Retail Upheaval

Today’s traditional grocery store chains face a perfect storm—changing demographics, a still-sluggish economy, and an onslaught of competitors with new business models.

The U.S. economy grew at a tepid 2.5 percent in 2015 and the retail arena has been changing due to the buying habits of two distinctive population groups: millennials and Baby Boomers.

The first truly “digital generation” of consumers is tethered to their smartphones, while seniors on fixed incomes are, well, booming. Joining the fray are online retailers and deep discounters, turning the supermarket retail world upside down.

ONLINE RETAIL: THE PLAYERS
Startups and e-tailers are eyeing the $650 billion grocery market as a growth opportunity, and the online sales market is growing at a strong pace. “The best estimates come between 1 and 2 percent of the food and beverage grocery market or approximately $10 billion,” notes Steve Grinstead, chief executive officer of the Dallas, TX-based Grinstead Group, “but 2018 sales are projected to be near $18 billion.”

Most online retailers charge a delivery fee and require a minimum order; others mark up prices to make up the difference. There are several functioning business models currently in play, with well known brands such as Peapod, FreshDirect, Instacart, AmazonFresh, Google Express, and Walmart Grocery all vying for online shoppers.

Peapod is the granddaddy of online grocers. The company pioneered home delivery back in 1989, in Evanston, IL. Today, Peapod, owned by Royal Ahold NV, serves 24 markets. Items include conventional and organic produce as well as private label goods from Ahold USA’s Stop and Shop and Giant Food stores. Peapod reached $650 million in sales for 2015 and held over 11 percent of the total market for online food, grocery, and drug sales in the United States. Ahold’s current merger with Delhaize Group could provide a boost to Peapod’s growth.

FreshDirect, headquartered in Queens, NY, aims to disrupt a food system that favors looks, longevity, and price over taste and quality, according to cofounder David McInerney.

FreshDirect’s grocery delivery service, launched in 2002, offers locally sourced food items, along with a 100-percent freshness guarantee. Prices are high, according to various surveys, but McInerney defends costs as part of supporting good farming practices. The company provides next-day delivery to the New York and Philadelphia metropolitan areas only. Sales for 2014 were estimated at $500 million.