2014-08-27 / Front Page

Stock and load

As big box retailers struggle, grocery stores expand, take positions
Peter Galuszka

A customer peruses the bread aisle at Martin’s Food Market on Hull Street Road. The store is under renovation. A customer peruses the bread aisle at Martin’s Food Market on Hull Street Road. The store is under renovation. Everything seems mixed up these days at the Kroger grocery store at Rittenhouse Drive near Brandermill.

The deli section, pharmacy and salad bar have been moved. The once bountiful butcher area seems temporarily out of action, as it is being relocated and expanded. The months-long build-out will allow Kroger to stock new, nonfood merchandise.

It’s something of the same story at a competitor’s store just a mile west on Hull Street Road. Martin’s Food Markets is renovating and has shifted its wine section to the other end of the store. Some of the goods are scattered from their usual aisles. Workers patrol floors and guide customers through the confusion.

If this seems like the shifting geography of a battlefield, it is – sort of. Chesterfield, like much of the Richmond area, is in the throes of an intense grocery war. Facing powerful new competition, long-established stores are grabbing new tactical positions or shoring up old ones.

“It’s a war of attrition and market share. It’s all about competition,” says Brian Glass, senior vice president of retail brokerage at Colliers International, a commercial real estate company. “If you’re not moving a chess piece on the board right now, you’re going to be left out.”

All are awaiting the game changer – the anticipated arrival of high-end outlet Wegmans Food Markets Inc. in Midlothian near Stonehenge. Wegmans is also building another store in Short Pump in Henrico. Around the fringes lurks the addition of Aldi’s, a lower-end, lower-priced grocery chain owned by a German firm that also owns the more upscale, specialty food Trader Joe’s.

Each grocery army has its own strategies. Take Martin’s, which is owned by Royal Ahold N.V. of the Netherlands and entered the market four years ago when it bought the long-revered Ukrop’s Super Markets, taking over 24 stores here. John MacDonald, director of marketing and communications for Martin’s, says Richmond “is a great market.” Martin’s is the area’s sales leader with a 16.52 percent market share, according to the trade journal Food World in its annual survey of store sales ending March 31.

By buying out Ukrop’s, Martin’s acquired a well-established local brand name and kept some of the same products, such as Ukrop’s prepared foods, while stocking items such as beer and wine that Ukrop’s wouldn’t supply because of the religious views of its former owners.

MacDonald says that although Martin’s is building its first new outlet – a 74,000-squarefoot store at Midlothian Turnpike and Charter Colony Parkway that will open in a few months – the chain tends to go through regular upgrades of existing stores. That’s what is happening at Harbour Pointe on Hull Street Road. “We remodel on a set schedule of every four, five or seven years, and that store fits in this,” he says. The goal is to keep the stores up-to-date and efficient.

If so, then the redo of Martin’s isn’t necessarily a direct response to Kroger’s expansion down the street, although Cincinnati, Ohio-based Kroger has been very busy in the area. It is rated as No. 4 with a 12.72 percent share in the Richmond region, thanks to store expansions.

It built an up-sized, 123,000-square-foot Kroger Marketplace at the former Cloverleaf Mall site two years ago that offers furniture, kitchenware, toys and clothing, as well as groceries. It opened another Marketplace store on Staples Mill Road and has two more in the planning stages, one in Hanover County and the other on Iron Bridge Road in Chesterfield. Martin tends to skew smaller; its 74,000-square-foot store on Midlothian Turnpike near Charter Colony Parkway will replace an older store at Sycamore Square.

While Kroger and Martin’s dominate the middle of the market, the lower end is occupied by Food Lion, which is No. 2 in sales in the area with a 15.32 percent market share, and Wal-Mart, which has grown into the world’s largest grocery retailer. Wal-Mart is third in the regional market with a 14.19 percent market share, according to Food World, but its supercenter format is floundering somewhat.

As the mid-market stores get bigger – the upscale Wegmans is even larger, with typical stores occupying 120,000 to 140,000 square feet – Wal-Mart is downsizing with smaller, “neighborhood markets,” which are typically less than 40,000 square feet, about the size of the small-grocery king, Food Lion.

Food Lion, based in Salisbury, N.C., and owned by the Belgian Delhaize Group chain, keeps its No. 2 slot by pushing low prices and convenience, says spokeswoman Erin De- Waters. After reviewing extensive customer surveys, Food Lion in May launched a new campaign called “Fast, Fresh and Affordable” to shore up its position.

“It’s customer-based and we want to make it easy for shoppers to find low-priced goods that are easy to find and easy to save. We want to make it easy for someone to come in and pick out what’s for dinner,” DeWaters says.

The plan includes small touches such as providing shoppers with clear plastic bags for ordinary products and blue ones for perishable goods. “That way, when the customer gets home she or he can remember that the things in the blue bag need to go into the refrigerator right away,” DeWaters says. However, analyst Glass says that Food Lion, in the Food World survey ending March 31, appears to have “done the least” to react to the shifting market.

Another question as grocers gear up for combat in Chesterfield, is whether the megastore, big-box concept will last much longer. Wal-Mart is the master of that universe. But a recent study by New York investment bank Goldman Sachs asks if shoppers are becoming less interested in stores like Target, which offers limited groceries, and Wal-Mart. “Consumers appear more focused on some combination of value and convenience,” the analysts write.

Wal-Mart’s sales have dropped for the past five quarters and Target’s chief executive left after disappointing sales. One problem is the rise of online shopping which helps customers pinpoint the items they want without having to walk through vast store floors to find them. Plus, Target and Wal-Mart can’t match the deep price discounts retailers such as Costco can deliver, the study says.

Could Kroger’s expanded Marketplace stores and the one at Rittenhouse Drive face the same problems? Analyst Glass says it is possible, although Kroger has been robust in positioning itself in the market. Glass is not sure that clothing and furniture will sell as well as the company thinks.

At the other end of the spectrum, Wegmans’ rising store in Stonehenge off of Midlothian Turnpike not far from its intersection with Route 288 “is coming along nicely,” says Jo Natale, director of media relations for the Rochester, N.Y.-based chain. Although Natale can’t say when it will open, the store will be in the larger 120,000- to 135,000-square-foot range, which is typical for Wegmans. Natale says that having large-sized stores “hasn’t been a problem for us.”

She says Wegmans isn’t just a high-priced specialty grocer. The chain sells bulk items that can be 10 to 15 percent lower in price than competitors’ items, she says. Wegmans also has a reputation for creating a staunchly loyal following with its specialty foods and “restaurant quality” cafes, Natale says.

But all the expansion will create some winners – and losers. Eventually the grocery market in Chesterfield and the surrounding region will reach its limit, Glass says. When the smoke finally clears, “the strong will survive and the weak will fail,” Glass says. “There will be fallout; there’s no doubt about it.”

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