keeps its overhead low by closing its doors by 8 p.m. and having customers bag their own items.) Aldi also offers a "double guarantee" — shoppers unhappy with a product get a replacement product and their money back.

Such are the consumer-luring tactics that are sure to spread as the competition heats up in the grocery market.

Officials at Kroger, which has operated in Indianapolis for 90 years, say they're ready for a renewed breakout of cut-rate pricing as happened during the recession of 2007-09.

"We will strive ... to protect our strong capital base" that includes $160 million spent on Kroger's 45 Indianapolis area stores since 2008, said Burt of Kroger.

The Cincinnati-based national chain is hardly averse to using price-chopping to lure and keep customers, said Kroger spokesman John Elliott. "That's some of Kroger's secret sauce. We will continually lower prices."

One Kroger advantage: It operates its own dairy and commercial bakery in Central Indiana, so it controls prices back to the wholesale level. "We can really drive our pricing," Burt said.

Healthy competition

Wal-Mart decided to carry out its latest expansion in Indianapolis by recently opening five of its smaller, 38,000-square-foot Neighborhood Market brand stores, with three more coming. They are a quarter of the size of a Wal-Mart supercenter.

"We're looking at accelerating the growth of our smaller, format stores, driven by the fact that our customers are really responding to these formats in a favorable way." said Wal-Mart spokeswoman Erica Jones. "But we're also not scaling back the location of larger retail stores."

Meijer, on the other hand, will stick with its megastores. The nearly 200,000-square-foot locations stay open 24 hours a day and combine a full-service grocery with a department store that let people combine all their shopping in one trip, Whitsett said. One thing Meijer won't do, even with stiffer competition: offer loyalty cards like most of its rivals do.

"We don't like the idea of a two-tier pricing program," Whitsett said. "We treat everybody the same."

The Meijer executive sees Indianapolis as a market where "all the A-listers" in the grocery business butt heads. His attitude toward that heightened competition: Bring it on.

"Competition really is healthy," he said. "As the market becomes more and more competitive, folks will be fighting for their share."

Star reporter Chris Sikich contributed to this story. Call Star reporter Jeff Swiatek at (317) 444-6483. Follow him on Twitter: @JeffSwiatek.

Grocery market by the numbers

1.5 — Average percent profit for a grocery operator.

2.7 — Grocery stores visited per week by the average Indianapolis shopper.

5.7 — Percent of disposable income spent on food in America.

$108 to $137 — Average weekly grocery bill in dollars for an Indianapolis shopper.

37,000 — Number of supermarkets in the U.S.

42,686 — Number of items carried in a typical supermarket.

Sources: Food Marketing Institute, Scarborough