The first preview emerged a few weeks ago when Amazon acknowledged that the Whole Foods \”365\” format would no longer exist. Later, it was further acknowledged that all 12 of those stores would be converted to the Whole Foods banner.

The 365 format was originally designed to offer shoppers an alternative to the more costly shopping trip to a Whole Foods store by offering product under the 365 private label that is priced below similar national brands. Clearly, it was an attempt to compete directly with Trader Joe\’s and Aldi, both of which depend almost entirely on their own brands sold at low prices.

The explanation for the folding the 365 stores was that the price spread between Whole Foods stores and 365 had diminished to the point that 365 was no longer needed.

I think there\’s a lot more involved than that. As I predicted in The Robin Report a little more than two years ago when 365 began, the concept was flawed and perhaps doomed to failure. That\’s because food retail customers return to the store much more often than, say, department-store shoppers. Food customers know the prices of items they buy frequently.

Known Price Points

Therefore, while department stores and apparel-brand owners might prosper with outlet stores, often located away from their conventional stores, Whole Foods located its off-price offer near its main stores appealing consumers well acquainted with food prices.

To the minor extent that 365 stores offered better price points, they also implicitly shouted out that Whole Foods stores were overpriced. Not good marketing.

In any event, Amazon is now consolidating its Whole Foods stores into a unified whole, but that leaves a big hole when it comes to any sort of a low-price offer. That would seem to counter Amazon\’s current strategy to appeal to lower-income shoppers. It already offers a lower-price Prime membership level to recipients of Medicaid and other public-assistance programs.

This is where the new supermarket chain comes in. The Wall Street Journal, the primary source about the new chain, stipulates that the first store will open in Los Angeles at year\’s end with others to follow in San Francisco, Seattle, Chicago, Washington, D.C. and Philadelphia. It is worth mentioning that the WSJ\’s news article has no identified sources, but it\’s virtually certain that Amazon was involved in spilling the beans.

The new chain will begin in populated areas, as reported, and likely mimic Trader Joe\’s and Aldi by mostly offering private labels – including Amazon\’s own – at conspicuously favorable price points. Moreover, informed speculation has it that Amazon could acquire small grocery chains of a few stores each to facilitate expansion of the new chain. Publicity on that point will identify buying opportunities for Amazon.

Small Town, Big Opportunity

If it\’s the case that expansion by acquisition of small chains is in the offing, it\’s interesting to note that small grocery chains tend to exist in lightly populated areas. Both the chains are small and the stores comprising such chains are also small. That suggests that after Amazon\’s new concept gets its footing in larger markets, it can be rolled out in less-populated places, for example in the plains states of the upper Midwest where no current Amazon store format would otherwise seem to fit. In sum, Amazon\’s new supermarkets will give it a store fleet to appeal to cost-conscious customers and that will fit well into new territories, such as rural areas and small towns.

Incidentally, reports have it that the new supermarket chain is yet unnamed. If I were on Amazon\’s board I would propose \”Prime,\” a name that Amazon already uses and that has a food-related meaning.

Finally, I\’ll offer caution that much reporting about Amazon\’s intentions is ill-informed, premature or nothing more than a trial balloon floated by Amazon to see how the competition reacts. So, the immediate eroding of equity values of heritage food retailers such as Walmart and Kroger that accompanied the news about Amazon\’s purported intensions is doubtless premature, if warranted at all. As for other retail categories, far as we know, Amazon has no store-based ambitions beyond food and its own Amazon Books and 4-stars.

Much has been written in The Robin Report about the epic struggle between Amazon and Walmart for supremacy in U.S retailing. The advantages enjoyed by each of these behemoth retailers is obvious: Amazon is unburdened by physical store locations and ships directly to consumers; Walmart has the advantage of store locations, which are ripe to be refined into experiential venues and service points for online commerce.

We’ll see how the Amazon-Walmart dynamic plays out, but in the meantime, what about mass-scale retailers that aren’t in the broad-line business, such as those in food retailing? What are they doing other than watching the battle royal between their major competitors with bemusement?

Well, up to now, watching the slugfest from afar might have been enough. Food retailing has been uniquely resistant to various disruptors, including the online revolution sweeping through other retailing formats. To a great extent, that remains true to this day. But the disruptors just aren’t going away. Food retailing is being buffeted by the long, ongoing sunsetting of mass-market brands and consumers’ desire to have a bespoke experience across all retailing formats and their electronic devices.

Kroger’s Grand Plan

Now Kroger, the giant of food retailing, is stirring and has big plans for changes intended to keep it squarely in the game. It’s easy to underestimate how big a company Kroger is, especially for those of us in the Northeast where Kroger has no store presence. Elsewhere Kroger is ubiquitous. It’s the nation’s largest conventional food retailer with some 2,800 stores and 450,000 employees. It hosts about 8 million shoppers per week and its annual sales volume is approaching $120 billion.

Given its mass, even small changes undertaken by the chain are complex; larger changes even more so. Kroger’s new openness to facing the complexity of change may be driven by the fact that after an unusually long run of stellar financial performance, its numbers have been slumping lately, along with the value of its equity. The buyout of Whole Foods by Amazon accelerated the downward drift of its equity.

Regardless of motivation, let’s see what Kroger is up to in terms of a plan for change. The main features of the plan include assembling an oversight management team and identifying new uses for consumer-driven data. It will be interesting to see how Kroger intends to finance its changes, which will probably involve a big selloff of assets.

Not long ago, Kroger selected a team of three executives to drive the change program that’s dubbed the “Restock Kroger Plan.” Tapped to lead the effort was Mike Donnelly, newly promoted to executive vice president and chief operating officer following the retirement of the previous incumbent. Working with him were top finance and IT officers. Kroger chairman and CEO Rodney McMullen said the change program would “redefine the food and grocery experience for consumers and drive sales.”

That’s easier said than done. What Kroger is currently pursuing is making greater use of consumer data to bring the company closer to an omnichannel retailer. Kroger has long been a leader is using data in the food retailing arena and has greater data resources than any other food retailer. Yet, along with all food retailers, Kroger still has a long way to go down that road, which is extraordinarily difficult to follow because of the huge number of SKUs in supermarkets.

Specifically, Kroger intends to use data analytics developed by its Kroger Precision Marketing unit to reset supermarkets to prominently display what sells well and downgrade what doesn’t. The plan will involve featuring Kroger’s successful “Simple Truth” private brand range of natural and organic products, reducing pharmacy wait times and possibly boosting its own meal-kit offer. Frequent shoppers will also see stepped-up promotional activity aimed directly at them and their buying preferences, such as special coupon and recipe offers.

