Between hard discounters coming of age, stubborn deflation and multiple collisions of the digital and physical world, 2017 was a tumultuous year in food retail. Following are 10 stories that mattered this year, and will likely continue to influence retail in the years to come.
10. Supervalu Goes for Growth
As it continued reshaping its business under CEO Mark Gross, the Minneapolis-based wholesaler doled out nearly $600 million to acquire two key regional distributors, Unified Grocers and later Associated Grocers of Florida. In both cases, Supervalu eyed greater scale and a larger base upon which to offer its services for independent customers, and said it would benefit from imported talent and a wider variety of formats the new additions serve, particularly Hispanic customers.
9. Bankruptcies Strike Midwest
Two longstanding food institutions in the Midwest succumbed to financial peril within days of one another when Marsh Supermarkets and cooperative supplier Central Grocers filed separately for Chapter 11 in May. In both cases, the companies were beset by high debts and increasing competition that became more difficult to fight after a year of falling retail food prices. Both companies would similarly be chopped up and sold. Marsh, after multiple closures, sold remaining units to Fresh Encounter and Kroger, while Central’s business was divided among multiple wholesalers and saw its largest retail asset, Strack & Van Til, returned to its founding families, beating a competing offer from Jewel Food Stores.
8. Ahold Delhaize Sets a New Course
Ahold Delhaize was united in name only for much of 2017 when it spent most of the year assembling a structure to provide its U.S. brands with centralized services known as Retail Business Services, and leave merchandising, marketing and other functions with its local brands. By year-end, it had named Ahold USA CEO Kevin Holt as its top U.S. official with responsibility for getting the combined organization running as one at last.
7. Kroger Restocks
While the combination of deflation and heightened competition interfered with Kroger’s remarkable streak of same-store sales gains, the retailer didn’t stay down for long. In October, Kroger announced details of a new strategic plan calling for heavy investment in digital, price and service initiatives, and a dedication to reframing its competitive set not only to supermarkets, but also to all U.S. sellers of food. By year-end, Kroger had expanded ClickList ordering capabilities to 1,000 stores, had opened a new restaurant and was entertaining offers on its convenience store business to help pay for it.
6. Aldi Bets $5B on Expansion
5. Bricks and Clicks Walk the Aisle
In addition to the shocking hookup of Amazon and Whole Foods, the industry saw multiple deals between physical stores and virtual businesses which together are envisioning a seamless future. Instacart, as much a potential victim of Amazon-Whole Foods as any single retailer, signed on dozens of new partners ranging from Wegmans to Aldi to Albertsons and Costco. Albertsons reeled in the meal kit company Plated, Walmart bought the delivery company Parcel, and Target captured Instacart rival Shipt.
4. Inflation Returns, Slowly
Competition is still too steamy to pass it all along at once, but by year end, retailers were breathing a bit easier now that a stubborn streak of food price deflation has reversed itself—at least modestly. Rising prices eased at least some temptation to use heavy promotions to drive volume—a necessary but costly practice. A return to normal levels of inflation should help food retailers gain leverage on fixed costs, which was difficult while proteins such as eggs and meat saw unprecedented deflation in an otherwise healthy economy.
3. Walmart Back on Top
If not exactly left for dead a few years ago, Walmart reasserted a strong influence over retail in 2017. Billions of new investments in store service and worker wages, plus big bets on e-commerce, resulted in relatively strong sales in stores—where it once again got its leverage wheel turning and found itself appealing to wider range of shoppers than it once might have—and ballooning power in the virtual shopping world as a showdown with Amazon developed. By the end of the year, the company had transformed so much that it officially changed its corporate name, dropping “Stores” from its title to better reflect its omnichannel identity.
2. Lidl Arrives
Few developments in the world of supermarket retail were better prepared for than the arrival of Lidl to U.S. shores. Rightly respectful of the German hard discounter’s track record in Europe, retailers including Food Lion, Publix and Walmart invested millions in strengthening their offer before Lidl sold its first head of lettuce. While Lidl’s 36,000-square-foot stores, which opened for the first time in June, made a strong initial impression, by year-end it appeared that scrutiny of its real estate choices had been prescient, and the company was already at work on a revamped model likely to be unveiled in 2018.
1. Amazon Buys Whole Foods
On the morning after Lidl’s first 10 stores opened, Amazon delivered a still bigger jolt to the industry by revealing a $13.8 billion acquisition of Whole Foods Market. The deal united two pioneers seeking one another’s specialties: Amazon badly needed a brick-and-mortar vehicle and more credibility in the food business, and Whole Foods lacked a loyalty program, significant e-commerce presence and pricing muscle. While the combination may have resulted in more buzz than bite out of the gate, it was likely a factor in any number of defensive and offensive moves by competitors and threw the valuations of publicly traded counterparts into chaos.