Supermarkets Still Losing Share

MARK HAMSTRA

ELMWOOD PARK, N.J. — Traditional supermarket operators showed strong sales growth in 2006, but they will still lose share to nontraditional operators during the next five years, according to a presentation last week by The Food Institute here and Barrington, Ill.-based consulting firm Willard Bishop.

In its annual “Future of Food Retailing” report, Willard Bishop projected that traditional supermarkets will see their share of the U.S. market for food and consumables fall to 37.3% by 2011, down from 44.1% today. By 2013, the study projects that traditional supermarkets and nontraditional outlets will have an equal share of the market.

“Traditional supermarkets are still losing share, but at a different rate and more selectively,” said Bill Bishop, chairman of Willard Bishop. “Consumers are continuing to spread their purchases of food and consumables across a broader array of store types.”

In 2006, the total market for food and consumables was $859 billion, an increase of 4% over the volume of the preceding year, the report concluded. That compares with sales growth of 2.6% for traditional supermarkets in 2006.

Supercenters, despite the slowdown in development projected by Bentonville, Ark.-based Wal-Mart Stores, will see their share of the market increase to 20.3% by 2011, up from 14.5% today. Club stores, dollar stores and convenience stores also are expected to see gains in market share.

Traditional supermarkets will register a compound annual growth rate of just 1.4% during that time — less than the projected 2.9% rate of inflation — vs. a 10.7% compound annual growth rate for supercenters, 9% for limited-assortment stores (which include Trader Joe's, Aldi and Save-A-Lot) and 7.3% for “fresh format” stores, such as Whole Foods and Wild Oats.

The sales growth of traditional supermarkets in 2006 — which reflects a reversal of the declines the study reported for 2005 — can be attributed to the creation of better value propositions on the part of these retailers, according to Willard Bishop.

“Traditional supermarkets' responses to the past decade's competitive activity are taking hold,” said Jim Hertel, managing partner, Willard Bishop.

He said successful supermarkets are competing effectively against supercenters by employing new pricing strategies that go beyond shelf pricing, often incorporating EDLP; increasing their reliance on private-label products; and incorporating high-impact promotions. At the same time, they are enhancing fresh offerings and the in-store experience to compete with fresh-format operators.