Kroger will also expand its proprietary “ClickList” program, which allows consumers to enter an order online and pick it up at a Kroger store. Kroger charges fees of $4.95 or $7.99, depending on the size of the order, for the service. Consumers have been willing to pay the fees without complaint, and if that continues it will relieve Kroger in a big way from the necessity of getting into the costly home-delivery business. Kroger will also shore up its collection-point business by reducing prices to keep them in line with Amazon’s.

Collaboration and Partnerships

All of the changes already cited may pale in comparison to other pending plans. For instance, it’s reported that Kroger may seek an agreement with Ace Hardware to establish home-improvement centers within Kroger supermarkets. Following that logic, Kroger could also partner with numerous other retailers such as those in beauty, fashion, electronics, toy and others to supplement the store-in-a-store concept. In short, Kroger may move toward being more of a broad-line retailer.

To the downside, though, proposed changes will cost a lot to implement across a store network the size of Kroger’s. How will they be financed? Kroger has acknowledged that it’s considering the sale of its convenience-store business, which in itself is a big business. Kroger has more than 780 convenience stores, operating under several names, generating annual sales of $4 billion. Kroger could easily reap $3 billion from a sale of these assets.

Beyond that, Kroger intends to halt the majority of new-store developments for a while, which will liberate a sizable cash flow. It looks like Kroger is pretty serious about its “Restock Kroger Plan.” Kroger’s plan of change should give some inspiration to other retailers being marginalized by changing market dynamics. If a century-old legacy company like Kroger can make the effort, why can’t others, whether new or old?

Here’s an example of what might be done. The relatively new meal-kit business, with players such as Plated, Blue Apron and Hello Fresh, along with some 200 imitators, is teetering on non-viability because of an inability to retain customers. Much needed venture capital is drying up.

They have little to lose by making big changes, maybe by forgetting about the mass market and offering niche solutions, such as regional and ethnic cooking. They could also aim at the dieting market, specializing in certain diets. And why shouldn’t Weight Watchers get into the business?

We can only hope that both new- and old-world companies become nimble enough to address the changes they need to make to keep up with the future.

We live in an era of chaos. Government-by-chaos isn’t working out too well, and retailing in the era of chaotic disruptors is facing big risks as well.

But hope prevails. When it comes to retailing, sometimes there’s opportunity in chaos. That’s certainly true when it comes to food retailing. Some supermarket retailers are pulling threads from restaurants and other forms of foodservice to create a hybrid that looks different, feels different and will be a part—and maybe a big part—of the future of food retailing.

Borrowed Concepts Yield Powerful New Formats

New food retailing models have many permutations but their current highest creative expression is the grocerant, which is a combination of a full-line supermarket, with all its usual departments, plus a restaurant, maybe a bar and sometimes a lot of other foodservice offerings.

Grocerants provide an interesting efficiency proposition since foodservice ingredients can be sourced directly from the supermarket side.

Before we get to that, let’s look at some of the alternative ways consumers can access food, a few of which are pretty close to being grocerants. Some are new and some have been around for a while, however, these alternative delivery systems are growing in popularity and success.

• Food Halls have sprung up in recent years as something of a food-cum-entertainment concept. High-profile food halls can be found in New York, Los Angeles and Chicago. Multiple vendors offer a myriad of upscale food choices under one roof. The halls offer a few gourmet pantry staples to take home, prepared-food items to eat off-premise or an on-premise meal at a full-service sit-down restaurant or bar. Food halls aren’t quite grocerants as they lack many key supermarket staples and CPG categories, but they trend in that direction.
• Many conventional supermarkets also present product that is ready-to-eat, or ready-to-heat at home. Some supermarkets feature self-service seating areas for customers who want to consume a meal in the store. The best example of such a supermarket is Wegmans, which offers restaurant-quality, fresh-prepared food at many of its locations, complete with seating areas. Wegmans also operates grocerants. But in the main, this type of eat-in, take-out format also falls short of being a full-scale grocerant because it lacks restaurant-like service elements. But it’s close.
• A few other forms of food retailing have either sprung up or are on the march, reflecting the depth of disruptive activity facing conventional supermarkets. They include food trucks, urban and rural farmers’ markets and urban produce vendors that often set up on a sidewalk near a conventional food store. Farmers’ markets make the farm-to-fork movement a real possibility in highly urban markets such as New York City.

Grocerants

One especially impressive example of a grocerant is the newly opened Whole Foods store at Bryant Park in New York. The store, at 43,000 square-feet on two levels, is unusually large by Manhattan standards. It features the usual offerings of a Whole Foods store; namely, an edited selection of food and nonfood items. In addition, there are several restaurant options at the store. Here are some of them:

• An outpost of “Frankies 457 Spuntino,” a well-known Italian restaurant in Brooklyn. The in-store version features various popular specialties such as salads, sandwiches and store-made pizza.
• “Sushi Kano by Genji,” featuring Japanese dishes along with omakase service, i.e., the chef selects a variety of small plates for the table.
• \”Harbor Bar,” a raw bar featuring oysters, lobster and a variety of other seafood. A cocktail, wine and beer selection is available.
• “Simit + Smith,” a food cart offering Turkish-style breads, such as simit, served with cheese and olives.
• “Produce Butcher,\” a service department where store personnel will butcher any produce item at a customer’s request. Produce can be grated, chopped, cut, sliced or custom prepared in any way a customer likes. These butchers aren’t just for meat anymore.
• Several other carts and kiosks offering coffee, pizza, toast, sandwiches and the like.

Whole Foods’ use of the grocerant format at this location represents good marketing tactics, the area is heavy with office workers who are on the lookout for lunch opportunities and a meeting place for after-work socialization. The supermarket side of the store is useful for workers who want to take a few items home, and it appeals to residents in the area who want to make a fuller shopping trip.

Whole Foods, of course, is not the only example of a grocerant. Wegmans, as mentioned earlier, runs full-service restaurants at several of its locations in its home state of New York, along with other mid-Atlantic states. Wegmans’ restaurants operate under the names of Next Door, The Burger Bar, The Pub, and Amore.

Competitive Edge

Grocerants present several advantages over a stand-alone supermarket or restaurant, not the least of which is the ease of sourcing foodservice ingredients. From the food-retailing perspective, grocerants help lift the store above competitive threats such as online delivery and meal kits. That’s because a grocerant is really an entertainment venue, and we all know that entertainment can’t be delivered by an online food retailer or in a meal-kit box. Moreover, grocerants bring in a different type of shopper: those seeking meals, not pantry staples, thereby opening the potential of crossover shopping.

