How Wegmans and H-E-B survived Amazon's onslaught
New York(CNN Business) Traditional grocery stores in America are struggling. But some regional grocers are using local expertise to maintain their cult-like appeal.
Grocers are under pressure from all sides. Walmart (WMT) is selling more groceries than ever before. German chain Aldi is spreading rapidly. Dollar stores are starting to offer some fresh food. And Amazon (AMZN) is battling, particularly in the burgeoning grocery delivery business.
"Everyone is feeling the competition out there," said Greg Ferrara, president of the National Grocers Association, a lobbying group for independent grocers.
Some regional chains like H-E-B, Publix, Wegmans, Hy-Vee and others are proving pretty resilient. These grocers have opened new stores and grown sales in the cutthroat industry.
The grocers have thrived because they have mastered their local markets. They are nimble and often able to respond more quickly to shifting consumer tastes and make changes in stores than national chains with layers of management.
"Regional grocers tailor their offerings by neighborhood, matching the experience to that local community," said Ryan Fisher, partner in the retail practice of consulting firm A.T. Kearney. "It's tough for the national players to match this."
Last year, sales at traditional supermarkets slipped 1.7% compared with 2017, even as they grew at wholesale clubs, supercenters and dollar stores, according to Inmar Analytics. Traditional grocers lost 0.9 percentage points of market share to competitors last year, a trend that is expected to continue through the next several years.
The profit-thin grocery industry is also shrinking: The number of supermarkets in the United States declined by 1.3% last year to under 25,000 as SuperValu, Southeastern Grocers and Tops shuttered stores. The number of supermarkets in the United States will decline by 6% in the next five years, Inmar Analytics predicted.
Grocers such as Publix and H-E-B are competitive on price with national chains on common items and have popular private-label budget brands, analysts say. But prices are not the only factor that these grocers rely on to stand out.
Wegmans and others try not to be "everything to everyone," like Kroger or Walmart, and instead invest in their core strengths, said Jon Springer, executive editor of Winsight Grocery Business, an industry trade publication. For Wegmans, that's fresh food and help with cooking at home. For Publix, it includes sub sandwiches. And Hy-Vee often focuses on health and wellness with clinics in some stores.
These regional players are also savvy operators, analysts say. They have expanded carefully and avoided taking on debt, issues that have plagued many retail peers. All are privately held companies and do not have to answer to Wall Street every quarter. "They can invest strategically for the long-term, even if they stumble a few times in the near-term as they learn what works," said Diana Sheehan, director at Kantar Retail.
Customer service stands out as a key advantage, according to experts. Some of these grocers are owned by employees.
The chains "hire better employees, pay them more, and keep their shelves stocked," said David Livingston, a supermarket analyst and founder of DJL Research. "Employees have some skin in the game rather than being a number."
H-E-B was ranked highest in employee satisfaction among all US grocers, according to a UBS study earlier this year. Wegmans came in third and Hy-Vee ranked sixth. "Employee satisfaction is a key driver of a retailer's success" because it leads to increased sales productivity and lower turnover, UBS analysts said.
Michelle Atwood, who started an "I Heart Publix" Facebook page more than a decade ago that has grown to 116,000 followers, said she valued that Publix stores were "clean, well stocked, and filled with associates who are friendly and super helpful."
From Texas to Iowa
H-E-B, which has around 400 stores in Texas and Mexico, has salad bars, local craft beer and restaurants in some locations. The company focuses on selling Texas-grown produce, barbeque and peanuts and often runs advertisements with San Antonio Spurs players. At H-E-B "Plus" stores, it offers an expanded range of smokers, outdoor grills and other products to outfit customers "with all they need for Texas lifestyles."
H-E-B has the "best pulse of their shopper and Texas diversity," said Springer from Winsight Grocery Business. The chain is "ferocious on price" and "not concerned with what's happening in Florida or California."
Hy-Vee, based in West Des Moines, Iowa, with more than 250 stores in eight states in the Midwest, is employee-owned. Hy-Vee also offers services like dry cleaning and fishing and hunting licenses.
Publix, with more than 1,200 stores in southern states, is also owned by current and former employees. The company's sales increased 4.4% in 2018 compared with a year prior and it opened 44 new stores.
The regional chains have shown a willingness to experiment with different sizes and concepts.
Hy-Vee partnered with Orangetheory Fitness to build mini stores adjacent to Orangetheory studios. Publix has built small "GreenWise Market" stores around half the size of a regular stores.
And Wegmans, the family-owned chain based in Rochester, New York, opened its first store in Brooklyn last month to packed crowds.
Unlike other retailers that cluster stores within short distances of one another, Wegmans usually operates one store per market, avoiding cannibalizing its own sales, said Bill Bishop, co-founder of retail and grocery consulting firm Brick Meets Click.
Regional players have also been fortunate that around 95% Americans still buy their groceries in person. That has helped shield them against Amazon and online brands, unlike clothing and electronics sellers that have been bruised by online competitors.
While regional department stores are disappearing, it's proven more difficult to dislodge Americans away from some of their traditional supermarkets.
"It turns out the relationship with the supermarket is much closer and more intense," said Bishop.
