As The Fresh Market becomes the latest grocery retailer to explore strategic options, we look at what’s driving an unprecedented level of change in the US grocery sector.
Strategic and financial review underway at The Fresh Market
The Fresh Market joins a long list of retailers in the US which could disappear from the retail landscape altogether, or at least, emerge in a very different form. It has announced that it is conducting a strategic and financial review of its operations which could result in a sale of the Company. From being one of the fastest growing grocery retailers in the US, recent trading conditions have been more challenging, and a new CEO was appointed in September.
A&P auctioning off its sites
This follows on from a number of similar developments in the market. This month, A&P, once the largest supermarket operator globally, has been auctioning its sites, creating opportunities for others to build scale and consolidate their market presence. This is a retail brand which is unlikely to be part of the sector going forward.
Haggen and Brookshire creating buying opportunities for others
On the west coast, Haggen has filed for bankruptcy protection. Its dreams of emerging as strong regional operator following the acquisition of over 140 stores from Albertsons will not be realised. Meanwhile in Texas, the Brookshire Grocery Company is exploring a sale of the chain, while press reports suggest that Fresh & Easy is also preparing for its second bankruptcy filing in two years.
One of IGD’s top five trends to watch in the US
The challenges which many of these companies face are often self-inflicted, but are also impacted by the ongoing consolidation of the grocery sector. We highlighted this as a key trend to watch at the start of the year. Its highly fragmented nature suggests that this is inevitable, but as the leading operators gain scale and market share, it could accelerate the process.
Retailing powerhouses emerging
Although Kroger remains the market leader with significant reach across the US, it is still under-represented in a number of regions, and as demonstrated by its acquisition of Harris Teeter in 2014, will look to consolidate its position. The coming together of Albertsons and Safeway has also created a major retailing powerhouse which is also likely to be interested in in-fill opportunities. And while no deal has yet been signed, Ahold and Delhaize have announced their intention to merge, creating another major operator in the US market.
Winning on price or delivering true innovation
As we look to 2016, we expect to see a similar trend. Retailers without the scale to compete on price or deliver a clear point of difference will continue to find trading challenging. This will drive more consolidation and further buying opportunities for the market leaders. Competition is also likely to intensify further. Grocery ecommerce is growing rapidly, Lidl is on the brink of entering the market and Walmart is sharpening its operations ahead of a stronger price offensive. Identifying the potential winners of this shake-out is getting more complex, but it will also continue to drive innovation in the sector as retailers realise that being good enough, is no longer good enough.
| Stewart Samuel, Program Director, IGD Canada|
Based in North America, Stewart heads up all of IGD's research and coverage on the US market. He is also responsible for shaping IGD's research program across the region. Contact Stewart at [email protected] for further insight on the region.