“The reports of my death have been greatly exaggerated”—a misquote of the great Samuel Clemens, aka Mark Twain, who was decidedly not dead—could just as easily reference grocery’s center store.
Amid the heightened role of the store perimeter and, more recently, the advent of online ordering/delivery and subscription services, the “death” of the center store has been widely predicted for the past decade. Some store of the future imaginings eliminated the department completely, relegating it to the back room and reuniting with fresh foods only upon checkout. But much like Twain, center store is decidedly not dead. It is, however, in a state of disruption, and the grocery department consumers shop a few years down the road may—rather, should—look a lot different than it does today.
It’s no surprise that the effect of e-commerce is hitting center store categories the most, whether it’s from brick-and-mortar stores’ own sites or online-only companies. According to the 2019 U.S. Grocery Shopper Trends report from the Food Marketing Institute (FMI), the top 10 categories purchased online are all from the center store department. Nielsen’s e-commerce measurement, powered by Rakuten Intelligence, found U.S. e-commerce sales of CPG items totaled $65.2 billion for the 52 weeks ending January 2019, up 29% from $50.5 billion the previous year with a 32.7% compound annual growth rate over the past three years.
Photograph courtesy of Hy-Vee
The biggest strike against the in-store department is the products can be, well, boring, and they tend to be things that can be easily delivered. “I want to rethink center store,” says Lauren Johnson, president and CEO of Newport Avenue Market, which operates two stores near Bend, Ore. “Everybody says that, but we want to turn it on its head, because we’ve seen that’s where the online movement is. Those subscription services are great fill-in. … [Consumers] don’t have to think about buying toilet paper or laundry detergent, the things that aren’t really sexy to buy. That’s not fun. Fun is looking at 150 different cheeses. Those are fun things to buy; that’s stimulating, and gets all of the senses excited.”
To find inspiration for rethinking the department, Johnson suggests grocers step outside their box by visiting supermarkets in other countries, which tend to merchandise differently than grocers in the United States, or visiting retailers outside of the food realm. “It’s little pictures here and little pictures there; pick and choose from all different retailers,” Johnson says. “It’s not just grocery where we get our inspiration.”
Breaking the mold of how grocers have always done things is difficult. “Learning a new idea is easy, but forgetting how you used to do business is hard,” said Kevin Kelley, founding partner and principal of Charlotte, N.C.-based Shook Kelley, during a presentation at a food marketing conference in the spring. “But in grocery, if we don’t change, we die.” So center store, and its relationship to the rest of the store, needs to change as well or the reports of its death will no longer be exaggerated.
Buying vs Shopping
While the market was historically the center of civilization, Kelley said, going to the market has changed, and grocers have to understand the difference between buying and shopping. Buying is often associated with the concept of work; therefore, people have to feel like the effort expended is worth the end result. Shopping, on the other hand, is an experience and is not connected to the idea of work but rather fun, so consumers have different expectations when it comes to the payoff.
Photograph courtesy of Price Rite
Consumers often find going to the grocery store a chore, placing it in the buying category, and thus, they have curtailed the amount of time they spend doing it. U.S. census data found that consumers spent 10 hours per month shopping for CPG products in 2018 vs. 12 hours per month in 2003. If retailers are fixated on the aspect of buying, they’re not going to survive. They have to shift to the idea of shopping, because customers will choose to go where it’s a sensory delight, Kelley said.
For too long, center store merchandising has been focused on buying—not shopping—and with not a lot of the sensory delights that can be seen in some of today’s fresh departments. Kelley suggested retailers think about how consumers’ lives can be improved by shopping in their particular store.
“As share of wallet shifts to experiences, the in-store environment should be centered around the shopper’s needs as solving a problem for the shopper is a necessary unlock to building loyalty and driving conversion,” says Gina Peterson, senior manager of retail experience for The Hershey Co., Hershey, Pa. “Shoppers have more options than ever before, so taking a shopper-first approach in their solutions will allow retailers to stay competitive. … Designing an experience that lets shoppers know you understand them will be an invaluable tool to winning both [online] and offline trips. Keeping the shopper value equation (spend, time, experience) top of mind will allow retailers to successfully navigate the ecosystem of online and offline.”
The in-store experience should allow it to become a meeting place again, much like it was historically, as well as the center of the community and a place of discovery, Kelley said. Integrating center store and its products into that philosophy will keep the department alive.
“CPG companies and retailers should be capitalizing on the megatrends and working together to bring new news and meaningful insights to the center store category,” says Michelle Morale, VP of sales strategy for Campbell Soup Co., Camden, N.J. “We should be looking at enhancing the in-store shopping experience with new merchandising strategies, disrupting the current shelf sets and plan-o-grams and activating differently with our shopper marketing programs.”
The Shrinking Store
Another issue facing the department is the shrinking store and SKU optimization. Store size has gone down for the past several years. Grocery store size hit a high in 2006 at an average of 48,750 square feet and has been on the decline since, with a precipitous drop from 46,000 square feet in 2014 to 42,800 square feet in 2015, according to data from FMI. Average store size was 41,651 square feet in 2018. While the mega-stores of the past decade offered the convenience of having every product and product size under one roof, they really weren’t all that convenient for customers who wanted to get in and out quickly.
Photograph courtesy of Raley's
Smaller stores offer that quick-shop convenience, and with the proper use of data analytics, customers can still find all the products they are looking for in one store. As the smaller store size continues to prevail, data will become even more important to retailers who need to ensure they have the proper product assortment for that particular store’s demographic. According to FMI’s 2019 Food Retailing Industry Speaks report, 58% of grocers are already using data analytics or artificial intelligence to assist with assortment planning and replenishment.
