History in the Making
By Jenny McTaggart
The first decade of the 21st century was rife with challenges, but supermarkets continued to chisel avenues for growth.
Perhaps it's too soon to put the most recent decade in retailing – 2000-2010 – into historical context, as the events are still so fresh in our minds and have yet to reveal their lasting impact. That said, there's plenty to ponder in terms of both small shifts and major events that changed the business and continue to drive the industry in new directions today.
The first 10 years of the 21st century were certainly rife with challenges: The decade began with anxiety over Y2K and its impact on corporate infrastructure, followed a year-and-a-half later by the tragic events of Sept. 11, 2001. Then at the end of 2007, the United States descended into a recession from which it has yet to fully recover.
The decade was full of hard knocks for supermarket operators, too. On the food safety front, the first reported case of mad cow disease surfaced in the United States, and multiple outbreaks in produce left retailers on guard, giving rise to changes in how food is traced back from farms and fields to stores and kitchen tables. A major grocery strike and lockout in California involving Albertsons, Safeway and Kroger made national headlines. Grocers also struggled with plenty of hits to their bottom lines, including losses from credit card interchange fees.
Perhaps most telling, Walmart sealed the deal on its retailing supremacy when it officially became the country's leading food retailer in 2003.
A more recent news event of 2011 – when one of grocery's biggest players, Supervalu, said it would pursue strategic alternatives for its troubled operations – has caused analysts and industry observers to lament the downfall of the traditional grocer, and to point to some caution signs from the recent earlier decade.
Although much of Supervalu's present-day troubles can be linked directly to its accumulation of massive debt as a result of its ill-fated 2006 acquisition of Albertsons' 1,124-store portfolio consisting of Acme Markets, Bristol Farms, Jewel-Osco, Shaw's Supermarkets and Star Markets, overarching general trends were already in play during the middle of the decade that would make it increasingly difficult for the former wholesale-driven company to make a fluid leap to become the nation's second-largest retailer overnight.
In the wake of Supervalu's announcement, a huge shift in grocery consumers had already begun changing the dynamics of shopping habits. Between 2000 and 2011, traditional grocers' market share – including publicly traded players such as Kroger and Safeway – had shrunk to 51 percent from 66 percent. The primary driver behind the shift, as depicted by a study conducted by UBS and Kantar Retail, found that traditional grocers were stuck in the middle of the market on several key shopping points.
For starters, customers who traded down during the middle of the recession formed shopping habits with cheaper alternatives, such as Family Dollar and Dollar General, while on the other end of the spectrum, a growing level of discretionary income allowed more affluent consumers to upgrade their purchases to more expensive alternatives. One of the fastest-growing industry segments was niche retailers, such as Whole Foods Market, Trader Joe's and The Fresh Market, which boasted a wider selection of fresh, organic and locally grown/produced food items.
Additionally, the increased presence of general merchandise retailers in the grocery market added more fuel to competitive fires.
Changing for Good
Also notable in Progressive Grocer's history, in 2002 the magazine merged with a former competitor in the trade press arena – Supermarket Business magazine. What may have seemed like an odd change at the time has resulted in a strengthened brand and a dedicated staff that has persevered even through some tough times.
Likewise, many supermarket companies have stayed in the game even when Walmart and other competitive forces caused some sleepless nights. The winners – those grocers that are still standing – have learned from their mistakes, picked up new ideas and ultimately tried their best to listen to their customers. Several regional chains have maintained their hard-earned positions at the top of the supermarket pyramid, while plenty of independents are winning shoppers over every day with stellar service and smart marketing.
To put the decade more in perspective, here's a topical recap of some of the industry's most memorable events from 2000 to 2010:
Retailers also ramped up their experimentation with online ordering and delivery. Webvan was an early Internet player that showed a lot of promise. At the 2000 MarkeTechnics conference, a tech-focused trade show organized by FMI, author Patricia Seybold predicted, "Within 12 months, every bricks-and-mortar supermarket will have a clicks-and-mortar component."
