Food retailing continues to be less and less exclusively a supermarket game as a growing number of players operating a variety of alternative formats claim ever larger pieces of the grocery pie.
That sea change continues to be reflected in SN's annual listing of the Top 75 food retailers.
Although SN has been publishing the Top 75 for more than a decade, the nature of the companies listed has continued to evolve -- branching out from a basic listing of conventional supermarkets and wholesalers to include supercenters, warehouse clubs, limited-assortment stores, convenience stores and, for the first time this year, dollar stores.
In compiling this year's list, SN determined that any company whose stores did at least 50% of sales in consumables would qualify, regardless of format.
As a result, the list features a broad assortment of nontraditional food retailers, including three warehouse clubs (Costco Wholesale, BJ's and, as part of Wal-Mart Stores, Sam's Clubs), three convenience chain operators (7-Eleven, Alimentation Couche-Tard and Wawa), one dollar store (Dollar General) and one specialty store (Trader Joe's).
In addition, it features two natural food chains -- Whole Foods and Wild Oats -- that have become more conventional even as they hold onto their unique niches, plus Smart & Final and Winco, a pair of non-membership warehouse stores.
Even the No. 1 company, Wal-Mart Stores, is not a monolith, encompassing discount stores with food, supercenters, a warehouse club (Sam's) and a conventional supermarket chain (Neighborhood Markets).
With Kroger offering expanded general merchandise and operating jewelry stores and fuel centers, and with Albertsons operating freestanding drug stores and fuel centers, it becomes a challenge to determine exactly how much of traditional supermarket sales actually come from traditional grocery assortments.
Among the newcomers to this year's list, Dollar General, Goodlettsville, Tenn., actually cracked the top 20, debuting at No. 18, with total estimated sales of $7.7 billion, of which food and other consumables account for approximately 63% of total volume, or nearly $2.9 billion.
Alimentation Couche-Tard, Laval, Quebec -- which operates Circle K stores in the United States and various banners in Canada -- joins the list at No. 24, with total sales last year of just under $5 billion (U.S.), of which 53% came from merchandise and services.
Wawa, based in Wawa, Pa., debuts on the list at No. 36, with total sales of approximately $2.8 billion and consumable merchandise and services accounting for 64% of the total, or $1.8 billion. Although Wawa carries only limited packaged groceries, it does a large volume in self-manufactured dairy and baked goods, plus extensive food- service offerings that encompass breakfast items, soups, grab-and-go salads and made-to-order sandwiches.
One company that might find its way onto the Top 75 list in the next few years is 99 Cents Only Stores, Commerce, Calif., which was reportedly doing slightly more than 50% of sales in groceries and health and beauty care products as recently as two years ago. However, as it has expanded its store footprint to encompass more seasonal products and imports, the percentage of consumables has shrunk to something just short of 50%, industry sources told SN.
While it's unlikely any drug stores will make the list, given that pharmacy sales traditionally account for more than 50% of that format's total mix, Long's Drug Stores, Walnut Creek, Calif. -- with larger stores and a higher mix of food products -- could some day qualify for the Top 75, observers noted.
However, the likeliest candidates to impinge on supermarket turf and potentially join the list over the next few years will probably come from the ranks of dollar store retailers, several of which indicated that sales of consumables are running as high as 30% or more of total volume.
Dollar stores have been offering consumables for a long time, primarily household chemicals and health and beauty care items, "but they've been expanding in recent years to include more food and beverage offerings to increase the purchase frequency of their existing customer base and to appeal to a larger base," according to David Bishop, director of small-store formats for Willard Bishop Consulting, Barrington, Ill.
"At the same time," he continued, "they've begun increasing the presence of national-brand products to appeal to an even wider base that encompasses more affluent, image-oriented consumers, who are being drawn to the stores because of the treasure-hunt nature of the mix. In the last couple of years, several dollar-stores have begun moving into perishables to increase frequency and overall appeal."
Dollar stores are also growing at a much faster rate than other formats, Bishop noted, tending to open between 500 and 700 new stores per year per company. They are generally concentrated east of the Mississippi, with the exception of 99 Cents Only Stores in the West, "but as those operators begin expanding west and north, supermarkets will become more aware of the competition they offer in the areas of both convenience and price," Bishop said.
"They compare favorably with Wal-Mart on price and favorably with convenience stores and drug stores on convenience, and that's a powerful value proposition," he noted.
The power of the proposition has prompted some chains to offer dollar sections within their store, or to promote merchandise in $1 increments.
Jonathan Ziegler, principal with PUPS Investment Management, Santa Barbara, Calif., said alternative formats have a lot going for them in terms of their prospects for adding more sales from groceries.
"Just as discount stores did years earlier, dollar stores have realized how attractive it is to offer groceries because it encourages additional business and more frequent visits," he explained. "In the process, many of those stores have become mini-supermarkets, moving from simple groceries to frozen and refrigerated foods, and often locating in low-income neighborhoods, which gives them the ability to expand rapidly at low rates. "Given the less-than-exuberant economy of the last few years in the U.S., more people have been attracted to the dollar store format."
Ziegler credited Jim Keyes, chairman and chief executive officer of 7-Eleven, for broadening the appeal of the convenience store format from one featuring beer and cigarettes, and focused most of its appeal on male customers "to one that's more appealing to the distaff side, with a different merchandising image and the introduction of 'dashboard dining,' with more foods-to-go."
Club stores have been gearing their food offerings to smaller sizes to increase their appeal to the supermarket customer, Ziegler pointed out, while drug stores, which have always overlapped supermarkets in health and beauty care items, have also enjoyed substantial sales growth by featuring dry groceries as a convenience.
Gary Giblen, senior vice president and director of research for C L King Associates, New York, said the growing strength of alternative formats to challenge supermarkets is based in part on their ability to serve particular niches while supermarkets, by definition, are more general in their offerings.
"If a consumer wants the best perishables, she can go to Whole Foods," he said. "If she wants the lowest prices, she can go to Save-A-Lot [the limited-assortment stores operated and licensed by Supervalu] or a dollar store. If she wants both great perishables and low prices, she can go to Costco.
"Each alternative format offers specific, clearly superior attributes, whereas supermarkets, which offer a little of everything, are caught in the middle, which makes it hard to do any kind of niche marketing, particularly given the supermarkets' higher cost structures."
According to Bryan Hunt, a high-yield analyst with Wachovia Securities, Charlotte, N.C., "Excess industry capacity and heightened competition from dollar stores, supercenters and wholesale clubs should create a continuing and potentially aggressive promotional environment."