Supermarket operators wondering who’s sponging up grocery retail market share shouldn’t spend much time looking at each other, according to Scott Moses, partner and head of the grocery, pharmacy and restaurants advisory group at New York-based Solomon Partners.
In a session this week at Groceryshop 2023 in Las Vegas, Moses presented an in-depth analysis showing that non-traditional grocers—mass merchants and supercenters, warehouse clubs, limited-assortment discount grocery stores, dollar stores, drug stores and online grocery retailers—have steadily absorbed share from conventional supermarkets over the past 20 years.
“For many years, I’ve been sounding the alarm about the rise of national/discount grocers—Walmart, Target, Costco, Amazon, Dollar General, Family Dollar and Dollar Tree—and the existential threat that they pose to supermarket grocers, just as we’ve all seen over the last 20 years how department stores have been marginalized,” Moses said.
Ten of the top 15 U.S. grocery retailers in 2003 were supermarkets, with Walmart at No. 1 with a 16% share, followed by Kroger at 11%, Albertsons at 7%, Safeway at 6% and Ahold USA at 5% in the top five. Fast forward to 2023, and the list flips to 10 of the top 15 grocers being non-traditional grocery retailers, led by Walmart with a 29% share and Kroger (10%), Costco Wholesale (8%), Albertsons (6%) and Amazon (5%) rounding out the top five, though Target and Ahold Delhaize USA also hold about a 5% share.
“Three clear factors transformed grocery in the last 20 years. First, the national/discount grocers added 38,000 stores, doubling their store base and undermining the less than 26,000 supermarkets left. There’s more consumer choice than ever,” Moses explained. “As a consequence, number two, consumers regularly shop with four grocery types and five banners. And third, online grocery has quadrupled. Walmart, Target, Costco and Amazon are leading away with that.”
Today, non-traditional grocery retailers hold a 63% market share versus 37% for conventional supermarkets. Moses noted that, these national/discount grocers now represent the primary grocery channel for 62% of shoppers, compared with 38% for supermarkets. Back in 2003, the grocery shopping channel breakdown was 79% for supermarkets and 21% for national/discount grocers.
“So how do we get here? Walmart, America's No. 1 grocer by a wide margin,” Moses said. “Walmart has been dominating the industry for so long. You probably know that over 90% of Americans live within 10 miles of Walmart and most of their sales are groceries. You might not know that Walmart has a $300 billion U.S. grocery business. It has quadrupled in the last 20 years. It’s three times Kroger—so $200 billion more—three times Costco, five times Albertsons and five times Amazon.”
Among the top 15 U.S. grocers from 2003 to 2023, non-traditional grocery retailers added $511 billion in sales for 389% growth, 3.5 times the $145 billion supermarkets added for 91% growth, according to Solomon Partners’ analysis. The difference is more stark in store count. National/discount grocers grew their store bases 145% by a combined 38,951 units over the 20-year span, 96.9x more that the 402 stores added by supermarkets for 5% growth.
“Costco is the No. 3 grocer in the United States with over $90 billion in grocery sales. Same groceries as supermarkets, just larger packs. You might not know that its U.S. grocery sales have tripled over the last 20 years and that the average U.S. Costco does $155 million per store. That’s $3 million a week, three times an exceptional supermarket, five times the average,” said Moses. “And then there’s the valuation at $240 billion. Costco is worth 40% more than all publicly traded supermarkets and suppliers combined. So the market clearly thinks that they’re a great grocer.”
He also cited the explosive brick-and-mortar expansion of Dollar General stores, which are “undeniably grocers” and sell the same groceries as supermarkets but in smaller packs.
“Dollar General has over 19,000 stores now, up from 6,000 [in 2003], and they’re planning to get to 34,000,” Moses said. “Look at just how much they’ve grown: Over a third of all stores in the United States that opened in 2021 and 2022 were dollar stores, and Dollar General alone opened 2,060 of them.” Aldi, too, has powered expansion of its U.S. footprint, growing from about 680 stores in 24 states in 2003 to roughly 2,800 stores in 38 states (including its pending Winn-Dixie acquisition).
Walmart saw its sales swell by $240 billion from 2003 to 2023, more than triple that of the No. 2 grocer by dollar growth Costco (+$71 billion). Next in the top five were Kroger (+$60 billion), Amazon (+$57 billion) and Target (+$43 billion). Non-traditional grocery retailers accounted for six of the top 10 U.S. grocers and 10 of the top 15 by dollar growth.
National/discount grocers’ gains in the market also have been unions’ loss in grocery retail jobs. U.S. grocery jobs stood at about 50% union and 50% non-union in 2003, but by 2023 the union job share plunged to 15% versus 85% for non-union, according to the Solomon Partners research.
Where did that shift come from? Market share gains by non-union national/discount grocers, led by (+12% share addition), Amazon/Whole Foods Market (+5%), Costco (+4%), Target (+2%), Dollar General (+2%), Aldi and pending acquisition Winn-Dixie (+2%) and Trader Joe’s, Dollar Tree/Family Dollar, Walgreens and CVS at +1% apiece, plus non-union supermarkets Publix and H-E-B at +1% each. That compares with Kroger at -1% in market share, Ahold Delhaize USA at -2% and Albertsons at -7% over that 20-year period.
“Union share of grocery has fallen from 50% to 15% among the top 15 grocers,” Moses noted.
Non-traditional grocery retailers also dominate another playing field: the online grocery space, the analysis shows. Unsurprisingly, Amazon/Whole Foods and Walmart/Sam’s Club are the far-and-away leaders with e-grocery penetrations of 68% and 65%, respectively. Target and its Shipt delivery arm comes in third at 28% penetration, followed by Kroger (14%), Ahold Delhaize USA (14%), Aldi (11%), Publix (9%), Albertsons (6%) and BJ’s Wholesale Club (5%).
“The largest online grocers are not supermarket grocers. It’s Walmart, Target, Costco and Amazon. And they all have double-A and single-A credit ratings. This is critical because this gives them nearly unlimited capacity to invest in price, wages, marketing, logistics and technology—well more than any supermarket,” Moses explained. “Here's a clear manifestation: Walmart’s ubiquitous fulfillment footprint, over 200 fulfillment centers across the United States. With them, Walmart did 36% of all U.S. online grocery in the second quarter. Here's Amazon's fulfillment footprint: over 400 FCs, over 1,000 hubs and sorting facilities.”
Amazon remains a wild card in the U.S. grocer retail space, according to Moses. His firm’s research reveals that Amazon holds a market valuation of $1.6 trillion—topping the $1.2 trillion valuation of all other publicly traded U.S. grocery retailers combined. The e-tail giant’s valuation stands at 3x that of Walmart, 6x that of Costco, 34x that of Ahold Delhaize, 37x that of Kroger and 71x that of Albertsons.
Moses cited comments by Amazon CEO Andy Jassy in quarterly earnings calls that the company has a large and accelerating grocery business yet hasn’t developed the right grocery retail formula, including brick-and-mortar.
“Amazon is actually worth more than all U.S. grocers combined. Now, they’ve clearly had the same epiphany as Walmart had 30 years ago: If you want to be the world’s No. 1 retailer, you’ve got to be the No. 1 grocer,” Moses said. “But by Jassy’s own admission, Amazon hasn’t figured out grocery yet. So given their financial capacity, given their clearly stated commitment to grocery leadership, it kind of begs one simple question, right? What happens when they do figure out grocery? Here's one estimate: in 10 years, $334 billion in grocery sales and 16% market share.”