Winter 2017 Retail Review Newsletter
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MID-AMERICA RETAIL REVIEW Winter 2017 Newsletter | Issue 08 The Rise of Private Label: A Grocery Study Mid-America | Winter 2017 | 3 product has long had a perception problem. Previously synonymous with “generic” or “inferior,” RETAIL REVIEW the success of stores like Trader Joe’s and Aldi has elevated expectations of in-house brands. Also, despite four in five people saying private-label product “met expectations,” only 23% of consumers say they completely trust the safety of the private labels they consume. WINTER 2017 It’s no secret that private-label sales yield higher margins for grocers, but what’s less known is that they also tend to taste better than their name-brand counterparts. Brand loyalty and trust are hard to come by these days, so maybe this private-label thing isn’t so simple. But to the grocers who can match quality product with a well-tailored marketing message, go the spoils. E-GROCERY: IS THERE HOPE FOR THEE? Since the advent of the internet, evangelists That doesn’t mean e-Grocery is going the way have heralded it as a panacea to the woes of of the dodo. The landscape is indeed shifting humanity. Some efforts have proved more fruitful toward the convenience of online ordering – it’s than others, however. Time being our most limited just a matter of infrastructure and quality control. resource, shopping for groceries online seems Instacart operates as a third-party same-day like a natural alternative for the busy professional, grocery delivery service whose CEO called the tired parent, or impatient millennial. As consumers Amazon-Whole Foods merger a “blessing in and competitors alike anxiously await the disguise.” Not sitting idly by, grocery chains across full ramifications of Amazon’s Whole Foods the US are clamoring for their share of what’s acquisition, it’s worth noting e-Grocery’s lackluster, expected to be a $100 billion online grocery THE RISE OF PRIVATE LABEL: A GROCERY STUDY twenty-plus year history. opportunity by 2025. While their focus has largely US grocery shoppers could save as much as $44 Couple that with 68% of all grocery carts leaving 96% of Americans have used their internet been on “click and collect” models, many are now billion each year, according to a study conducted stores with 10 items or less, and it’s clear the big- access to shop online, and according to a survey signing deals to support “last mile” strategies. by the National Bureau for Economic Research. box grocery model is due for reform. While these conducted by PWC 45% of all product searches This year, for example, Albertson’s (parent How, you might ask? Simple: Eschew the more giants traditionally benefit from greater volume in start on Amazon. Despite sending shockwaves company to Jewel) began rolling out internal same- expensive national brands, and embrace the a particularly tight-margined category, shoppers throughout the industry with their most recent day delivery services, a drive-up grocery, and even private-label. are spending less time there. Less time in store merger, Amazon has been in the grocery delivery acquired meal kit company Plated. On November And why not? correlates to smaller baskets and thereby weaker game for a decade now and continues to 28, the company announced it had inked a deal flounder. The hype of meal kits and newfound with Instacart, promising 2-hour delivery services The internet age ONE IN FIVE US dollar spend. distribution potential notwithstanding, Amazon to the customers of 1,800 banner stores by mid- has ushered in a According to Mid-America’s 2017 Urban Grocery Fresh has retreated from all but the largest of year 2018. With this, Instacart now supports the new era of price Study, however, there is definitive evidence of SHOPPERS AVOID markets. Strained by low density populations and top 5 grocers in the country: Albertson’s, Kroger, consciousness, market correction vis-à-vis a trend toward down- unidentified sources citing USPS rate hikes as a Publix, Ahold, and H-E-B. increasingly driving sizing. Chicago lost a net total of nine grocery sites contributing factor to poor profitability, the online consumers to split SUPERMARKET over the past 24 months, with the average size of Forging partnerships and forgoing costly retailer is taking steps back just as traditional warehouse space is allowing Instacart to succeed their shopping outgoing grocers at 38,000 square feet, whereas grocers are making strides forward. amongst multiple CENTER AISLES new or proposed entrants averaged only 25,000 sf. where early dot-com delivery companies like sites. Once Amazon Fresh is currently rated at an average 3.3 Webvan spectacularly failed. Early in the new As grocery footprints shrink, this “right-sizing” out of 5 stars, “landing between ‘It’s okay’ and ‘I millennium, consumers weren’t quite ready for upon a time, the ALTOGETHER will necessitate inventory consolidation as well, supermarket was a like it’ [on its own] review system.” From damaged e-Grocery. Nowadays though, 30% of digital and herein lies an opportunity for the bewildered produce to missed delivery windows, Amazon’s shoppers spend a quarter of their food budget bastion of one-stop large-chain store. Although the Mid-America extended grocery experiment suggests it won’t online, with that figure expected to more than shopping, a place of convenience; today, these report notes a 3% drop in market share for “major” easily be the whirlwind it was for online book sales. double in the next 10 years. 