Will Amazon really deliver?
It now seems clear that Amazon is finally making its much anticipated move into fresh grocery delivery. What’s not clear is if this move heralds a paradigm shift in retailing or just another overhyped attempt to replace bricks and mortar stores.
The online retailing giant has added metropolitan Los Angeles to its website as a delivery area for its AmazonFresh business. For customers who order more than $35 worth of groceries by 10 a.m., Amazon offered same-day delivery by 6 p.m.; to customers who order the minimum by 10 p.m., it will deliver by 6 a.m. the next morning.
Amazon said customers have the option of “doorstep delivery,” in which orders are placed in sealed, temperature-controlled tote bags at a home; or “attended delivery,” in which tote bags are delivered in person.
One southern California retailer told Supermarket News, “as Amazon moves into Southern California, it will initially attract consumers from the middle-income range upward—which will impact more traditional and upscale retailers first—then try to work its way down to other consumers.”
Wal-Mart is taking a wait-and-see attitude toward delivery. One executive said that its ongoing test of internet grocery ordering and delivery in California has not been met with enough consumer demand to make it a successful business. “Grocery delivery is not new for us. We know what it is and we know how to do it” he said. “We can pick from our own stores and roll that capacity out in months. If the customers say that’s what they want, we are good to go.”
Kroger eyes delivery programs
Kroger CFO Michael Schlotman told analysts that the retailer is looking at ways of developing a grocery delivery business: "We’ve had folks spend a lot of time in Europe lately trying to understand some of depot businesses and ideas like that where you can essentially have a great big drive-thru where you call in your order and the order is ready for you and you put it in your trunk. Those potentially have merit.”
Kroger is also evaluating new strategies to expand in urban locations. Ed Hudson, Senior Director of Strategic Insights, said: “We are very actively considering what to do in the urban environment. There are six incubation ideas for downtown alone, different sizes, and different ways of doing business. New ideas are a great thing, but it does us no good to create something that isn’t repeatable.”
Supermarkets stop share erosion, researcher says
U.S. supermarkets finally stopped losing market share to warehouse clubs and superstores in 2012. According to a study by DSR Marketing System, based on government statistics, showed that supermarkets in 2012 captured 59.3% of grocery sales, up from 58.9% in 2011, while warehouse clubs and supercenters saw their share decline from 23.2% to 22.6% over the same period.
DSR said the change reflects the impact of fast-growing food retail concepts including Aldi, Kroger, Publix, Wegmans, WinCo and Whole Foods as well as closures at superstore chains like Kmart, and slower relative growth of warehouse clubs.
“The challenges facing clubs and supercenters in the U.S. are not, however, simply operator-specific,” DSR noted. “Rather, they reflect societal and technology mega-trends which are also evident in European retailing.” It said the large-format stores were designed to serve young, growing families eager to bulk-buy both foods and non-foods and save money. However, with aging populations, this market segment is shrinking with older shoppers, who generally dislike large stores, turning to small store formats.
Dollar General cuts back brands
Dollar General, the country’s largest dollar store chain, plans to adjust the mix of national to private brands to boost its gross margins. Gross profit margins fell 89 basis points to 30.6% of sales for the first quarter ended May 3, following a strong uptick in lower-margin consumables and a big decline in higher-margin discretionary categories.
Richard Dreiling, Chairman and CEO, said Dollar General had boosted its selection of national-brand products to be more relevant to consumers but ended up giving them too many choices that resulted in lower sales of store brands.
“We’re going to further expand our private-brand presence again this year and rationalize the SKUs that we’ve put in,” he said. “We’re not talking about eliminating the brands, but we want to eliminate sizes that give customers a choice. So we are still going to be relevant and have the national brands, but we just don’t want to offer as many alternatives in terms of size.”
Family Dollar aims for $2 billion mark
Sales of store brand consumable products are on track to reach $2 billion by 2015 at Family Dollar. The dollar store chain’s Chief Financial Officer, Mary Winston, told financial analysts that private label and global sourcing were being used to drive gross margin. Private label consumables sales rose 16% last year.
“We have invested significantly in our private brand organization and capabilities over the last three years,” she said. “As a result, we have significantly improved our merchandise quality and have more than doubled our assortment of private brand consumables.”
Safeway upgrades its brands
Safeway is really focused on improving the range of its store brand assortment—from the value tier all the way up to premium, differentiated products. Melissa Plaisance, Senior Vice President, outlined some of the changes at the 2013 Citi Global Consumer Conference.
For the value-conscious consumer, Safeway introduced the Pantry Essentials brand and initiated more timely promotions. “I think we’ve done a much better job understanding end-of-the-month behavior, when people are running out of money. You need to run some specials that cater to that customer.”
For premium products, Safeway is focusing on product clusters. “And it’s a matter of adding a number of SKUs, whether it’s in deli and organics and even bakery, where just by adding 20 SKUs to a certain category, you can really keep a shopper in your store.”
One premium brand, Eating Right, is being completely redesigned. The retailer is looking to satisfy certain customer needs, such as high protein or gluten free. The Safeway executive believes there is lots of potential for gluten free items.
Wal-Mart cuts store brand recalls
Wal-Mart says that the full adoption of the Global Food Safety Initiative across its private label suppliers has resulted in a 34% reduction in the number of recalls the retailer had executed across the same supplier base.
“For us, that means we weren’t pulling as much product from our shelves after our suppliers became GFSI-certified, that means mom has better confidence in the products she buys from Wal-Mart… and by not having the expense of as many recalls we could overall lower our cost of doing business,” Natalie Dyenson, Senior Director of Supplier Food Safety, told a webinar.
Confusion over ‘natural’ claims?
