As more grocery purchases go digital, it’s critical for brick-and-mortar retailers to establish a point of differentiation to keep shoppers coming into their stores, according to Save A Lot Chief Operating Officer Kevin Proctor.
To that end, discount grocer Save A Lot offers independent supermarkets a business model to compete with bigger players on value and convenience while differentiating themselves with localized product assortments, Proctor said this week at the National Grocers Association’s 2020 NGA Show in San Diego.
“Everybody knows digital commerce is changing the market. It's disrupting, and Amazon is resetting the transaction floor. They're offering customers choice, differentiation, personalization — they're offering a lot. But it's not an area where a lot of people are making a lot of money today. That’s the reality,” Proctor said. “Technology is going to be part of the future for every grocer, but brick-and-mortar is still where the profit is made today in grocery retail. So for independent retailers, the most important thing is how you differentiate in the market, because Amazon will pick away customers if you're not able to offer something on the shop floor that's different.”
Big-box chains differentiate by offering wide variety, while high-end and specialty grocers entice customers with engaging in-store experiences, he explained. Meanwhile, discount and limited-assortment chains such as Aldi, Lidl, Save A Lot and Trader Joe’s — plus others like Price Rite Marketplace, Kroger Co.’s Ruler Foods and dollar store chains — compete with a well-defined, attractive value proposition that incorporates convenient shopping.
“Looking at the future of grocery, it really breaks down into three main buckets, in my eyes. No. 1 is big-box variety. Walmart is the leader in that space, and I think they're going to stay the leaders in that space. The second is high-end, specialty grocery. There are some fantastic retailers, and they do a great job. The only problem is you need a very specific demographic,” Proctor said. “And the last is value. Discount grocery is value and convenience, and there are a lot of operators in that space and certainly more coming into that space. But I think that's the area independents probably need to be most focused on.”
The value concept can be adapted by independents to energize their retail offering and fend off market share drain from larger operators and e-commerce, noted Proctor, a former Lidl executive.
Discount grocery has high growth potential in the United States, with only a 3% market share versus double-digit share in most of Europe, he said. What’s more, the format has among the highest growth rates in retail at 7%, compared with 7% for dollar stores, 4% for supercenters, 3% for warehouse clubs and 1% for traditional supermarkets. The winning formula for discount grocery — championed by fast-growing chains Aldi and Lidl — includes four key principles: a heavy focus on private label (with national-brand quality), limited assortment (approximately 3,000 items), a low-cost service model (ultra-efficient operation, minimal staffing, high productivity) and an easy-to-shop store layout (around 15,000 square feet, fewer aisles).
“Private-brand focus and national-brand quality. What does that do? It offers customers a better value for their money. It also makes the shopping experience more convenient. The experience in a large grocery store is great, but some customers don’t want that. Some customers just want to come in, do their shopping, and go home and spend time with their family,” said Proctor. “Limited assortment, similarly, provides a more efficient shop in a smaller space, something that’s going to drive higher volume and where you can get a better cost for product.”
St. Louis-based Save A Lot now has 14 distribution centers and more than 1,100 stores in 33 states, with the vast majority of the locations licensed by independent grocers. Proctor said the stores typically run 16,000 square feet and carry around 2,000 SKUs across more than 50 private brands. Through an everyday low pricing (EDLP) strategy, Save A Lot said it offers savings of up to 40% over traditional supermarkets on private-label and national-brand products, USDA-inspected meat, farm-fresh produce and non-food items.
Where Save A Lot differs from other discount grocery models, according to Proctor, is its stores’ localized assortments and local ownership, allowing independent operators to better cater to customers and build relationships in their communities.
“What Aldi and Lidl can’t do is they can't differentiate on the shop floor to a local community. And what that means is they can't bring in local DSD product. It doesn't make sense. They can never do that. They will never do that. That's an opportunity that every independent has — how do I localize my store on the assortment front? How do I localize my store to the community?” Proctor said. “You can read the market research, but more than 90% of customers will shop a retailer because they trust the retailer. And I think that's the edge in our business. We say you need to compete on price, win on convenience and differentiate on localization.
“No matter what you're doing, there's elements of this that you can take into your store,” he added. “Everything within those four [discount grocery] principles makes sense. To what level you do that is up to you in terms of what you think makes sense for your store and your community and demographic. But I do think the key is differentiation.”
Owned by Canadian private-equity firm Onex Corp., Save A Lot in January announced that it obtained new financing to help support operations and spur efforts to modernize stores and enhance the shopping experience.
The chain, which in December shifted to a new headquarters in St. Ann, Mo., has been updating its St. Louis-area stores and exploring new customer-facing digital technologies under a plan to transform its business model. For example, a partnership with Amazon calls for Save A Lot to make more than a third of its stores pickup and payment sites for Amazon.com purchases.