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24 Hours That Changed Grocery
Basket Economics: A year ago today, Lidl arrived, Kroger dived and Whole Foods survived—but all three companies had the same idea. Basket Economics: A year ago today, Lidl arrived, Kroger dived and Whole Foods survived—but all three companies had the same idea.
4 Min Read
Photo by WGB Staff
One thing you learn after 15 years of observing the grocery space is that things change. Put more succinctly, retail is about change; and all the cliches you hear about that are true: If you’re not moving ahead, you’re moving backward. If you’re not growing, you’re shrinking. Milk, bread and bananas may make up the heart of the supermarket but new items are its lifeblood. The winners are those with the foresight to have the thing the customer needs before that customer knows they need it; the losers are the ones who send them away empty-handed.
Hear these phrases often enough and you understand the changing nature of grocery is the constant, and in that sense, things slow down. Long-term trends are at work whether the day’s headlines reflect it: consolidation, convenience, wellness, value, elevated private label and the move to digital.
Then there are those days when the headlines and the trends collide. Last June 15, I woke up in Virginia Beach, Va., having driven the night before to witness the unveiling of the very first Lidl store in the U.S. and the dawn of a new age of discounting. As noted, the trends toward such a format were already in motion but here was a handsome new format from a successful international retailing giant built around them.
As Lidl prepped its opening that morning, Brendan Proctor, president and CEO of Lidl U.S. at the time, told me, however, that now that Lidl was in the game, it was preparing to change too.
“It’s not about whether our model works in a market, it’s about what we have to do to adapt to the market. Today is the day we start that work,” he said. “We will study the shoppers coming through today, and the products they are purchasing, and the volumes in which they are purchasing them and those will be the first learnings for us, as to what customers see as our strengths, and on that we’ll start to work.”
Proctor may have been more prescient than he knew, as it became clear over its first year that Lidl had a lot to change, including himself. Proctor is departing the company this month in favor of Johannes Fieber. A variety of studies over its first year indicate the company’s offering is resonating with its shoppers but questions remain as to whether there’s been enough shoppers, particularly given the size of its stores and their locations.
A year after opening its first stores, Lidl is like everyone else: They need to change or they’re not going to succeed.
At the very moment Lidl was welcoming its first shoppers, Kroger executives in Cincinnati were revealing to the market that it would miss its financial targets for the fiscal year, having decided that investments in lower prices in certain markets couldn’t wait, and that it needed to inject another $200 million into digital shopping and service.
Kroger’s actions that morning were the first signals that a more extensive reset would be on the way and, sure enough, the Restock initiative would be announced within months. While announcing that $900 million initiative, CEO Rodney McMullen acknowledged Kroger needed to change: “What got us here won’t get us where we aspire to be.”
Kroger stock in the meantime took an expected beating, but it was nothing compared to what awaited the very next morning. I was reflecting on the previous day's events when news crossed the wire that Amazon was acquiring Whole Foods Market.
A year since that deal was announced—and with dozens of digital and physical retailing partnerships following in its wake—it’s clear that the amount of work ahead for both those entities was somewhat overlooked in the electric pairing of the much-loved brands. Lest we forget, Whole Foods was in a world of trouble at that moment, facing off an activist investor while desperately trying to catch up to conventional peers who’d chased down their points of differentiation and surpassed them in terms of infrastructure investment as sales dwindled. Whole Foods hadn’t changed enough.
Amazon in the meantime had big intentions but hadn’t yet gotten close enough to consumer’s homes to make food delivery viable.
That’s not to say that things haven’t improved a lot since then for both. The sheer heat generated by the pairing helped to turn modest price investments into meaningful sales momentum. Delivery is becoming a reality as Amazon Prime supplants Instacart and the powerful Prime loyalty program sweeps through stores, which should help generate trips and further improve its price image.
It hasn’t come without challenges including in-stock positions as Whole Foods went to work on category management and other initiatives it had missed out on. Reports of CEO John Mackey’s remarks about the difficulty that leaked this week hinted at those challenges, but his response to a question about how Whole Foods’ culture could survive the marriage spoke volumes about the industry today.
While pledging to preserve Whole Foods culture, “pretty much everything else we can change,” he said.
“This is the thing people are most afraid of—it's like, they love Whole Foods, so they don't want it to change.”
Now he’s talking.
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