40,000+ square foot behemoths are largely more industry players, smaller independent grocers’ The Amazon-Whole Foods deal was expected overwhelming than otherwise. In fact, a recent share declined more sharply at 7% with little to kill Instacart and platforms like it. Instead, report by behavioral analytics firm VideoMining anticipation for significant recovery. found that one in five US shoppers avoid grocers have found a beacon of light for the supermarket center aisles altogether—that’s an Scale still offers insulation, but competition at this digital future ahead. 8% uptick in “perimeter shoppers” since 2012. level is fierce. Enter: the private-label. While far from a recent innovation, privately branded grocery Mid-America | Winter 2017 | 2 Mid-America | Winter 2017 | 5 HOLD YOUR HORSES, AMAZON Chicagoland retail vacancy rates for Q3 DELIVERY & EXCHANGE: More brick & mortar retail operations are expected to open reached a 7-year peak, with the gap between Q3 CHICAGOLAND VACANCY RATES than close this year, according to a report by a global retail urban and overall rates widening for the fourth NEEDING THE STORE FOR MORE research advisory. To be sure, Amazon’s meteoric growth is consecutive year. Landlords in the more popu- 14.00% nothing shy of impressive, and its acquisition of Whole Foods Technologists might be dreaming of lation-dense urban areas fared relatively better 12.00% no less than disruptive. Though retail’s grim-reaper it is not. drone delivery, but with at least 30% than their suburban peers, but neither were 10.00% of all products purchased online being completely insulated from the big-box closures 8.00% Online sales still only account for 10% of total retail, and when returned, retailers cannot forget there and down-sizing that have been thematic of 6.00% it comes to operating results, Moody’s Investor Services say are two sides to the omnichannel coin. the 2017 retail environment. 4.00% Amazon is the weakest of the big US retailers. The Prime Anticipating moves by Amazon and membership base is “wildly inflated,” with Costco total 2.00% Whole Foods, Costco has unveiled membership likely trumping Amazon by some 15 million users. Shopping center development has seen a 79% 0.00% two new delivery options for grocery decline since 2005, with expectations of only 2010 2011 2012 2013 2014 2015 2016 2017 The notion that Amazon will take over the grocery game is product and sundries: guaranteed free also a myth, the agency adds. Kroger sells around $130 billion 1,060,000 square feet of new space coming to Urban Overall 2-day delivery and a same-day option market—a 31% decrease from last year—ac- in food, and Walmart does north of $200B. Even including at an additional cost. Kohl’s unlikely cording to Mid-America’s 2017 Shopping Center Report. Grocery-anchored centers account for seven Whole Foods, food sales at Amazon amount to less than $20 partnership with Amazon deepens, of the eleven planned developments this year, as the category still benefits from residual growth largely billion annually. from first a store-within-a-store play the result of competition for the market share once held by Dominick’s. Despite the number of new Still, do not take this e-titan lightly. The lion’s share of the firm’s to now accepting returns on behalf of developments and expansions remaining relatively steady over the past three years, the data reflects profitability comes from its web services solutions platform— the online retailer. Walmart promises an era of decreased footprint demand and adaptive re-use of existing space. meaning they can afford to lose (a lot of) money elsewhere. a 30-second return window, with its “Amazon didn’t acquire an iconic grocery store just for “Mobile Express Returns” program Although year-end absorption should nominally deflate vacancy rates heading into Q4 results, we ex- the quinoa.” The future of grocery depends on being able launched this November. Picking pect continued box closures and tenant right-sizing to drive rates back up early next year. Look to see to respond to rapidly changing preferences. Amazon is up? The company has also rolled out an inflection point toward downward trending correction by Q3 2018, as new, more experiential retail, particularly well-equipped to make use of behavioral data gaint self-service towers that act like entertainment and dining experiences start to take hold.