Inside This Issue - Opinion
Discount grocery stores are often right format
June 14th, 2010
Mass market retailers are rushing to adjust their offerings to the thinking of the post-recession consumer.
Nowhere is the trend more evident than in the supermarket industry, where a growing number of companies are rolling out discount grocery stores.
In April Aldi, perhaps the best-known name in the no-frills supermarket field, with some 1,100 outlets in 31 states, opened its first nine stores in Texas, all in the Dallas/Fort Worth market. Seven more units in north Texas followed last month, with a total of 27 slated to be in operation there by the beginning of summer.
The popularity of Aldi’s stores, which offer fresh produce, meat and grocery products at sharp prices (a spokeswoman says select Aldi brands sell for 15% to 20% less than similar items at supercenters and 30% to 40% less than at traditional supermarkets), has caught the eye of competitors. As a result, the ranks of mainstream chains trying their hand at the discount grocery format are swelling.
A case in point is H.E. Butt, which is widely regarded as one of the best supermarket retailers in the United States.
Shortly after Aldi moved into its home state, H.E.B. unveiled Joe V’s Smart Shop, an experimental limited-assortment store, in Houston. In keeping with the no-frills format, offerings are restricted to about 9,000 items, a quarter of those found in a standard H.E.B. outlet.
Texas isn’t the only state where the retailing scene is being altered by the discount grocery phenomenon.
Giant Eagle recently launched two stores in the Columbus, Ohio, market under the Valu King banner. And Sobeys Inc., one of Canada’s largest food store operators, debuted nine FreshCo stores in the Toronto suburbs of Brampton and Mississauga. The format is intended to capture a share of the approximately 40% of food sales in Ontario that financial analysts indicate move through the discount grocery channel.
"The launch of FreshCo underscores our strategy of being focused on food, driven by fresh, and having the right format, with the right offering, in the right markets," says Bill McEwan, Sobeys’ chief executive officer.
In the eyes of the company’s management team — and those of executives at more and more supermarket chains — that means developing a low-cost format to deploy in markets where consumers’ primary concern is price.