SN examines emerging trends and operators poised to expand their impact on food retailing
Momentum, it is said, is the most powerful force in sports — and it certainly plays a role in food retailing as well.
On the following pages, SN looks at industry trends, concepts and retail banners that appear to be surging into 2011 with the winds of consumer appeal at their backs.
Recovering from a recession, consumers have begun cautiously rewarding themselves with affordable indulgences, from quality wines to gourmet coffees. They are also increasingly concerned about local sourcing, and buzzing on social media like Foursquare that fit neatly into retailers' marketing playbooks.
They are trying new flavors of sandwiches, such as bahn mi and tortas, and in some cases they are buying these new flavors from the latest incarnation of fast-food restaurant — the gourmet food truck. The globalization of the American palate is also reflected in Eataly, the Italian restaurant-cum-gourmet superstore in New York City.
Some traditional operators also have momentum, including ShopRite, which is expanding in all directions in the face of weakened competition; Target, which has found a quick-and-easy way to bolster its grocery offering; and The Fresh Market, which offers a lot of quality in a small package.
The geographic hot spot this year appears to be Northern California, where operators of all stripes are seeking to capitalize on a growing population and a resilient economy.
THE ECONOMY MAY BE GETTING better, but that doesn't mean consumers are going back to their former spending habits.
Many still live paycheck to paycheck, and have a hard time making ends meet. Those who are lucky enough to have jobs still worry about losing them.
Consequently, many remain financially guarded. They are easing back into spending by splurging on small indulgences — items that may seem luxurious, but remain within their budget.
This is good news for many consumer goods sold at food retailers.
Due to increased availability of value wines, consumers who may have spent $80 in the past for a bottle of good California cabernet can now get the same quality wine for just $20, a price point conducive to food retailers.
Consumers are rewarding themselves with other types of beverages. While they may still forgo a $4 cup of Starbucks coffee, they're open to investing in home brewing systems that make a gourmet cup of joe for less than $1.
Supermarket cooking classes are another type of small indulgence. While people may still balk at eating out, they want to emulate the restaurant experience at home. They view cooking classes as a worthwhile investment.
Another treat is gourmet confections. Along with buying upscale brands like Godiva, consumers have plenty of store-brand upscale chocolates to consider. Kroger Co. just launched authentic Belgian chocolates under its Private Selection brand. The chocolates come in milk, dark and white chocolates accented by flavors of coffee, lemon and caramel.
Nonedible indulgences also exist. While many consumers would like to donate to charity, they're unable to contribute like they've done in the past. An alternative is purchasing products produced in a way that helps the economy or environment. Take Fair Trade products, whose sales in supermarket increased 24% last year, according to Fair Trade USA, a third-party certifier of Fair Trade products in the U.S. Consumers who once donated to charity may instead buy a Fair Trade product because they know their purchase is helping farmers in developing countries get fairly compensated for their goods.
— Carol Angrisani
WHAT WILL BE THE INDUSTRY'S next Whole Foods?
Investors seem to be placing their bets on Greensboro, N.C.-based The Fresh Market, the 100-store chain that saw its stock soar in an initial public offering last year and has its sights set on becoming a rarity in food retailing: a high-growth national operator.
With its current scattered presence in the Southeast, Mid-Atlantic and Midwest, The Fresh Market is deploying a somewhat unconventional growth strategy for its upscale, small-format concept. It relies on third-party delivery firm Burris Logistics for much of its frozen and grocery product and other local suppliers for produce, while leasing individual locations in far-flung markets.
The Fresh Market focuses on creating an enhanced in-store experience that seeks to emulate Old World European markets, complete with hand-drawn chalkboard signs and classical music for ambiance. In essence, it takes all of the traditional elements that local supermarkets use to differentiate themselves from discounters — strong service, high-quality perishables, convenient locations — and boosts them to a higher level.
Its stores merchandise about 10,000 SKUs of mostly gourmet offerings, including an extensive menu of prepared foods, in stores that measure about 20,000 square feet.
“We're really focused on delivering a different shopping experience,” Marc Jones, vice president of merchandising and marketing at The Fresh Market, said at a conference earlier this year. “When you are in the store, it should be a pleasing atmosphere.”