Whether every supermarket got on the online retailing bandwagon is questionable, but plenty invested in the emerging technology to provide a new service to their customers. Supervalu struck a deal to supply Webvan with product as Webvan entered the Atlanta market. Meanwhile, Stater Bros. signed an agreement with WhyRunOut.com. Safeway, which ended up making a major commitment to online retailing, signed an agreement with GroceryWorks.com.
In one of the biggest crossover moves, global retailer Ahold bought Peapod in 2000, pumping $73 million into the online operation and gaining a controlling 51 percent interest. By the end of the decade, more brick-and-click partnerships were the norm, as evidenced by Peapod and Stop & Shop. In New York City, meanwhile, FreshDirect proved that the urban lifestyle warrants online grocery shopping. The company, which launched in September 2002, reached profitability and reported $2 million in sales in 2004.
Many retailers tried their hand at digital marketing programs. S&H Greenpoints became a popular digital component of the tried-and-true S&H Green Stamps program, while frequent shopper programs with rewards grew in popularity. While some grocers were skeptical at first, since consumers were concerned with privacy issues, many ended up making significant investments in loyalty programs. In the most pronounced example, Kroger began working with British marketing consulting firm Dunnhumby to develop better data-mining practices.
A growing number of grocers began tying in discounts with gasoline purchases to offer an unbeatable promotion in the midst of rising fuel prices.
On the productivity side, the Uniform Code Council launched UCCnet in hopes that it would become the world's largest electronic business-to-business marketplace. Pilot tests of scan-based trading showed much promise, while RFID technology brought hope for vast improvements in supply chain efficiency and upgrades in retail shelf performance. Rochester, N.Y.-based Wegmans, always ahead of the curve, got involved in these technologies, as well as a pilot project to evaluate the benefits of product synchronization.
Health & Wellness Here to Stay
In an effort to help strengthen organic standards, the U.S. Department of Agriculture proposed a rule that no sludge, irradiation and genetic modification could be used to grow organic produce. The USDA finalized national organic standards in 2000, and in 2002 the standards were fully implemented, with products now labeled "USDA certified organic" appearing on shelves for the first time.
By 2006, even Walmart was heavily in the organics game. The retailer announced it would be getting more aggressive on organics with hopes of being "the low-price leader in organics."
Some retailers struggled with genetically modified foods, as they observed trends in Europe and heard a growing amount of concern from their own customers. The now defunct but hugely innovative Norristown, Pa.-based Genuardi's Family Markets (later acquired by Safeway) advocated the labeling of foods that had been genetically modified or that contained GMOs. The company also sought to eliminate GMOs where possible in the production of its private label and store-prepared fresh foods.
Makers of soy foods put forth their best efforts to make soy a center-of-the-plate protein, while a controversy brewed over the name soy "milk," as opposed to soy beverage.
The growing obesity epidemic in the United States spawned much debate in the industry and resulted in some impressive product reformulations and shifts in how the industry markets to children. Early on in the decade, advocates began calling for taxes on junk foods and demanded healthier school vending machines.
Then the low-carb craze hit in 2003, bringing with it the Atkins Diet and sales impacts on steadfast categories such as bread, pasta and potatoes (along with positive lifts in meat and other proteins).
Following the low-carb trend, which pretty much fizzled out a few years after it began, the industry turned its attention to trans fats. Trans fats labeling requirements hit food manufacturers in 2006, and New York City became the first major U.S. city to ban artificial trans fats from restaurants, school cafeterias and other foodservice establishments.
Toward the end of the decade, the "green" trend made a big splash in the industry. PG featured its first-ever green issue in April 2007, highlighting retailers' accomplishments in sustainability – including Walmart's commitment to roll out "high-efficiency" supercenters – and grocers' achievements in LEED Green Building design. Locally grown foods and Fair Trade practices were other big trends featured in the issue.
Other hot health-and-wellness initiatives included in-store health clinics, rating systems on how healthy foods are, and in-store dietitians and other educational efforts to help customers learn more about nutrition.
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