Regulatory confusion may be brewing over products that claim to be ‘natural.’ A California judge has rejected an argument routinely made by defendants—that the Food & Drug Administration has primary jurisdiction when it comes to judging whether ‘natural’ claims are deceptive.
When considering a deceptive marketing lawsuit over ‘natural’ claims for Nature Valley granola made by General Mills, U.S. District Judge Phyllis J. Hamilton said that any referral to the FDA on the natural issue would likely prove futile.
A complaint alleged that marketing the bars as ‘natural’ was deceptive because they contain highly processed ingredients including high fructose corn syrup, high maltose corn syrup and/or maltodextrin. General Mills filed a motion to dismiss the case on the grounds that the FDA has primary jurisdiction in such matters.
Two states vote on GMO label rules
Two more states are considering new label rules for genetically modified organisms (GMOs). The Connecticut Senate has voted 35-to-1 in favor of a GMO labeling bill, joining the Vermont House’s 99-to-42 vote on a nearly identical measure. The Vermont Senate won’t take up GMO food labeling until at least 2014, and the Connecticut bill would not take effect until at least three other states adopted similar labeling laws for GMO foods.
In Washington State, a ballot measure known as Initiative 522 in November will produce an up or down vote on GMO labeling. A similar ballot question in California last November resulted in a slim vote against GMO labeling.
Costco sees store brand gains
Costco Chief Financial Officer Richard Galanti says that the warehouse club retailer is steadily increasing its private label penetration. He noted that there is still plenty of room to continue, especially as Costco expands internationally. He said store brand market share is “in the low to lower mid-20s, but it keeps going up incrementally.”
The retailer is looking for more private label growth beyond the basic categories. “You know, all the low-lying fruit, paper goods, water, those are all done. But probably the lowest lying fruit in the last few years was probably the disposable diapers,” he told analysts.
Walgreens debuts two brands
Walgreens used its Happy & Healthy magazine to introduce its newest brands–Well Beginnings and West Loop. Well Beginnings is a range of baby care products including diapers and wipes, infant formula and baby food. West Loop is a new line of leg wear – socks, leggings, capris and hosiery – described as “department store quality hosiery at a fraction of the price.”
Walgreens is also teaming up with Donald Trump to help create store brand products. Walgreens Good & DeLish made a special appearance on Donald Trump’s “All-Star Celebrity Apprentice,” as contestants were challenged to create a premium ice cream flavor for the drug chain’s store brand. Sampling of the winning flavors take place at select Walgreens and Duane Reade locations nationwide.
Target adds organic, natural brand
Target is rolling out an organic and natural range under the new Simply Balanced brand. The first items are drinks and snacks and the line will eventually include about 250 items. Pricing is said to be comparable to national brands. The new line is in response to the growing popularity of organic foods. Although they still account for less than 10% of overall grocery sales, organic foods are growing at twice the rate of conventional groceries.
About half the items in the line are organic and three-quarters of them are free of genetically modified ingredients. Target says it will eliminate all genetically modified ingredients from the line by the end of 2014.
In non-foods, Target is stepping up customer service in its beauty departments. The retailer is adding beauty concierges in about 200 stores this year. The beauty concierge is intended to serve as a “trusted expert,” providing shoppers with “personalized, detailed and unbiased” information about beauty and personal care products.
Perrigo launches OTC education campaign
Perrigo has kicked off an industry marketing and communications campaign to raise consumer awareness of and confidence in store brand OTC medications. The Store Brand Meds campaign aims to correct misperceptions about the quality and efficacy of retailer brand products. The campaign relies heavily on social media, using a Facebook page, the YouTube channel and its website. The company also is making significant investments in digital advertising, public relations and electronic couponing to drive more awareness about the campaign.
Two private label acquisitions
There’s more consolidation for private label suppliers. Associated Hygienic Products, a maker of private label infant diapers in the U.S., has been acquired by Domtar Corp., a Montreal-based maker of personal care and paper products. AHP will be integrated into Domtar’s personal care division, which currently makes adult incontinence items including the Attends brand.
In the grocery area, Bellisio Foods is acquiring Overhill Farms, a maker of private label frozen foods for the retail and foodservice markets. Bellisio Foods is one of the country’s largest producers of frozen entrees. Overhill’s customers include Panda Restaurant Group, Jenny Craig, Safeway, Target, Pinnacle Foods Group, and American Airlines.
Roundy’s posted its highest private label penetration ever in its first quarter. The retailer now offers more than 6,100 store brand products.
Kohls, the mass merchandiser, says store brand sales growth is outpacing overall store sales increases.
PetSmart, the specialty chain, is expanding and revamping its store brand lines. The premium Simply Nourish brand will be enlarged.
Target and Wal-Mart received top ratings from Consumer Reports for their store brand sunscreen products, beating out national brand competitors.
Giant Food Stores said it is now offering PA Preferred store brand milk at 200 stores. PA Preferred is the official brand of agriculture products made or grown in Pennsylvania.
Fred’s, the dollar store retailer, is adding 25 store brand items this year and plans for further private label expansion.
IGA is co-branding some of its products with the Wounded Warrior Project during a promotion that runs in participating stores from Memorial Day through Labor Day weekend.
RadioShack has a five-year agreement with the National Association of College Stores, to offer private label consumer electronics and accessories to 4,000 college stores.
Big Lots, the dollar store chain, said that its first tests with coolers and freezers in stores have “been encouraging.”
Costco expects to open about 55 warehouse clubs in the U.S. over the next five years.
Loblaw has launched the PC Plus digital loyalty-marketing program that rewards shoppers with offers based on what they buy most frequently.
Safeway has agreed to sell its Canadian stores to Sobeys for about $5.7 billion in cash.
Whole Foods Market says it could open at least 40 stores in Canada and eventually reach
$1 billion in annual sales in the country.