As a result, Newport Avenue’s Johnson asks, “Does center store shrink? So you only offer one brand of toilet paper and one size? I don’t know, but it’s certainly worth the conversation and a look.”
The average number of SKUs in stores has seen a decline in recent years. The average store had 33,055 SKUs in 2018 vs. 38,900 in 2016, according to FMI. Furthermore, 57% of respondents of FMI’s Food Industry Speaks report expect space allocation for center store to decrease in the next two years, and one-third predict it will stay the same.
The success of limited-assortment stores, such as Aldi, show that the right SKU optimization can be a successful path for retailers. FMI’s report shows that retailers think more SKUs will be devoted to organic (78%) and locally sourced (84%) items as well as products that address health and wellness (73%). Gluten-free (60%) will also likely play a large role in product choices.
Understanding the consumer can generate impressive results. “To win, manufacturers and retailers must partner to create a deep understanding of the shopper and the consumer and then act decisively against those insights. When those insights are leveraged in ways that are evident to the shopper, the resulting growth can be dramatic,” says Chris Conroy, head of West area category leadership for Kraft Heinz, Chicago. He credits the success of the company’s Just Crack an Egg promotion to delivering on multiple consumer desires, including convenience, customization, protein-based and portability, as well as consumer preferences of flavors.
Center Store Wins
While fresh departments get all the glory, center store is far from dead, and it can take heart from a category within the department that had also been declared “dead”: frozen food, dollar sales of which increased 2.6% last year, according to an American Frozen Food Institute and FMI report. This growth has come as retail foodservice sales have begun to stagnate; the prepared foods department saw only 2.2% sales growth in the past year, the lowest growth in a decade, according to Technomic’s 2019 State of Retail Foodservice report. Some industry speculation indicates that as frozen-food manufacturers stepped up their game in offering products that hit on key consumer concerns, such as clean label and dietary claims, customers responded and returned to the category.
Photograph courtesy of Giant
Some other key center store categories, such as beverages, are seeing a lot of innovation. Soda consumption has been declining for several years, but plenty of other beverages have been introduced to quench thirst. Retailers, such as Greensboro, N.C.-based The Fresh Market, took notice. All 161 locations of the company saw a beverage reset this summer as the number of SKUs doubled to include everything from cold brew to kombucha, adaptogenics, energy drinks and clean-label sparkling waters.
“The goal we had in mind was to make the beverage aisle like a craft beer experience,” said Dwight Richmond, director of grocery for The Fresh Market. “Our approach was to take into account the latest trends—from functional beverages to nonalcoholic beer and wine-inspired waters—to provide our guests with a hip way to quench their thirst.”
Beverage also is seeing a lift from manufacturers’ focus on health and wellness, which is a key consumer concern. “In the next five years, the functional beverage category will actually be larger than the carbonated category worldwide,” says John Salvatore, CEO of Aqwi Organics, a low-calorie flavored-water brand under Hank's Gourmet Beverages, Southampton, Pa. “I think that the consumers like drinking products that have some type of health benefits for them.”
Owning Private Label
Another category seeing a bump in sales is private label, which is quickly eschewing its generic reputation as retailers invest in making products that stand up to their CPG rivals in flavor and quality. According to FMI’s Food Retail Industry Speaks report, retailers plan to continue growing investments in private brands, with a majority of responding companies (69%) forecasting larger space and SKU allocations in the next two years. This continues the trend of retailers driving differentiation and innovation with own brands.
It’s not just value retailers that are seeing the boost from private label. While value retailers have traditionally been successful with private label, with 57% of their annual CPG sales coming from own brands, according to Nielsen data, premium, fresh grocery stores saw private label sales increase 11% in the previous year, and conventional grocery saw a 3% increase. Value retailers, however, saw a 4% decline. Nielsen also found that 40% of Americans say they would pay the same or more for the right store-branded product, while only 26% of those surveyed feel that name brands are worth the extra price.
Both Kroger and Albertsons recently announced new or revamped product lines for private label products. Cincinnati-based Kroger has expanded its Simple Truth label to include plant-based food. Simple Truth, which launched in 2013, has become the leading natural and organic brand in the country, with annual sales exceeding $2.3 billion.
“As more of our customers embrace a flexitarian lifestyle, choosing to prioritize healthier food choices and reduce their environmental footprint, we are excited to meet their needs,” said Gil Phipps, VP of Our Brands for Kroger. “We are introducing our Simple Truth Plant Based collection to offer even more fresh, remarkably delicious, animal-free food to provide shoppers with a greater selection of choices that are more accessible and affordable.”
Boise, Idaho-based Albertsons added 300 new products to its Signature Selects private label brand earlier this year, including new sparkling water flavors and new snack boxes. It also introduced new branding to create a “recognizable brand presence that also allows for individuality across categories” given the diversity of the lines, said Bill Luna, director of brand design and packaging operations.
Geoff White, president of Albertsons’ Own Brands, says the refresh means “our signature family of brands aren’t like your parents’ store brands anymore.” He says the retailer is “laser-focused on innovations and staying at the forefront of culinary trends.”
Most recently, the retailer announced additional changes to its frozen lineup of Own Brands, adding 55 new entrees, including organic, plant-based options for flexitarians and several new high-power protein bowls.
“We’re in a new age for frozen meals,” says Chad Coester, SVP of Albertsons’ Own Brands. “Shoppers deserve premium meals that deliver on dietary needs and indulgence. We’ve reimagined our frozen meal lineup with new formats to deliver on quality first. … Flat out, this is delicious food.”
That’s what it all comes down to: delicious food that consumers enjoy shopping for. Retailers who focus on making the shopping trip an experience throughout the whole store while still providing value will win.