From the restaurant point of view, co-locating in a grocerant exposes its brand to a large volume of new customers. Many shoppers go to a supermarket once a week, or more often; restaurants are lucky if they get repeat business a few times a year. Grocerants build traffic, with crossover potential.

In more general terms, grocerants demonstrate the value of borrowing concepts from other retail forms. They are, after all, really the nostalgic side of a department store. From their earliest days, department stores had one or more restaurants within their walls. That remains true to this day, and mall-based department stores are starting to get that message. Supermarkets are back to the future with leveraging restaurant brands that are popular with their retail customers.

So are there other borrowings that retailers might consider? Try these:

• Costco and Home Depot have lunch counters that give shoppers a quick way to get fed.
• Bed, Bath & Beyond stores have gourmet-food sections under the “World Market” moniker.
• Apparel store Urban Outfitters sells home goods and has coffee bars.
• RH sells apparel in addition to upscale curtain rods.
• Many restaurants sell private brand goods as mementos, such as condiments and apparel.

It’s a big world out there. If you’re out of original ideas, take a page out of other retailers’ playbooks, borrow the best concepts and then make them your own with your special spin.

The long-anticipated merger of two powerhouse European supermarket operators finally happened this summer. The merger of the two firms—Ahold of The Netherlands and Delhaize of Belgium—has great implications for food retailing in the U.S., far more than in Europe.

That’s because the combined entity, known as Ahold Delhaize, operates a battalion of 2,000 supermarkets along the East Coast, from Maine to Georgia. That makes it one of the  biggest players in the country. In total, Ahold Delhaize runs 6,500 food stores in 11 countries, but generates about two-thirds of its combined annual sales volume of $61 billion in the U.S.

Ahold will add its Stop & Shop and Giant supermarkets to the merger, along with its Peapod home-delivery business. Delhaize brings in Food Lion and Hannaford Bros. supermarkets. The FTC required the divestiture of 86 Ahold or Delhaize supermarkets, which went to several different buyers. Those sales won’t much change competitive dynamics along the East Coast, but forging a stronger Ahold  Delhaize could create trouble for Publix, Wegman’s, Albertsons and others.

The combined company will be 61 percent owned by Ahold and have its world headquarters in The Netherlands. The  CEO will be from Ahold.

WHAT’S IN A LOGO?

The move has big implications. Before we get too deep into the weeds, let’s take a quick look at one minor but strange aspect of the deal: the new logo for the combined companies.

What is the new logo? A bizarre figure with an odd haircut? A pear? An upside-down heart? Idle scribbling? Or what?

To glean what it represents, it’s necessary to have some knowledge of the companies involved, as both have histories that stretch back more than a century. Ahold is also known as Royal Ahold. Delhaize is also known by a lengthy French name that includes “Le Lion.” Atop the new logo is a crown image intended to evoke royalty. The rest of the swirls evoke a lion.

Designing a logo is no small proposition. Companies invest heavily in the process, hoping that their customers, clients and investors will understand the significance. The logo was designed by FutureBrand, London. One of its designers said— perhaps a little defensively—that the new insignia was intended to be “respectful and celebrating of the rich history of these strong brands … [and is] intentionally joyful, more friendly and welcoming.”

All this is fine, but a logo that requires that much explanation is likely to be cryptic to most members of the public. The logo is the public face of the brand. I believe the new logo is too inside baseball: important to those in the know, obscure to others.

Still, Ahold Delhaize won’t rise or fall because of a new logo. But it might rise or fall because of the reasons for the merger and the execution of the strategy behind it.

WHY MERGE?

In the U.S. there has been a big push to form massive food-retailing companies. Recently, several big supermarket companies have combined including Albertson-Safeway, Kroger-Harris Teeter and Southeastern Grocers holdings. Such mergers are justified because it’s difficult to increase profitability in the food-retailing sector simply by increasing price points or building numerous stores. That food retailing is a thin-margin business makes the quest for increased profitability even more challenging than it is for other forms of retail.

One of the few profit-building strategies left for food retailers is to merge with another company with the hope that it will cut costs. The savings become the new profit center. Ahold Delhaize claims that their merger will yield in excess of $500 million in synergies.

It’s not impossible that $500 million can be obtained, but the future cuts both ways. A difficult or protracted integration of the companies could just as easily result in higher costs, especially in the near term. Obtaining synergies is a complex undertaking involving technology, buying, distribution, private label, a huge work force and more.

Ahold has a precedent for the merger, as it been in the acquisition business in the U.S. for a long time. That’s how it obtained so many supermarkets here. And it has a consistent marketing spin for each one of the expansions. In the many years I’ve followed Ahold, I’ve noticed that its acquisitions were always accompanied by glowing expectations of synergies. I also recall that in many instances the synergies simply didn’t materialize, or were long delayed. This was described by Ahold as “digestion” difficulties. You can’t fault it for being ambitious.

But digestion aside, at one point Ahold had such a difficult time in the U.S. that the entire company nearly collapsed. There were numerous reasons behind the near-death experience, but certainly a failure to find economies of scale was one.

Delhaize also obtained its two U.S. chains by acquisitions over a long period and with much caution. Nevertheless, it has had a difficult time with its Food Lion chain in the South. It still remains a fixer-upper. This means that the combined company has a lot more on its plate than just worrying about synergies.

We’ll see how it turns out.

THE BIG PICTURE

Let’s consider the implications of the Ahold-Delhaize situation on other forms of retailing.

Let’s return to the new “Lion King” logo, since this is something of more than academic interest—symbols matter. The situation brings to mind Golub Corp., operator of Price Chopper supermarkets in upstate New York and New England.

As I reported in “The Robin Report” a couple of years ago, Golub set an ambitious plan to convert the 40-year-old Price Chopper banner to “Market 32.” Why would they do that? Generations ago Golub operated stores under banners that included the “market’ name, and Golub was founded in 1932. Do consumers care about those factors? How would they even know? Maybe the name change was way inside baseball and largely for internal consumption.

The tactic didn’t work out well. Now Golub is said to be seeking additional capital or planning to sell the chain in an apparent effort to underwrite the costly name change and store renovations. Those renovations were needed, but they could have been done without the financial angst of the marketing costs of the name change. It should be noted that Golub has denied that a sale is in the offing. But that’s to be expected in the early stages of any recapitalization.