Analysts are projecting double-digit growth in store count for the next several years for this chain, which said it expects to open 12 to 14 new stores this year. The company recently said it expects to announce soon its first locations in California, which would extend its reach from coast to coast. Currently its presence only extends as far west as Little Rock, Ark.
Openings planned for this year include a concentration in the Northeast, as well as a few in Florida, its largest market with 24 stores.
Sales at the company last year approached the $1 billion mark, with comps up 5% over the prior-year results.
Although the IPO won't be used to fund expansion — shares were only sold by founders and top executives — analysts said the company's public-ownership status paves the way for future offerings that could help fuel the 15% rate of growth that The Fresh Market projects.
— Mark Hamstra
JUST WHEN IT SEEMED as though traditional supermarkets had gotten a handle on competing with Wal-Mart supercenters, along comes Target and its P-fresh initiative.
Minneapolis-based Target Corp. for years had plodded along with a limited assortment of groceries in its traditional discount stores, but P-fresh is a different animal altogether. With a 50% or more increase in assortment, more aggressive marketing and a much-improved merchandising strategy compared with its previous grocery efforts, P-fresh appears poised to become a new industry goliath.
The company has rolled out the expanded sections to about 500 stores so far, and expects to complete the rollout to all of its 1,500 discount stores by 2013. Some 380 P-fresh — which stands for Prototype Fresh — conversions are slated for 2011. Unlike a conversion to a SuperTarget format, the 10,000-plus-square-foot P-fresh sections are much less capital-intensive and much quicker for Target to implement.
In a recent report, analysts from Credit Suisse estimated that Target will take “about $3 billion in food-market share over the next few years,” with significant potential impact on some traditional supermarket operators, particularly in areas like California where Target already has a strong presence but Wal-Mart does not, relative to other parts of the country.
The P-fresh stores offer about 60% of the food items found in a SuperTarget, the company said in published reports, from about 90% of the categories that a SuperTarget carries. In addition to an expanded dry, dairy and frozen selection, P-fresh also includes the “most popular” perishable items Target carries, including pre-packaged meats and baked goods, and produce displayed in an open-market-style layout.
Offerings also include the chain's grocery private labels — Market Pantry at the discount end and its more upscale Archer Farms label, which includes natural and organic products.
Perhaps even more significant than the increased assortment of P-fresh is the promotional support that the chain is putting behind it. As Target converts geographic markets over to the expanded format, it leverages its flair for trendy, attention-grabbing advertising by spotlighting the expanded grocery offerings in fliers, on billboards and in TV spots.
— Mark Hamstra
THESE ARE NOT YOUR FATHER'S roach coaches.
Rather than coffee and a roll for a buck and a quarter, the gourmet food trucks that have rolled into cities across the country are offering such fare as “Mexicue,” Belgian waffles and Asian tacos.
While many of these mobile munchie purveyors are independent start-ups or part of small networks, established food operators increasingly are getting into the game. Quick-service burger restaurant company Jack in the Box, for example, recently fired up “Jack's Munchie Mobile,” a 34-foot truck offering a menu of the chain's burgers, tacos and fries.
And last week, Air France rolled out a temporary truck to various locations around Manhattan in New York City offering free samples of its onboard food in an effort to showcase a new menu from chef Joel Robuchon.
These so-called “pop-up restaurants” are relatively easy to operate and attract a lot of buzz, giving new meaning to the term “marketing vehicle” for established companies like Air France.
In addition, many are connecting with their foodie fans via social networks like Facebook and Twitter by sending out notices of their location to draw office workers out of their cubicles. In fact, the food-truck explosion is sometimes traced back to Kogi BBQ of Los Angeles, which leveraged Twitter to broadcast its location to its many fans.
The phenomenon has spawned a reality TV series — the Food Network's “The Great Food Truck Race,” which aired this past winter — as well as local festivals and other gatherings showcasing the eateries' innovative menus.
At the recent South By Southwest music and media gathering in Austin, Texas, the gourmet food trucks dotting the streets of the city garnered almost as much excitement and press as the performers.
