The grocery store can no longer be all things to all people.
It used to be that grocery shopping behavior was the same regardless of age, income or ethnicity. Everyone shopped once or twice a week at their local grocery store and everyone bought the same brands.
But a combination of factors—a renewed interest in healthful, fresh food; an ever-more-diverse population; and, most importantly, the polarization of income groups—has led to a new set of shopping behaviors.
And with them have emerged a new set of opportunities.
Shopping based on income and occasion
While the move to more healthful eating and an increasingly diverse population have caused and will continue to produce fundamental changes in the way Americans shop for groceries, it is the growing gap between the rich and the poor that is having the most profound impact.
Much in the same way that the country’s increasing income disparity has produced new shopping behaviors for apparel (the rise of high-low fashion) and home improvement (the success of DIY megastores like Home Depot and the steady shift upmarket for home furniture and accessories retailers like Restoration Hardware), when it comes to groceries, the rich shop for different reasons than the poor do.
To better illustrate the discrepancy, we have segmented grocery shopping occasions into four types: regular (recipe items needed for preparation that will take place anywhere from that day to up to a week out), convenience (“dinner tonight,” which typically takes the form of freshly prepared meals), stock-up and special (parties, holidays, etc.). As Exhibit 1 illustrates, the rich not only shop for groceries based on convenience and special occasions far more often than the poor—28% and 33%, respectively—they shop at more stores overall.
Income- and occasion-based shopping has, in turn, fundamentally altered the grocery landscape itself. As seen in Exhibit 2, upper-income consumers and their frequent convenience-based grocery shopping have helped drive the success of Whole Foods, which offers a rich selection of made-to-order and prepared meals, while high unemployment has forced a growing share of the population to reduce the number of trips it makes for special occasions and instead concentrate on regular grocery shopping at the likes of hard discounters like Aldi and WinCo and, increasingly, dollar stores.
But as both Exhibits 1 and 2 also make clear, the diverging set of grocery shopping behaviors has created new growth opportunities.
At the high end, grocers are serving the convenience occasion-driven shopper in myriad ways. Regional chains like Fairway and Bi-Rite are offering freshly prepared foods that are near restaurant-like in quality, for example, a model with which Fresh & Easy could have succeeded had their real estate strategy not consisted of too many locations populated with the wrong demographics.
Stores like Sprouts and Fresh Market, meanwhile, are focused on providing an exceptionally personalized, neighborhood-store style of service, with enough staff to ensure quick counter assistance, short checkout lines and help in carrying groceries out to shoppers’ cars.
Targeting the high-income special-occasion shoppers are stores like BevMo, a regional chain whose core offering is wine but also features an ever-widening array of party staples including liquor, soda, gourmet finger food— even hostess gifts. And Smart & Final is using its large food service–sized SKUs to target the special occasion needs of companies.
While the stock-up trip continues to be owned by Costco, a few ethnic superstores are creating hypermarts targeted at key segments of the population. Great Wall in the Mid-Atlantic region, for example, has a huge format focused on Asian cuisine with imported products and many of the features of an Asian wet market, where customers can select from tanks of live fish and crabs and have their selection cleaned one of five different ways. Great Wall also has an extensive selection of frozen convenience foods that are attractive to second-generation Asians who lack the time or patience to cook from scratch.
High-end grocers to watch: Fresh Market, Sprouts, Bristol Farms, New Seasons, Great Wall
5 November 2013