In both merger cases names mean something. Logos matter. And you can’t fool the public. Which leads us to these observations that apply to any retail enterprise:

• If an extensive image change is undertaken, be certain that the new image communicates something that captures consumers’ interest and curiosity. Research it. Be sure it’s worth it. If the change is meaningless to consumers, nice try, but you’ve struck out.
• Mergers should have a solid business reason behind them in addition to elusive synergies that might result. If margin improvements are impossible, maybe there’s something wrong with the fundamentals of the business. In the case of food retailing, the fundamental difficulty is over-storing. That issue presents a problem more vexing for food retailing that it does for other forms of retail.

Here’s why: if Macy’s closes a store it’s unlikely that another full-line department store will occupy the closed space, so  over-building has been attacked.  Conversely, a closed supermarket is likely to be occupied by another supermarket operator. Regrettably, the tough-love  solution is for supermarkets to close in great numbers so that most won’t be absorbed by other food retailers.

Is this a great time for supermarkets to be rolling out new formats or expanding to new geography?

The outlook for either isn’t too promising.

As readers of “The Robin Report” well know, the industry has experienced the long goodbye of Fresh & Easy, Tesco’s entry into the U.S., followed by the quick and startling demise of Haggen. An 18-store supermarket retailer, Haggen acquired nearly 150 Albertsons supermarkets in new and remote territories. In fewer than six months, the whole thing collapsed and Haggen is now liquidating.

Moreover, Walmart is shuttering its fleet of 100 small-format Express food stores after just two years. Yet, hope springs eternal and there’s now another company seeking to launch new stores in the U.S., and others are entering new and distant markets for the first time.

Let’s take a look at a few of these and assess what the prospects for success of each looks like.

Lidl’s Dubious Strategy

As I have reported, Lidl, the deep-discount food retailer owned by Germany’s Schwartz Group, announced a couple of years back that it intended to enter the U.S. with a batch of newly built stores. We now have sufficient detail about the plan to consider seriously whether it has much prospect for success.

Many retailers seeking entrance into a new country would attempt to keep its plans secret for as long as possible to prevent the premature formation of competition. Not so with Lidl. It’s trumpeting its intentions with a new website that discloses much about its plans, and asks for help in securing store sites in undisguised terms: “If you know of a property that’s a good fit, please fill out the form below.” It goes on to stipulate that store sites must be in its initial target area of Pennsylvania to Georgia, including every contiguous state. Its U.S. headquarters is based in Arlington, VA.

The website stipulates that store sites must be 3.5 acres to support a 36,000 sq. ft. store and parking for 150 cars. It must be highly visible, with local traffic of at least 20,000 cars per day, and a dense population within three miles.

The website also solicits potential product vendors, corporate- and store-level employees to step up. As for longer-term plans, the site says Lidl will start with stores in the East, “then expand steadily throughout the U.S.”

Although the website doesn’t disclose this, Lidl intends to have 100 or more sites secured and stores built before the first one opens before or during 2018. Stores will be supplied with product from distribution centers now under construction in Virginia and North Carolina.

Problematic Planning

What are the prospects for Lidl’s rollout? I would argue that despite Lidl’s great success in Europe—10,000 stores and annual revenues of $100 billion—there’s good reason to doubt that success will come easily in the U.S.

Here’s why:

• Customer confusion: The store size Lidl envisions is problematic. It’s a bit too large for a deep-discount, limited-assortment food outlet, which is Lidl’s stock in trade. To be sure, some Lidl stores in Europe feature hard and soft lines in addition to food; products such as kitchen appliances, furniture and women’s fashion. It’s also too small to have a credible offer of both food and non-food.
• Do or die: Lidl’s start-up costs will be huge. Constructing and outfitting two distribution centers and a hundred or more stores before a single unit of product is sold is exceedingly risky. The fact that Lidl says it intends to spread from the East coast to the rest of the country means Lidl is convinced that failure isn’t possible. So even if customer reaction is well below expectations, there will be no way to make a quick and cheap exit. This is the very strategy that led to the failure of Tesco’s Fresh & Easy.
• Website: Lidl’s use of a website to seek store sites, employees, and product vendors suggests that its own internal resources are insufficient for these tasks. Not only that, but it offers full disclosure of its intended strategy in ample time for competitors to get ready. Of course, the Internet with its speed, transparency, and efficiencies has changed how we conduct business, but this looks like an expediency driven by a lack of management expertise and depth.

Wegmans’ Wanderings

Now let’s take a quick look at another food retailer that has been pursuing a large-scale geographic expansion: Wegmans. Founded in 1916 in Rochester, N.Y., which remains its headquarters, Wegmans operated exclusively in upstate New York for most of its history.

Wegmans eventually struck on a very successful retailing concept. In addition to the usual food and non-food offerings of a supermarket, a larger amount of in-store space is devoted to fresh product, from produce to seafood. Also included is a large array of restaurant-quality freshly-prepared food offered from service counters.

Full meals can be sourced from the area, and it’s also possible to get sandwiches, pizza, and the like for more casual occasions. Many Wegmans supermarkets feature in-store dining areas seating up to 300 patrons. Some stores are as large as 140,000 square feet. The concept is labor intensive, which drives up price points, but customers don’t balk at that. One
could argue that the higher prices are masked by the dynamic in-store theater of the fresh areas.

In recent years, Wegmans started to introduce its stores in markets well outside its traditional operating area. Now it has about 90 stores in five states in addition to New York, ranging from Massachusetts to Virginia, with annual revenues of about $8 billion. Sites are selected to ensure that the upscale concept will be well received, and further expansion is certain, with North Carolina likely to be next.

Wegmans’ rollout strategy has been conservative. Instead of building additional distribution capacity, product was trucked from Rochester to distant stores while the success of each new store was evaluated. When good consumer acceptance was assured, Wegmans developed a second distribution center in Pennsylvania to accommodate all product lines.

This is the prudent way to expand, and it’s the model followed by other supermarket companies, such as Publix, which is now marching from its base in Florida to as far north as Virginia. H-E-B also expanded gradually and opened stores to the south of its Texas base into Mexico.

Strange Strategy

These three companies, Wegmans, Publix, and H-E-B, have a well-reasoned expansion strategy and are meeting with success. Lidl seems sanguine with its leap of faith, which is sort of a strategy too.