Among the best all-around gourmet food trucks from across the country, according to a recent Business Week analysis: Schnitzel & Things, New York, offering fried chicken and pork dishes; Gastropod Mobile Gourmet, Miami, offering triple-decker sliders, bahn mi tacos and other trendy fare; Streetza, Milwaukee, offering exotic pizza variations; and Marination Mobile, Seattle, offering Hawaiian- and Korean-inspired wraps.
— Mark Hamstra
AFTER MORE THAN TWO decades spent trying to maximize card-based electronic loyalty systems, retailers now have a new opportunity to engender shopper loyalty via location-based “check-in” mobile apps like Foursquare, Facebook Places, Gowalla, Checkpoints, Shopkick and Yelp.
Shoppers who download the free Foursquare app can use it as a social media vehicle — letting friends know where they are shopping — as well as a source of offers at local stores. Retailers can use it as a free means of cultivating loyalty by disseminating offers and having shoppers — and potentially their connected friends — “check in” to their stores to redeem the offers. Foursquare also offers free tools to analyze shopper response.
“Location-based services allow retailers to engage with shoppers,” said Ricardo Rabago, social media specialist for PCC Natural Markets, Seattle, during a session this month at Natural Foods Expo West in Anaheim, Calif. “It's a digital loyalty program.”
Retailers like Safeway, Whole Foods Market, Trader Joe's and PCC Natural Markets, and suppliers like PepsiCo and Tyson, are among those that have jumped on the check-in app bandwagon. Foursquare, with nearly 400 million check-ins last year, is one of the leading providers of this type of app. “Location-based services are growing rapidly,” said Rabago.
PCC Natural Markets, a nine-store operator, runs specials through Foursquare, Facebook Places and Yelp. “When they check in the third time, shoppers are rewarded,” said Rabago, adding that rewards include free cookies or soup. Cashiers are trained to be aware of the offers.
Rabago said PCC analyzes data from the location-based services that show when shoppers checked in, how many times and their gender. “We can determine from the data whether we should run a special in the morning, at lunchtime or dinner time,” he said.
PCC is also making use of free Web services — Placepunch is one — that allow retailers to compare their results from location-based services with that of competitors. “I can compare my numbers to local retailers,” said Rabago. “Why do they have more check-ins? What time of day are they using?”
One caveat for retailers using location-based services and aggregation services like Groupon is that while there is no up-front cost, there is the danger of committing to too many offers — and attracting shoppers who are only interested in the offers and not an ongoing shopping experience. There is also the risk of relying on a third-party provider whose technical snafus will be blamed on the retailer.
— Michael Garry
They have all targeted Northern California for growth. Toss in The Fresh Market and Dollar General — which have both cited plans to expand in California, without a stated preference for the North or South — and there appears to be a West Coast stampede rivaling the Gold Rush.
In fact, two Northern California markets — San Francisco and San Jose/South Bay — were cited last week by ChainLinks Retail Advisors, a real estate services and brokerage organization, as among the 10 best markets for retail in 2011, based on economic conditions, vacancy rates and other factors. The Sacramento market, headquarters for the beleaguered Raley's Supermarkets, has been cited by no fewer than four food retailers as a market for expansion, and last year Target rolled out its P-fresh expanded grocery format (see “Target ‘Gets’ Grocery,” second page) there as well.
Many areas of Northern California — such as the Napa region — have been shielded from the impact of the economic downturn, while others, including Sacramento, have seen strong population gains. A recent report showed that Sacramento's population — fueled by an influx of Asian and Latino consumers — has risen by 20% over the last decade, twice the rate of the rest of the state.
Northern California is also thought to be a prime target for Bentonville, Ark.-based Wal-Mart Stores as it rolls out its small-format Express stores, the first of which are opening in the coming months in a handful of Arkansas communities.
Just last month Fresh & Easy Neighborhood Market, Tesco's small-format U.S. growth vehicle, made its Northern California debut in San Jose and Danville, and the company has listed dozens of other locations in the region that it plans to develop in short order.
