Supermarkets beware. Safeway, Kroger, Albertsons, Giant, and many more who have ignored customers for decades will soon fall….and it will be epic. Operating on already razor thin margins (only a few pennies per item) traditional grocers like the ones mentioned above will have no choice but to close their doors and board up windows leaving a slew of food deserts across the U.S.
According to this Business Insider report, the situation is beyond bad as retail space dedicated to food sales is at a record high even though new store growth is outweighing demand making grocers cut prices to compete.
Department stores and many mall-based retailers are closing thousands of stores after years of over-expansion. Now the grocery industry appears to be heading toward a similar fate.
Like mall-based retailers did in the 1990s, supermarkets have been expanding rapidly across the US in recent years.
“Over the past 10 years, we saw high growth from some of the more traditional players, which has resulted in saturation in the US, and forced mainstream supermarkets to slow openings,” Danielle Dolinsky, an analyst at retail consulting firm Planet Retail RNG, told Business Insider.
For some companies, however, the pace of growth is only accelerating.
Discount grocers including Aldi, Lidl, and Dollar General are collectively planning to open thousands of new stores over the next couple years.
At the same time, tech companies like Amazon — with its recent acquisition of Whole Foods — are also entering the food wars.
Competition is ramping up at a time when the amount of retail space devoted to food sales in the US has already hit a record high.
The US has 4.15 square feet of retail food space per person, which is nearly 30 times higher than in 1950, according to CoStar Group data cited by the Wall Street Journal.
But demand hasn’t kept up with unit growth.
Total US grocery sales fell nearly 2% in the 12-week period ending July 15, compared to last year, according to Nielsen data.
Grocery stores have been slashing prices to drive sales and better compete, which is driving profits lower in a business that’s already pressured by razor-thin margins.
Whole Foods’ same-store sales have been falling for the last two years. Even long-dominant companies like Kroger, the largest supermarket chain in the US, are taking a hit.
Kroger’s impressive 13-year streak of quarterly same-store sales increases ended earlier this year. That metric has now dropped for the last two consecutive quarters.
Kroger blamed the declines on food price deflation.
It’s also facing growing price competition from Aldi, Dollar General, Lidl, Walmart, and others.
A 2014 price study found that Aldi’s prices were about 22% cheaper than Kroger’s. Aldi has more than 1,600 stores in the US with plans to open another 600 within the next couple of years.