Sometimes, a totally mysterious strategy surfaces. And that’s Albertsons presence in Florida. At one time Albertsons had about 100 stores in Florida, but over the years nearly all were sold to Publix and others, or closed. In the aftermath, Albertsons, for some reason, retained three stores in the state—one on the Gulf coast, one in the center of the state and one in the Southeast.

Albertsons (which acquired Safeway last year) now intends to convert those three stores to the Safeway banner, a nameplate that has never been used in or near Florida—and is doubtless unknown to most consumers there. Stranger still, the stores will be part of the Houston division and product will be supplied from Texas, which means truck runs of 1,200 miles, or more, in each direction. This looks like an unsustainable distribution distance.

Unless Albertsons is making this a temporary stalking-horse venture to quickly test the acceptance of the Safeway banner in Florida. To supermarket experts, it defies understanding.

Learning Lessons

So, what lessons do these various events have for retailers in general?

Know the new market: Before moving stores into a new area, do some due diligence with market research. This seems so obvious, but it’s not always done. Haggen’s experience shows the high price of failing to take this basic step.

Consider promotional costs: In the supermarket industry, there are two pricing strategies in general use. The Hi-Lo approach means most products in the store are priced to the high side, but several products are put on sale each week at a very low price. The EDLP approach—everyday low price—means that all products are priced to the low side, and little if any price specializing is used. Hi-Lo needs constant advertising to highlight the price specials. EDLP needs much less advertising activity. So in terms of advertising costs, EDLP is the least expensive strategy to use. Lidl will be an EDLP operator, which will work in its favor. It also helps a lot to have an identity that’s easily conveyed in occasional promotions, similar to Wegmans, with its vast fresh-prepared sections, or Publix with its high service levels. Haggen fell by the wayside because it was unable to broach any sort of offer to consumers.

Failure happens: Be aware that even the most rigorous market research may be flawed and failure is possible no matter how positive the analysis. Don’t make the cost of failure so high that losses over a protracted period of time become the preferred option.

Go for it: Conversely, if a retailer has a particularly winning formula, and it tests out well, it is most likely worth the risk of expansion. It’s better to cautiously edge out from a core of existing stores to test the waters. But when that strategy is exhausted or impossible, make a well-considered leap to see what happens.

In a long-anticipated development, Fairway Market filed for Chapter 11 bankruptcy earlier this week. Supermarket operator Fairway might not be well known to those outside New York City and its suburbs, but for many years it has been the much-beloved store of choice for shoppers passionate about food and specialty ingredients.

Gourmands were attracted to the stores’ mass displays of product and quirky hand-written signs pointing to specialty departments and product attributes. For a time, one store featured a cold room where fresh food — fish to produce — was displayed. Customers donned store-provided jackets before entering the room. That’s retail excitement. And even today, I know someone who is moving to be closer to a Fairway.

Customer passion or not, Fairway is failing. Despite the highly predictable and commonly asserted assurances of management that all will be well when it emerges from bankruptcy, Fairway will never be the same.

Let’s look at how this once-successful company was pulled into the ground by the combination of assumption of ill-considered debt, the loss of management involvement and, to a minor extent, the presence of disruptive competition.

Fairway isn’t a big company. At the moment, it has just 15 stores, most in New York City, but also a few smaller locations in Westchester, Long Island, New Jersey and Connecticut. It has been in business in one form or another for 80 years.

Although Fairway was never a mega-company, its owners had ambitions and pulled off a long period of slow but steady expansion. Then in 2007, the founding Glickberg family sold 80 percent of the company to Sterling Investment Partners for $150 million, of which $71 million was applied as a debt load on Fairway itself.

With that, Howard Glickberg, grandson of the founder, was able to retire.  And the chops that made Fairway great started to fade away. And Fairway never turned a profit after the IPO.

Undaunted, Sterling rolled the dice again by floating an IPO of Fairway in 2013. The IPO, at $13 per share, raised $536 million, much of which was used by Sterling to wipe out its earlier debt and to turn a handsome profit. In what now seems a ludicrous notion, $177 million of the IPO windfall was set aside as seed money to be used to roll out hundreds of Fairways across the nation. That was not to be. Fairway shares are now worth only 10 cents each and are doubtless fated to be worthless.

The “prepackaged” bankruptcy will wipe out shareholders, but will discharge debt and provide DIP financing sufficient to keep the doors open for a time. It seems obvious to me that if Fairway survives at all, it will be reduced to even fewer stores that will seem bland compared to Trader Joe’s, Whole Foods or even conventional supermarkets. The suburban stores will probably be the first to be shuttered.

Concerning Fairway’s competition, much has been made of how Trader Joe’s, Whole Foods and online delivery companies flogged Fairway. I don’t buy it. Fairway at its best was a much more interesting store than these three alternatives, and the one with the most locations. Home delivery has been around for quite a while, but is a much smaller factor than is often thought. Even now, many consumers still prefer Fairway to either of the recent interlopers or home delivery.

Fairway failed because its management was no longer positioned to provide creative inspiration or adaptation to changing consumer expectations. Plus it had a staggering debt load that a much larger company couldn’t have serviced, let alone retired.

There are three key factors that can be taken to the bank by any retailer wishing to avoid failure.

• An inspired management must be involved and keep stores interesting, fresh and ahead of competitors.
• Absurdly high debt loads must be avoided, especially if they bring in the numbers guys who manage to protect their own investment. Faith-based metrics won’t survive under the best of circumstances, let alone against the slightest downdraft in the economy.
• Finally, be quite sure your concept is scalable before considering a far-flung rollout.

Who said retailing was easy?  The sustainability of iconic brands and businesses is under siege in our complex marketplace.  Unless they have enlightened management, financial vision and meet customer expectations, they won’t survive.

Supermarkets haven’t been the first kids on the block to notice the obvious. Here’s one mega-trend supermarkets missed: Americans’ recognition of the strong linkage between what they eat and their health.

For the longest time, mainstream supermarket retailers failed to notice that health concerns were giving rise to consumers’ preference for natural and organic food. So they left a niche for specialty retailers, such as Whole Foods, to have the category all to themselves and to reap some pretty nice profits.

That’s changing now as more and more supermarket chains enter the natural and organic line of business themselves. The big retailers are enjoying rapid success because they offer much lower price points than the specialty outlets. Whole Foods also took a short-term hit because of publicity surrounding product overcharges in New York City. As a result, Whole Foods’ comp sales are dipping into negative territory. In a response of sorts, Whole Foods intends to open a separate off-price banner to lure new consumers.