As part of its expansion into the region — it already operates more than 100 stores in Southern California, plus additional sites in Phoenix and Las Vegas — Fresh & Easy is considering halving the size of its traditional 10,000-square-foot stores for some locations, while retaining most of the offering.
“In areas where people want to get in and out quickly and find something to take home for dinner, Fresh & Easy should do very well with a smaller store,” Suzanne Long, retail practice leader for SSA & Co., New York, told SN last month.
— Mark Hamstra
PANINIS TOOK U.S. DELIS BY storm during the past decade, and it's not hard to see why the simple Italian pressed sandwiches have been such a success.
With a blank canvas of bread and mozzarella, creative sandwich makers can experiment with bold new flavors combining meats, fresh herbs, vegetables and even fruit. Recipes are easy for deli staff to replicate, and the sandwich press helps turn any concoction into a hot, portable grab-and-go delicacy.
Lately, a few other recent sandwich category immigrants have been demonstrating the potential to appeal to American deli customers.
Already a growing trend in cities with large Vietnamese communities, banh mi sandwiches are made from a crusty, baguette-style bread, usually filled with cured and cooked pork and topped with fresh herbs, peppers, cucumbers, pickled carrots and daikon radishes. Food blogs already feature heated debates on where to find the most authentic banh mi in various cities. But it's tough to argue with the simple combination of herbs, pickled carrots and daikon that helps give these sandwiches their unique, appealing flavor. It's a taste that will be exotic, but hardly overwhelming, to most American palates.
Mexican tortas are another sandwich category with great crossover potential. The growth of the Hispanic demographic in many parts of the country gives these sandwiches a built-in audience. And, many popular tortas are made with meats such as marinated carne asada, shredded pork or chorizo — ingredients that are already well known to any fan of Mexican food. Slice open a bolillo roll and top with lettuce, tomato, sour cream, jalapenos and avocados, and a host of familiar flavors are combined in a new, exciting way.
Finally, whether you call it a gyro, a doner or a shawarma, these Greek and Middle Eastern sandwiches have become street-food staples in many U.S. and European cities. In fact, an Associated Press report last year noted that doners had surpassed pizza, burgers, french fries and traditional sausages to become Germany's favorite fast food. Made with roasted, shaved lamb or chicken served on pita bread with hummus, lettuce, tomato, hot and mild sauces and various other toppings, they offer another simple way to make a deli counter stand out with something unique.
— Matthew Enis
THINGS ARE DEFINITELY GOING right for ShopRite.
From its base in Keasbey, N.J., Wakefern Food Corp., parent of the ShopRite and PriceRite chains, is expanding in all directions. In the past year, it has ventured further to the Northeast with the acquisition for its independent members of 11 former Shaw's locations in Connecticut, and to the opposite direction with the opening of its first store south of Baltimore.
The chain, known for its aggressive pricing — such as its annual, traffic-driving “Can-Can” promotion — appears to be in a strong position to increase its dominance in its core New Jersey market as well, as rival A&P/Pathmark shutters stores and struggles through a Chapter 11 bankruptcy.
“It's pretty much paradise right now to be a strong and vibrant operator in the greater New York-Philadelphia area,” said Gary Giblen, a New York-based retail analyst.
With 48 licensed operators running most of the company's 232 locations, ShopRite is the No. 1 food-retailing banner in New Jersey. It also operates 47 PriceRite discount stores in the Northeast. Neither Kroger Co. nor Safeway pose a significant threat in ShopRite's core markets, and Wal-Mart Stores' presence is still quite limited.
ShopRite's operating model — unique in the industry — has given it some advantages over its more traditional peers. With all its members operating under the same ShopRite banner, Wakefern is able to leverage marketing and procurement efficiencies, while retaining close control of local store operations.
“No matter how much the world changes, the owner-in-store mentality is very powerful,” said Giblen. “The fact that these are family-run operations with close attention to detail really is an important part of their success.”
The stores generate some of the highest unit volumes in the industry, with per-store averages exceeding $40 million per year in sales for some operators. Wakefern revenues totaled $11.8 billion last year.
