If there was a thread with which one could stitch together the big stories affecting the U.S. grocery industry in 2019 it may as well be a suture: Things got up close and personal in 2019 as retailers found faster and more sophisticated ways to literally get into customers' homes, technologies emerged that kept a close eye on shoppers and stores, and personnel issues from high-profile executive appointments to store level anxieties made headlines.
What follows is WGB's year-end recap.
Walmart’s Next Phase
After five hugely influential years, Greg Foran departed his role as U.S. CEO of Walmart and took off for his native New Zealand, where he will become CEO of Air New Zealand at an unspecified date in the first quarter of 2020. It is difficult to underestimate Foran’s influence at Walmart. He championed cleaner and better-stocked stores and better-paid and better-trained employees, and it all began by attacking quality and variety in food, which over the course of his tenure, became a leading sales growth category and platform upon which Walmart built its omnichannel ambitions.
In November, Foran formally handed his role to Sam’s Club CEO John Furner, whose job will be less about building food and e-commerce than in taking the progress his predecessor accomplished in those areas to new expressions. These include further evolution in grocery delivery and remerchandising stores to showcase fresh food progress.
Discount Invasion Continues
Discounters—most of them, anyway—had a pretty good year.
After a rocky start to U.S. expansion, upstart German discounter Lidl appeared to find its footing, shaking off early misfires in real estate, settling on a smaller store and, by year-end, getting its expansion plans once again to the rapid pace expected upon its 2017 arrival. Along the way, Lidl scored a heartwarming public-relations win when a social media campaign that happened to highlight its low prices went viral; it also got ahead of some competitors by promising benefits to part-time workers and bumped minimum salaries for workers transitioning to its brand on Long Island.
While plant-based protein pioneer Beyond Meat grabbed headlines when it when public, Emeryville, Calif.-based discounter Grocery Outlet quietly had a smashing initial public offering of its own, putting it on the radar as a company to watch. Grocery Outlet touts a unique business model (independent operators selling bargain buys on consignment), strong margins and sales, and a big runway for growth, with a prospectus indicating the country could probably support 10 times as many stores as currently exist.
Save A Lot, in the meantime, rolled out a blueprint for future stores highlighting a revamped private label line, but debts incurred in its leveraged buyout and slow traction on merchandise and price initiatives were interfering with its transformation, with reports indicating the chain was on the sales block and possibly headed toward a financial reckoning. That could put hundreds of independently owned units up for grabs.
Investors were on the sidelines much of the year digesting the myriad of transformative moves underway as The Kroger Co.’s Restock initiative—a strategic framework designed to turn it into an omnichannel growth company—reached its halfway point and headed to the homestretch.
The company confessed to having overestimated the effectiveness of some of the moves—for example, grocery pickup was messier than it would have liked, and store resets were more disruptive than at first envisioned—which delayed the arrival of sales momentum unpinning longer-term financial projections. But that didn’t stop Kroger from essentially doubling down on the strategy, albeit with more modest goals, after sales momentum returned late in the year. Kroger hopes a new national branding campaign and still more unique ventures—including a store-grown produce test, partnerships in wine and automobile retailing, and a ghost kitchen delivery deal—will help.
Trouble for Wholesalers
The Kroger Co. wasn’t the only industry company that found itself walking back financial projections during the year. Distributor United Natural Foods Inc. said it encountered more complexity than it expected absorbing the acquisition of rival Supervalu, which set back financial targets it shared with investors only months before.
Other distributors were also coming to terms with acquisition woes. SpartanNash finally threw in the towel on its troubled Fresh Kitchen business, saying the volume of fresh-prepped meal sales that facility produced never materialized as it—or its retail customers—anticipated when it acquired the business as part of the Caito Foods deal. The announcement of the Fresh Kitchen exit accompanied a change in the CEO’s office, as Dennis Eidson returned from retirement to succeed Dave Staples on an interim basis.
Stop & Shop’s Unhappy Surprise
Ahold Delhaize, whose successful execution of a complex retail merger won it acclaim as Winsight’s Grocery Business of the Year, took an unexpected hit when 31,000 workers walked off the job at Stop & Shop stores in New England just before Easter. The 11-day strike—the most significant in U.S. grocery since the protracted Southern California strike-lockout of 2003 and 2004—cost the retailer an estimated $200 million in sales and $100 million in profits and hastened the departure of Stop & Shop President Mark McGowan.