Far more ominously, the Fresh Market chain of about 180 stores, and something of a Whole Foods knockoff, is seeking to sell out. Similarly positioned specialty retailers such as Mrs. Green’s Natural Market and Fairway Market aren’t doing so well either.

Opportunity Knocks

For traditional retailers another health-related trend is rapidly developing, and this time, supermarkets are stepping up.

Here’s the situation. Now, more than ever, consumers are taking action to proactively manage their healthcare, principally through simple preventative measures such as inoculations. They’re also moving toward seeking immediate treatment of minor maladies, such as colds and the care of minor wounds, which previously they might have ignored. Why? Because they can. The Affordable Healthcare Act has resulted in a significant drop in the numbers of uninsured people. So the opportunity to obtain decent care is a new reality for many consumers.

At the same time, many of these aging and newly insured consumers can’t afford, or don’t want, an expensive personal physician. Worse yet, in many parts of the country there’s an acute shortage of primary-care physicians. That leaves the emergency room as an option, but many don’t want to go there for non-critical situations.

In short, there are plenty of reasons for consumers to look around for alternative healthcare delivery.

That means there’s a big opportunity for retailers to cater to preventative-care customers. Supermarket, drug and mass retailers are moving in that direction by offering in-store, walk-in clinics. These clinics appeal to the new healthcare consumer: they’re readily available, highly visible, affordable and they don’t require an appointment.

Supermarkets As Healthcare Providers

When a trend has a natural synergy, the results can be game changing. Supermarkets, considering their new focus on healthful foods and their long history of operating in-store pharmacies, are uniquely positioned to enter the healthcare business with in-store clinics.

Kroger offers The Little Clinic. Typically these clinics are staffed by nurse practitioners and physicians’ assistants. They offer vaccinations and treatment of common conditions, such as ear infections, strep throat, influenza and the like. The practitioners conduct school and sports physicals, health evaluations and recommend fitness programs. They also write prescriptions.

Kroger is considered to be one of the nation’s largest providers of in-supermarket clinics. And as an indication of the growth potential of the clinic concept, it has just 155 clinics, yet operates more than 2,600 supermarkets.

Many other supermarket chains have at least a few in-store clinics. In most instances, the approach is tentative and intended to test the clinics’ success. Those chains include Shop-Rite, Giant Food, Hy-Vee, Price Chopper, Albertsons, Publix and Roundy’s (Kroger is acquiring Roundy’s).

Some of these clinics are operated by outside vendors. In other cases, the retailer itself operates the clinics, or starts with an outside vendor and later moves to in-house ownership. Kroger followed the acquisition path by acquiring the operator of The Little Clinic. At the time, Publix also operated The Little Clinic branded in-store clinics. After Kroger’s purchase, Publix dropped the affiliation and now offers several services of a clinic in its own pharmacy departments.

In another related venture, Kroger is expanding its footprint with the recent acquisition of vitacost.com, an online retailer of vitamins and supplements.

Safeway’s Misadventure

Using an outside clinic facilitator isn’t always the best idea, as Safeway found out in a big way. About three years ago, prior to the time of Safeway’s recent acquisition by Albertsons, Safeway spent $350 million constructing clinic spaces in 800 of its stores to be operated by Theranos. That healthcare startup claimed the ability to do full blood tests by means of a finger-prick blood spot instead of the traditional vein-draw method. It also claimed to be able to deliver results to clinic clients immediately, on the spot.

Sadly, Theranos over reached. Finger-prick blood tests were said to yield wildly inaccurate results. And they had to revert to the traditional vein-draw method, with results delivered from outside labs. Safeway is now winding down its relationship with Theranos and using the in-store spaces mainly to offer vaccinations. This is quite a disaster. Astonishingly, Safeway spent more than half its entire 2013 profit on construction of these in-store clinics.

The contagion spreads: Walgreens has put its Theranos operated clinics on hold until it can validate and stabilize its methods.

Big Boxes Scale Up

Walmart, as we would expect, offers Care Clinics. Initially, Walmart leased store space to third-party clinic operators. Now, the Care Clinics are transitioning to in-house operation.

Target, meanwhile, has sold all 1,600 of its in-store pharmacies and its 80 in-store clinics to drug chain CVS for $1.6 billion. The pharmacies and clinics will remain in the Target stores, but will be rebranded as CVS.

In yet another health-care permutation, several supermarket chains operate pharmacies in hospitals. Included are Meijer in Michigan, Schnucks in Illinois, ShopRite in Pennsylvania and Albertsons in California. The idea is to migrate pharmacy customers from the one-time hospital use to the supermarket pharmacy.

Urgent Care Retailers

Not all retail-based healthcare facilities are operated by heritage retailers. Some are retail brand owners themselves. Those are the Urgent Care facilities operated by companies such as Concentra, Dignity/U.S. Healthworks, MedExpress, American Family Care/DRX and NetCare, among several others.

These facilities are basically privately operated emergency rooms. Most have at least one full-time physician on staff. In addition to offering similar to in-store clinic services, Urgent Care facilities also treat fractures, sprains, wounds and the like. Imaging is available as needed. No appointment is needed; service generally is rapid.

Retail Healthcare Lessons

The big lesson for retailers who are moving toward clinics — especially retailers selling food — is to be honest about what business you’re really in.

If you’re a watch retailer, are you in the timepiece business or the accessory business? If you’re a wholesale distributor, are you in the business of delivering products, or are you a logistics facilitator? If you’re a sports-apparel marketer, are you promoting a brand or selling a lifestyle?

So for supermarkets and food retailers, are you in the mass-feeding business, or the healthcare business — or some of both?

Alternative healthcare delivery is a huge business. Macy’s is placing 500 Lens Crafters optical stores in its department stores during the next three years. It’s not a huge leap of faith to envision Macy’s and, by extension, other department stores, to trot out a few healthcare line extensions. Clinics perhaps?

On another note, here’s a new trend: Urban Outfitters’ acquisition of the Vetri Family chain of Italian restaurants.

What’s next? Farmers’ markets ensconced in specialty apparel boutiques? Health foods and supplements sold at upscale beauty boutiques?

The lines are blurring. What business are you in?

Well, if that headline doesn’t get your attention, nothing will.

But if you’re expecting a tawdry tale of nefarious goings-on in Vegas or — for you old-timers — a steamy Mickey Spillane potboiler, I’m sorry to disappoint you. This is all about an even more rough-and-tumble field: retailing. Specifically, retailing as practiced by the dollar stores and the big national drug chains and how their duel for customer supremacy on the strip centers out on the highway is turning into one of the biggest battles in home furnishings retailing. And how in the end, it may not matter because each of the two retailing formats is slowly but surely morphing into the other and within our industry lifetimes, you may no longer be able to tell the difference between a dollar store and a drug chain.