ShopRite's growth surge has actually dovetailed nicely not only with the decline of A&P and Pathmark, but also with the weakened economy, as both real estate and capital for expansion have been easier to come by.
Even before the downturn, Wakefern had begun showing its appetite for expansion. In 2007 it acquired 10 stores in New Jersey from Stop & Shop, and that same year it also launched a separate wholesale division to supply other independents. Customers now include Heinen's, Morton Williams, Gristedes and others.
— Mark Hamstra
INCREASINGLY, FOOD PURVEYORS are defining local sourcing in terms of feet rather than miles.
From on-site gardens — in back lots or on rooftops — to captive, dedicated herds, retailers and restaurateurs have moved their procurement, quite literally, in-house.
In a recent survey of 1,527 American Culinary Federation chefs, nearly 80% cited the use of “hyper-local ingredients” as an emerging theme in food preparation. With consumers growing ever more conscious of where and how their foods are sourced, knowing that the retailer they buy from has shepherded the product onto the shelf has become a strong point of differentiation.
For example, a 52,000-square-foot Whole Foods under development in the New York City borough of Brooklyn has reportedly designed a 20,000-square-foot greenhouse for the roof, which could supply 10% of the produce for the store, officials told the local media. And last May, a project called Food From the Sky made its debut near London, blanketing the rooftop of a Budgens supermarket into a vegetable garden sprouting greens and berries for the store below.
Such rooftop gardens can also provide energy savings, advocates say, by reducing the heat absorbed by the buildings underneath in the summer and returning plant life to an otherwise paved-over expanse of development.
Consumers have found more and more restaurants that cater to their locavore tastes, with chefs who, for example, might butcher their meat themselves or feature vegetables grown on their own farms. At Montagna at the Little Nell in Aspen, Colo., for example, chef Ryan Hardy, a cheesemaker, in 2007 bought a local family farm that now produces all the pork, lamb, chicken and eggs for the restaurant, as well as the goat's milk for Hardy's cheeses.
While supermarkets by definition will never be completely hyper-local, more and more retailers are taking a cue from farmers' markets, and working to narrow their geographic range of procurement. Family-run stores like Foragers Market in New York, which buys much of its product from small, local producers, are seeking to cater to consumers who want their food to pass through as few hands — and factories — as possible before reaching their plates.
— Mark Hamstra
WHEN EATALY FIRST OPENED near New York's famed Flatiron Building last summer, food writers couldn't seem to settle on what the place was all about. The New York Times called it “a giant Italian food hall.” The blog Eater referred to it as a “monster Italian superstore,” and Esquire declared it a “visionary new foodie heaven.”
They did seem to agree that, at 50,000 total square feet, Eataly is a very large shop by New York standards, and — with several restaurants and a rooftop beer garden mingled among retail fresh food counters, a bookstore, a cooking school and a vast selection of gourmet Italian products — it is something novel.
“This isn't a giant food court. This isn't a selection of restaurants under one roof,” chef Mario Batali, who opened the store with partners Joe and Lidia Bastianich, explained to the Wall Street Journal. “This is a retail store where we peddle the greatest of Italian gastronomy to people who want to eat it and know how to appreciate it.”
The concept of peddling the greatest of any type of gastronomy is, of course, not new to the world of gourmet retailing. But, what makes Eataly unique is its attempt to fuse specialty retail, gourmet foodservice and foodie education into a single, seamless customer experience. Enjoy the fresh mozzarella with olive pate and prosciutto cotto you had while grabbing lunch at “La Piazza Di Eataly”? Then buy some to take home. It's right there. “We cook what we sell and sell what we cook,” is, after all, one of the Manhattan store's mottos.
Stores such as Jungle Jim's International Market and chains including H.E. Butt Grocery's Central Market, Wegmans Food Markets and Whole Foods Market have proven that giant specialty food meccas can thrive in many different parts of the U.S. It remains to be seen whether Eataly, with its singular focus on the best of the best of Italian cuisine, can do the same in New York. Regardless, the store does seem apt for a moment in time when consumer interest in authenticity, cooking and the story behind different foods has never been higher.
— Matthew Enis