For Lucky's and Fairway, Differentiation Loses an Edge

Experience is the biggest thing, they said. Whatever else you do, make your stores fun places to visit, they said.

Be different, they said.

We can’t go a week around here without reminding readers of the importance of a fun and differentiated experience for shoppers, especially as an edge in a fast-evolving omnichannel world. Consultants and pundits insist on it. Vendors and suppliers say it. Retailers swear by it. And technology companies are promising to improve it.

The thing about experience, though, is that everybody can learn from it. And in retail, it’s usually only a matter of time until someone else can claim to be just as much fun, and you’re suddenly not as relatively differentiated as you used to be.

That’s one lesson we can take away from the demise of two retailers we’ve been writing about a lot recently, Fairway Market and Lucky’s Market. Each of them distinguished themselves primarily through innovative, fun and differentiated shopping experiences, only to see the industry reel them back in. Experience, as a retail advantage, is often so ephemeral.

While there are differences in the circumstances that led to their respective crises, if you made one of those four-quadrant box graphs consultants love to use, with one axis labeled “fun to shop” and the other “differentiated,” and you populated it with little dots representing various retail brands, you’d probably find both Lucky’s and Fairway in that coveted top-right quadrant. But that’s where everyone else has been moving too.

Fairway recently filed its second Chapter 11 bankruptcy protection in four years, and it said it intends to use the process to facilitate the sale of its 13 stores. Five of them, along with its distribution center, have an interested buyer in Village Super Market, the ambitious Springfield, N.J.-based ShopRite operator. The other eight—located in New York’s outer boroughs, plus Connecticut and New Jersey—will also go up for auction, but some look likely to have their leases rejected, because a sale process that went on for months last year failed to attract buyers.

Fairway’s issues have been almost entirely related to disparity in its cost structure vs. its competitors—high labor, pension and rent costs—exacerbated by a heavy debt load dating back to a leveraged buyout that proceeded its first Chapter 11 stay. With those costs devouring the budget, Fairway found it just too difficult to keep pace with better-capitalized competitors bringing their own experience-focused stores to the market.

At its best, Fairway could be a darn fun place to shop. “Like no other market,” as its saying went, Fairway was a pioneer in fusing traditional grocery with deep specialty selections in categories such as fresh foods, cheese, olive oil and coffee, then merchandising it all with a brash “Noo Yawk” attitude that conveyed a kind of authority no other store would dare. If the signs describing how good a particular variety of apples were didn’t beat you into submission, the free samples of world-sourced cheese around the corner surely did. But Fairway’s destination status was compromised as newcomers such as Whole Foods Market, Trader Joe’s and Wegmans dropped in all around New York, and it seemed to have trouble exporting its brand of pizzazz outside of the city.

Village, which has sharpened its teeth doing battle with Wegmans in New Jersey and most recently waded into the Manhattan food wars by purchasing the down-on-its-luck Gourmet Garage chain, could be the thing Fairway needed: It will get the stores back into family ownership and comes with a strong supplier relationship in Wakefern, an organization that knows how to do big volumes. If it can invest behind recharging the swagger that made Fairway so much fun in the first place, it doesn’t have to end badly.

Lucky’s was a different kind of fun. The Niwot, Colo.-based chain—which filed its own Chapter 11 this week following disinvestment by benefactor The Kroger Co. and the pending closure of 32 stores—was founded by husband and wife chefs whose ingredients for a food store were thoughtfully and creatively blended.

Lucky’s played on the organic trend that was big in Boulder, Colo., but softened the edges in service of cooking, raw ingredients and perceived value. Unlike some stricter counterparts, Lucky’s carried conventional items, such as Campbell’s mushroom soup, because it’s an ingredient in so many traditional dishes. As co-founder and CEO Bo Sharon once explained it to me, “Drano opens drains.”

This selection resided in a store that not only cut its own meat but also smoked its own bacon, made its own pastrami and juiced its own oranges, all in view of the shopper in small stores so wide open the merchandise spilled onto the sidewalk through thrown-open garage doors. (Attractive outdoor produce merchandising is another thing both Fairway and Lucky’s had in common.) And where Fairway appealed to the demanding tastes of New Yorkers, Lucky’s addressed the food-is-culture mindset of millennials, winking at cannabis culture (its 10-cent reusable shopping sacks were called “dime bags”) and pioneering what came to be known as “sip-and-stroll” shopping—via cheap local microbrews and wine on tap.

The positioning was so innovative and promising that Kroger invested in 2016, only to pull its support late last year, saying Lucky’s wasn’t meeting return goals and would require substantial additional investment to reach scale. Lucky’s bankruptcy filing this week detailed declining comps and big losses and confirmed Kroger’s observation: It estimated it would need another $100 million in financing before it could get into the black. 

Kroger Chief Financial Officer Gary Millerchip, who explained Kroger’s decision to divest in a conference call late last year and who also previously was Kroger’s adviser to Lucky’s (and to its discount banner Ruler Foods, which also appears to be at a bit of a standstill after a period of experimentation), suggested that Kroger’s conventional stores had indeed learned … from experience.

“We do believe,” Millerchip said, according to a Sentieo transcript, “that as we get better connecting on fresh and continue to evolve the strategy around natural and organic, obviously, we’re providing a far more comprehensive level of experience for that customer than ever before and continue to do more of that as we continue to build out the strategy around freshness and connecting with our loyal customers.”