Non-traditional grocery stores make strides in the grocery market, despite low profit margins. Operators say the grocery business is attractive because customers buying eggs or chicken for dinner might decide to also purchase a pair of shoes or video game for the kids.
A few company plans for new grocery options:
Target: Remodeling about 100 traditional stores to add produce, meats, eggs to food selection.
Dollar General: Opening 635 stores, 20 of which will be Dollar General Plus and 40 of which will be Dollar General Market. A traditional store in Atlanta and Snellville expected to open later this year.
Costco: Opening nine new warehouses in 2013
Walmart: Opened a new Supercenter in Stone Mountain last Wednesday. Company plans 210 to 235 new stores in 2013, 80-100 of which may be Walmart Neighborhood Market locations.
RaceTrac: Opened 15, 6,000-square-foot stores in Georgia since 2012. The company operates 53 of the larger-sized stores throughout the country.
The days when getting groceries required a trip to a supermarket dedicated solely to rows of food and a butcher have long been a thing of the past.
But today not only are big box discounters such as Walmart and Target adding food to their regular line up of baby clothes and garden tools, smaller retailers like Dollar General and convenience store operator RaceTrac operate grocery businesses or are adding more supermarket-like goods to their shelves.
Atlanta-based RaceTrac is building larger stores to make room, in part, for more than 4,000 grocery and retail items. Dollar General expects to open 40 new grocery stores nationally this year under the company’s Dollar General Market marquee.
Recently online retail giant Amazon announced it would be delivering food in select Los Angeles neighborhoods, the second city in the company's toe-dip into the grocery business. (Seattle, the company's home, is the first).
Why so much attention to groceries?
Retailers see groceries as a way to add convenience for hurried and time-strapped Americans who like the idea of getting tires for their car and steaks for a weekend barbecue all in one place, say the chains’ operators and food industry analysts.
“If you can help consumers save money or time or both, those seem to be winning formulas,” said Darren Seifer, food and beverage industry analyst for NPD Group, a New York-based consumer research firm.
The numbers show the trend. Sales at traditional supermarkets grew 4.4 percent in 2011, according to a study by Willard Bishop on the Future of Food Retailing. Non-traditional grocers saw sales jump that year by 5.9 percent.
In fact, Dollar General reported same-store sales grew 2.6 percent in its first quarter partly because of strong consumables business, which includes food and products such as makeup and lotion. Walmart reported that consumables are 55 percent of its business.
That’s not to say there aren’t drawbacks. The grocery business is notoriously volatile because of price swings and supply pressures. Profit margins are generally about 1 percent.
But then, everyone has to eat. Unlike shopping for a pair of shoes or a Blu-ray, consumers purchase food at least two to three times a week, if not more.
“It’s a low-margin business, but with a high volume,” Richard Galanti, a spokesman for warehouse retailer Costco.
To that end, RaceTrac is building larger stores — about 6,000-square-feet — to make room for more grocery and retail items.
“As we have expanded our food offerings, we have learned that there is a need to change guest perceptions as to what’s offered in convenience stores,” said Allison Moran, chief executive officer of RaceTrac. “At RaceTrac, we do this by offering our guests high-quality, fresh food at a value.”
Some of the products RaceTrac offers include salads, fruit cups, yogurt, hamburgers and quesadillas. One of the company’s chief competitors in Atlanta, Quiktrip, is often credited with pushing the grocery envelope by adding bananas and salads to traditional gas station snacks such as cookies and sodas.
It won’t be easy to unseat supermarkets, however. They have larger, more diverse selections of food and employ staff, such as butchers or pastry chefs, who can answer questions for customers, provide specific cuts of meat or fill customized cake orders.
And consumers trust supermarkets more when it comes to fresh products such as meat, vegetables and fruits, the analysts said.
Walmart announced last week that it planned to get produce to its stores — which include its supercenters and Walmart Neighborhood Market standalone grocery store concept — faster and with better quality. The company said it would cut out the middle man by purchasing fruits and vegetables directly from growers and do independent weekly checks at stores.
“We’ll be delivering our produce to stores a day sooner,” said Danit Marquardt, a Walmart spokeswoman. “This gives an extra day of freshness to our customers.”
To back up its commitment, Walmart said if consumers are not pleased with its produce, the company will give them a refund, even if they no longer have the product. (The consumer must provide a receipt, though).
Where the retailers build full-service grocery stores or smaller, mini-grocery products depends on demand, customer feedback and demographics, the operators said.
For instance, Dollar General pays special attention to rural areas and communities with few grocery options — often called food deserts — for locations of Dollar General Market or Dollar General Plus, a mixture of its grocery and traditional discount store products, said company spokeswoman Crystal Ghassemi. Dollar General has almost 90 stores in metro Atlanta; none is a Dollar General Market.
Target spokeswoman Jamie Bastian said the chain will remodel almost 100 stores of its traditional stores to include produce and meats, bringing its mini-grocery model to about 1,220 stores. The company has 250 SuperTargets, which offers a full service grocery store.
“We will continue to evaluate and approve store investments one at a time, whether that be a SuperTarget store, general merchandise store or expanded fresh food format store, to determine which format makes the most sense from a business standpoint and community standpoint,” she said.
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