Take that you smutty paperback readers.

Survival of the Fittest

Neither of these retailing formats is exactly new. Walgreens can trace its origins back to the turn of the century — the other one in 1901. Dollar stores, though much newer in retailing history under their current guise, really grew out of the generation of variety stores that used to be fixtures across the country.

But their convergence and evolution into remarkably similar formats is a fairly recent occurrence, driven by a relentless merger and acquisition campaign over the past two decades, which when viewed in its entirety, is really rather remarkable. And it has resulted in two players in each channel: Walgreens and CVS in drug chains and Dollar Tree and Dollar General in dollar stores.

Retail Drug M&A

Walgreens really does go back to 1901 when Charles R. Walgreen opened a 50- by 20-foot local pharmacy in Dixon, IL. The store developed quickly, expanding dramatically as the country grew after World War II. But its real explosion has only come in the past five years. In 2010, Walgreens bought Duane Reade, and a year later, drugstore.com, one of those first generation, generically named dotcoms that couldn’t miss…but didn’t live up to its potential.

In 2014 it bought – they called it a merger – the British drug chain Alliance Boots, and then last year came its takeover of Rite Aid. That has brought the store tally up to some 13,000 locations in 11 countries doing more than $100 billion in annual sales.

CVS is a more recent creation. CVS originally stood for Consumer Value Store, and opened it first store in 1963…only a year after the first Walmart, Target and Kmart units opened. (Must have been something in the retail water back then.) In 1969, it became part of Melville, a loosey-goosey retail amalgamation that at its peak also included Linens’n Things, Marshalls and Thom McAnn, among others.

In the 1990s, in a wave of anti-conglomeration on Wall Street, all brands except CVS were spun off and the drug store unit became the basis for the company. The acquisitions had already begun but they moved into high gear over the following decade: Revco, Eckerd, Osco, Longs and Target’s pharmacy business most recently in 2015. Along the way, the company was also building its pharmacy and medical services side under the Caremark name, even dropping cigarette sales in 2014 in an effort to firmly position itself as a place where shoppers could go for their health needs.

Today CVSHealth, as the company is now known, has 7,600 stores with annual sales of over $110 billion, although not all of that comes from its retail operation.

Retail Dollar Duo

Across the highway in the strip mall stand the two big dollar operations. Dollar Tree is the current leader in that slot following its long, twisted takeover of Family Dollar in 2015. Not bad for a company that started in the 1950s as a spin off from a Ben Franklin variety franchise.

But like its drug store brethren, Dollar Tree’s history is cluttered with takeovers, many with similarly confusing names like Dollar Bill’s, Dollar Express and Dollar Giant. With the Family Dollar acquisition, the company has annual sales approaching $5 billion with an astonishing 13,000 stores. And even if some of those are closing due to antitrust measures, the company is opening new locations just as quickly.

Those annual sales are comparable to those done by Dollar General, which also traces its history back to the 1950s. It fought hard to buy Family Dollar but lost that protracted battle. Nevertheless, it operates some 12,000 stores in 43 states.

And the Stores Keep On Coming

So, yes, the two drug chains are significantly larger in annual sales than the two big dollar operations, but look at those store counts. These four companies operate 45,000 stores, the majority of which are in the United States. That was 45,000 stores.

Let that sink in a bit. Walmart has 3,000 or so stores in the U.S. Kroger, the biggest supermarket chain, has about 2,600. Home Depot has about 2,200, Target about 1,800.

Walgreens, CVS, Dollar Tree and Dollar General each has about the same or more stores than those four giant national general merchandise, home improvement and grocery chains put together.

It is that scale that makes them hugely formidable competitors to these so-called larger operations. You may have to drive 10 miles to a Walmart or Target store but you might be able to see a Walgreens or Dollar General location from your front window.

But it’s not just sheer numbers…and here’s where the convergence is the real news. Go into any of these giant dollar or drug locations and you are likely to see much of the same merchandise. The dollar boys may have a little more apparel, a bit more soft home and perhaps, particularly in Dollar Tree’s namesake stores, a bigger offering of closeout goods. And the drug guys will lay on more HBA (Health & Beauty Aid) products and of course there are the pharmacies and health emphasis – particularly at CVS.

Merchandising Mixes

But any unscientific merchandising study is going to show that at least half — and maybe much more — of the goods on sale can be found at both types of stores. And this is only going to accelerate. All of these stores have dramatically increased their space for food: frozen, packaged and fresh. You can easily find closeouts, opportunity buys and other assorted gimmicks at any of these stores at any given time.

In home, both formats are big players in the small appliance business and also sell china and glass, outdoor furniture, kitchen textiles and even the occasional bed-in-a-bag. There aren’t credenzas and other big-ticket/big-space products, but IKEA has shown you can sell large items in surprisingly small packages, so don’t count them out yet.

The dollar players are not afraid to go after the core drug store business either. Fred’s, a regional dollar-oriented operation, has been introducing pharmacies into its stores — sometimes buying existing local drug specialty stores and moving their customer-base into its closest location — and has cited its pharmacy business as one of its recent strengths in its earnings reports. The line gets blurrier and blurrier.

As shoppers increasingly look for easy and convenient choices for their in-store shopping, they are more and more likely to go to one of these stores rather than head out for the serious shopping experience of a big general merchandise store or giant supermarket. That combination of broad merchandising offerings and ubiquitous real estate is a huge asset that should scare the merchandising pants off the big boys.

Bye-bye Five and Dime

And don’t forget, this isn’t the first time these stores have successfully rearranged the retail landscape. A lot of people say Walmart and the big discounters put the five-and-dime variety stores like Woolworth out of business — but they are just plain wrong. Woolworth, Kresge and the like were stores where people went into to buy specific items, not do their weekly shopping. It was the dollar stores and the big drug chains that put variety stores out of business with fresher merchandising selections, locations closer to where people were actually living and dramatic expansion drives.

Could it happen again to superstores? Probably not in the way it happened to the variety stores that disappeared off the face of the retail earth. But there are reasons Walmart and Target are opening neighborhood, in-city smaller locations, though history has shown us it’s very difficult for a retailer to reinvent itself…Kresge and Dayton Hudson not withstanding.

