Customer Loyalty May Determine Winners In Grocery Store Wars

Atlanta's rampant grocery store wars may have claimed a handful of locations, but the region's growth is expected to keep the fire under new store growth.

The Fresh Market recently announced plans to shutter 15 stores across its chain, including two locations in Metro Atlanta: Snellville and North Druid Hills. The upscale grocer will continue to operate eight metro-area stores, including in Marietta, Dunwoody, Alpharetta and Buckhead. The Fresh Market operates more than a dozen stores in Georgia.

This comes months after North Carolina-based natural grocer Earth Fare pulled its two stores out of Atlanta.

To The Shopping Center Group Operating Partner Marc Weinberg, both The Fresh Market and Earth Fare are the latest casualties of Atlanta's burgeoning grocery wars.

“Atlanta historically has always been over-grocered. I've been representing Whole Foods for 20 years now, and they always said Atlanta … [is] an extremely competitive grocery market,” Weinberg said.

And it is not just Atlanta.

JLL Retail CEO Greg Maloney said multiple grocery stores are crowded into tight trade areas across the country.

“I don't think there's any question that we're over-grocered. On some corners, you go even [within] a half-mile radius, you may have five grocers. And that is not uncommon,” Maloney said.

But as the metro area grows, the grocery industry continues to pursue a strategy of stratification — stores that pursue specific customers for specific needs. There are upscale fresh and organic food purveyors like Whole Foods, the value fresh food purveyors like Trader Joe's and Sprouts, and the discounters like Aldi and Lidl.

But the general game plan is all these niche players are looking to steal customers — and customer loyalty — away from the staple grocers that dominate a market, Maloney said. In Atlanta, that is Kroger, Publix and Walmart.

Kroger, which has 150 Georgia stores, dominates with more than 30% of the grocery store share in the state, according to the latest data supplied by The Shelby Report. Walmart is second with 105 stores and nearly 25% of the market share, followed by Publix, with 155 stores and almost 22% of the market share. They are the big three. According to The Shelby Report, all other grocers in Atlanta command less than 5% of market share each.

Yet they are growing in Metro Atlanta. Kroger is gearing up for a handful of new stores. Publix is eyeing locations to roll out its GreenWise Markets organic food store concept in Atlanta. Aldi, Whole Foods and Lidle continue to churn out new Georgia locations.

“The players that are out there are so strong," Fuqua Development principal Jeff Fuqua said, adding that the typical grocery store looks to capture at least 10,000 customers within a trade area. “These stores do so much research now. They want to land these stores right where their customer is.”

Besides, the metro region's retail fundamentals are too much of a lure for them not to continue to grow in Atlanta, Weinberg said.

“That's the benefit of Atlanta. You follow jobs and residential growth, you'll find grocery stores,” he said.

That sentiment was echoed in a second-quarter Marcus & Millichap Atlanta retail report.

“Strong net migration and household formation metro-wide are driving retail sales above the national average in Atlanta. To meet the needs of the growing population and more households, several necessity retailers are under construction, including Whole Foods and Kroger,” Marcus & Millichap officials said in the report.

With more than 45,000 jobs created in Metro Atlanta the past year, retail landlords have absorbed 4M SF, reducing vacancy to a healthy 5.7%, according to Marcus & Millichap.

“A healthy retail sales base has underpinned strong net absorption, which will drive vacancy to a seven-year low at year’s end and support rent growth,” officials stated in the report.

No Room For Mistakes

The problems with Earth Fare and The Fresh Market's performance in Atlanta may have been more endemic to the companies themselves, said David Livingston, founder of grocery store location consultant DJL Research.

“Those are just two poorly run companies. That's more of an operations management thing,” Livingston said of Earth Fare and The Fresh Market. “I expect both of them to be closing more stores over the years” as Trader Joe's, Sprouts and Whole Foods continues to dominate their niche segment.

In a competitive market like Atlanta, operation missteps and wrong locations can punish a grocer, experts say. Right now, the landscape is focused on the war for not only customer loyalty but also an increasingly busy American consumer who is now spending more on eating out than shopping for groceries.

Since the 1970s, Americans have been spending more on food outside the home, from 26% in 1970 to 43% in 2012, according to Time.com. And then in 2015, retail sales at U.S. restaurants outpaced those of grocery store purchases, “upending a longstanding pattern in which the bulk of American spending on food occurred at the supermarket,” Quartz reported.

Grocers have responded to this trend in kind, offering more prepared meals, establishing restaurants within their stores — in some cases even run by independent groups — and focusing more on internet sales and delivery.

“Time and value are probably the two biggest things. I don't care how much money you make ... people want value. They want to be able to get good products at a value. And in the grocery market, that's key,” Maloney said. “The reason people are not going home and preparing meals like they once did is they don't have the time. They really don't have time to sit down and prepare a meal like they did in the old days.”

"It's possible that all of these formats can succeed, depending on their operational effectiveness and their ability to resonate with specific customer segments. By the same token, some grocery chains will fail because they do not align with a specific customer segment or because of poor management," Marcus & Millichap Senior Director Tim Giambrone said in an email to Bisnow. "The fact that there are many grocery stores and grocery chain options does not inherently imply that some will fail, but it does make the competition for customers much more challenging. If a grocer has a strong business model that resonates with a target client base, they can succeed even in a crowded market."

Maloney said grocers, particularly mainline grocers like Publix and Kroger, have the advantage of shopper psyche. Consumers are very loyal to a grocery brand, and if a Publix or Kroger can meet a need that consumers are finding at other providers — organic groceries, prepared meals, health foods — they will likely return to where they go for their staples.

All of that will likely lead to a wave of consolidation among the grocery chains at some point, Maloney said.

“[Grocery store operators] know they have a cult-like loyalty. There's no question that they think that consolidation is down the road,” he said.