The strike was triggered—and ultimately settled—over seemingly minor contractual details, leading some to believe the walkout ultimately reflected growing workplace anxiety over retail automation or may have served as a warning shot for other negotiations to come, or both. It also served as a reminder that worker activism wasn’t dead even as union membership continued to dwindle: U.S. businesses in 2019 contended with teacher strikes, auto worker strikes and wildcat strikes among gig-economy workers such as Instacart.
Computer Vision Turns a Focus on Food
There were a lot of technology advances making their way into food retail, but if 2018 was the year that microfulfillment entered the retail vernacular, 2019 was the year of computer vision. While it’s still early in their evolution, companies such as Grabango and Trigo Vision heralded advances in systems installed in large stores capable of tracking and tallying shopper baskets to make checkout-free shopping a reality. Grabango founder Will Glaser called his system a “video-to-receipt generator,” emphasizing that shopper convenience was but one advantage for stores willing to give the technology a try: Shrink reduction from “sweethearting” and other means also stands to benefit. Glaser was also careful to frame the advance not as a labor killer but as a line killer.
A New Day for Albertsons
The wait for Albertsons Cos. to exit its private ownership outlasted its veteran executives and led to the appointment of PepsiCo veteran Vivek Sankaran as its new CEO. Noting the task of getting Albertsons into fighting shape wouldn’t be easy, industry observers and former colleagues said the company made an inspired choice. Although Sankaran has thus been been coy about a specific strategy, he has made a number of key appointments that sources expect will shake up how the company approaches everything from hiring and retention to private brand marketing and digital loyalty. Stay tuned for more in 2020.
Reassessing the Farmers Market
The farmers market concept, which grew like crazy behind a budget-friendly approach to fresh, natural and organic food and the convenience of a smaller store footprint, faced some days of reckoning.
Two of the biggest companies in the space, Sprouts Farmers Markets and Fresh Thyme Farmers Market, saw leadership changes and a slowdown in new sites this year. A third contender, the millennial friendly Lucky’s Market, saw investment from parent Kroger Co. dry up as officials confessed the path to profitability was still a long way off. Speculation also surrounded the health-focused small store chain Earth Fare, which sources said was on the selling block.
While nobody was writing an obituary for the format yet, the events signaled a moment of pause that, in some ways, resembled the way conventional supermarkets caught up to the points of difference of Whole Foods Market and the natural/organic movement as a whole several years before.
Delivery Gets Faster—and Way More Personal
No sooner could brick-and-mortar retailers approach the on-demand capabilities of Amazon than the Seattle e-commerce giant showed a new kick of its own. The retailer began rolling out one-day delivery for its Prime loyalty shoppers, a meaningful—but expensive—development that within weeks had Walmart making a similar promise for its shoppers.
Those were hardly the only innovations in delivery we saw this year. Kroger started up a co-branded partnership with the ghost-kitchen concept ClusterTruck and took a driverless delivery test to Houston. Walmart began piloting a new crack at in-home delivery enabled in part by investment in a clever startup that installed smart locks in existing doors. A common thread in all these developments? A move by retailers to get arms more fully around customers who might otherwise take care of these tasks at a competitor.
Little Deals Were Big Deals
The industry didn’t see many big mergers in 2019, but attrition among independents was something of a theme as regional chains rolled up bits of in-market competitors and some small rivalsteamed up with one another. Perhaps the biggest strategic pairing saw Portland-based natural foods chains New Seasons Market team with a growing assembly of West Coast counterparts under the Good Food Holdings family, itself controlled by a Korean food retailing chain.
Elsewhere, Smart & Final went from one private equity firm to another, winding up with Apollo Capital Management for a second time; United Natural Foods sold a chunk of Shoppers Food stores; Village Super Market brought the New York specialty chain Gourmet Garage to Wakefern/ShopRite.
Other deals didn’t get done. Walmart’s Asda chain called off its merger with its U.K. rival Sainsbury’s after regulators signaled it wouldn’t be allowed. And a lengthy antitrust approval process has apparently kept King Kullen stores in limbo for a year after Ahold Delhize’s Stop & Shop chain announced its plans to acquire it. That deal is still expected to close but not until early 2020.
Reports and speculation had it that other chains were on the block, including Fairway Markets, Save A Lot, FreshDirect and Earth Fare, but it takes two to deal.