But there’s likely to be one more big factor that will once again change the retailing rules as they apply to all of these stores. While it used to be that retail channels of distribution were reduced to two major players and stabilized, we’ve seen that rule go out the store window when it came to certain classifications: Witness Bed Bath & Beyond, Best Buy and Barnes and Noble as sole survivors in their channels. So, two big dollar stores and two big drug chains may be one too many of each. And if this convergence truly plays out to its ultimate conclusion, who’s to say there may eventually only be one player left when all the retail dust settles?

Like any good potboiler, there’s usually only one man standing in the end.

When you’re under assault, build a bigger fortress.

That’s what supermarkets in the U.S. are doing now as they come under siege from deep-discount stores, membership clubs and mass marketers on one front and upscale specialty stores on the other flank.

In a very short time, the industry has become dominated by three big chains that, in the aggregate, sell well over 10 percent of food for at-home consumption. These behemoths are Kroger, Albertsons and Ahold-Delhaize. The rest of the food retailers are much smaller than any one of the big three.

Before we take a look at how the big three came to be, let’s consider one frequently posed question: in a low profit business like supermarkets, what benefit does becoming a large-scale retailer mean?

The biggest potential benefit of becoming a larger company comes in the form of cost savings through post-merger synergy. Those savings can lower the operating cost of the combined company to the point that even two loss-making companies become profitable. If the newly merged entities were previously profitable, so much the better.

One form of synergy comes through the combination of two headquarters into one. Most likely, one headquarters building with its satellite offices and staff can be completely eliminated. So even if the remaining headquarters needs to add staff, the cost won’t be anywhere near the overhead involved in two separate headquarters.

There can also be savings in the cost of product acquisition and distribution. It often happens that when two companies merge; some distribution centers can be eliminated, with the remaining ones capable of supplying all stores. Moreover, advertising costs can be spread across more stores; private labels can be culled to make way for a unified label that can be used across all stores.

Another benefit of mass is sheer cash flow. Even if profitability is elusive for a while, cash flow can be used to pay the cost of capital, if not to partially discharge debt.

These theories of synergy often work out, but not always. It didn’t for A&P, which operated hundreds of stores in the New York-Philadelphia region. A few years ago, A&P merged with Pathmark and Waldbaums with the idea that synergy could restore those loss makers to profitability. A&P is now liquidating.

Now, let’s take a look at the big three to see how they became mass marketers, each in completely different ways.

Slow Food Movement

Kroger, the largest and most profitable conventional supermarket in the U.S. with revenues approaching $100 billion, did it the hard way: by growing little by little over a period of time. It augmented gradual growth by an occasional large-scale acquisition, until it became a huge retailer with nearly 2,700 stores planted in 34 states, covering most parts of the country except the Northeast. Traditionalist by nature, the vast majority of Kroger’s stores are conventional supermarkets, although it also has a fleet of convenience stores, supercenters and jewelry stores too.

While Kroger is a slow-growth company, it has made one recent major acquisition, its first in 15 years, namely Harris Teeter, based in North Carolina. At the time of the acquisition, Harris Teeter had 227 supermarkets, all using the large, high-service model. That made it a good fit with Kroger.

High Finance

Albertsons, Kroger’s closest size rival, leapt into the ranks of the behemoths with its acquisition of Safeway earlier this year. That move gave it about 2,400 supermarkets under various banners. Albertsons is largely owned by Cerberus Capital Management, so, not surprisingly, it is as much of a financial proposition as it is a supermarket operating company. Indeed, in October, Albertsons was set to make an Initial Public Offering intended to raise some $1.6 billion to be used to pay down some of its prodigious debt load of $12 billion, and to improve stores. If things hold true to form, many of its top executives would share in that bounty too.

However, the IPO was abruptly withdrawn because it was to have been offered on the same day Walmart acknowledged that its profitability would be sharply down, which pulled down the equity value of Walmart itself and that of supermarket companies in general.

There’s no telling when Albertsons try again with an IPO, but when it does it almost certainly won’t raise as much money as was earlier hoped. This puts Albertsons at a significant disadvantage to Kroger because so many of its store facilities need an upgrade. On top of that, Albertsons has purchased several dozen A&P stores in the liquidation sale. They will be operated under Albertsons’ Acme banner. That only adds to Albertsons’ need for capital to refurbish stores.

Ominously, Albertsons\’ sales volume is declining and it’s running at a loss. But these are early days, so we’ll see how it goes.

Global Footprint

Rounding out the big three is the Ahold-Delhaize combination. Ahold, based in The Netherlands, and Delhaize, based in Belgium, struck a merger agreement in June. Both companies have significant supermarket holdings in the U.S.

Ahold will have majority interest in the combined company. The deal was valued at about $10.4 billion, plus equity. When the deal is completed next year, the U.S segment of the company will have about 2,000 supermarkets nearly everywhere up and down the Eastern seaboard, generating about $26 billion in revenue.

Ahold’s supermarkets in the U.S. are under the Stop & Shop and Giant store banners, along with the Peapod home-delivery business. Delhaize operates under the Food Lion and Hannaford banners. There’s little overlap among the stores, so Federal Trade Commission authorization should be readily forthcoming. Ahold is also growing because of A&P’s liquidation, having scooped up numerous A&P stores that are now being converted to Stop & Shops.

Worldwide, Ahold-Delhaize will be a whopper of a company. Combined, it will have 6,500 stores in several countries yielding some $44 billion in revenue. That makes it larger than either Tesco or Carrefour.

Incidentally, it’s important to recognize that despite Walmart’s declining fortunes, it remains the largest grocery purveyor in the U.S., producing revenues from grocery product alone well in excess of those of the big three conventional operators combined.

What’s the Future?

The big-picture lesson here is that attaining mass offers some protection from the disruptors that flank middle-market retailers. But the real learning is for heritage retailers is to take a look at what the disruptors are doing and adapt some of their methods and product offers. After all, it’s consumers who are voting with their dollars, and there’s no way to remain successful without following the customer.

Among the big three, Kroger is clearly the one that’s best adapting to the changing tastes of the consumer. That chain has introduced two major private brands that are aimed directly — and successfully — at the space occupied by Whole Foods. They are Simple Truth, an organic and specialty label, and Hemisfares, an upmarket imported label.

On top of that, Kroger is the most successful in lowering its average price point, allowing it to successfully compete with its low-price flank. Ahold-Delhaize is likely to follow that path too once dust from the acquisition settles. Albertsons with its huge debt and declining sales has the highest mountain to climb.