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Posted: August 09, 2013

Grocery goes micro

Stores are getting smaller as specialty retailers control the conversation

Eric Peterson

While it helps validate the Whole Foods model, the goal of hitting 1,000 stores – approaching Safeway’s 1,678 locations, but far fewer than Kroger’s 3,500-plus – remains distant.

Likewise, Natural Grocers has a lot of ground to cover before it makes a dent that Walmart and company would notice. Wisconsin-based grocery analyst David Livingston says the chain is “not a major factor,” even in Colorado, where it has 31 locations.

“Globally and nationally, local is a huge thing,” says Tom Rich, executive coordinator of purchasing for Whole Foods in the Rocky Mountain region.

“As Kroger is trying to grow, they’re realizing that their opportunity for growth is where we live,” adds Rich. “They’re using us as a window as to what the opportunities are. The product mix is increasingly natural and organic.”

Rich defends Whole Foods’ prepared foods as serving its local-seeking customer base, not priming them as Lewis of Natural Grocers posits. “Market-made and made in-house are getting to be a big deal,” he says. “They’re making it in the front-of-the-house to show the customer, ‘We made it here, we made it fresh, and we made it with our people.’”

But it’s not just about messaging, he adds. “We think the As, Bs and Cs add up to revenue. It’s a winning combination.”

In Colorado, where annual grocery sales are in the $20 billion neighborhood, the trends toward local, healthy and small are even more pronounced. “This state aligns very well with our core values,” say Whole Foods’ Rich. “It’s one of the healthiest states.”

And it’s got a more diverse cast of grocers than most, with more on the way. Whole Foods has 19 Colorado stores, with three more in the works, and there are also the 33 Natural Grocers by Vitamin Cottage. Both Safeway and Kroger (King Soopers/City Market) have about 140 locations, and 74 of 94 Walmart stores in the state are Supercenters or Neighborhood Markets with grocery components. There are also 22 Albertsons stores in Colorado, down from 31 in 2009.

Parsing the numbers, Colorado has about as many Walmarts per capita as the average state, but it’s home to nearly 10 percent of Whole Foods locations, third only to California (78) and Massachusetts (21), and a full half of Natural Grocers stores.

With about 400 total stores, California-based Trader Joe’s is coming to Denver and Boulder – construction is underway at both locations – after a long aversion to the state thanks to strict liquor laws. The chain is known for stocking a smaller selection of products that overwhelmingly bear the Trader Joe’s brand.

Zeppelin Development is pushing the hyperlocal concept to its zenith with The Source in Denver’s River North neighborhood (a.k.a. RiNo) with a curated cast of local craft food and beverage makers. The first phase of the historic 26,000-square-foot ironworks building opened in July.

Traditional grocers are following the specialty grocers’ lead and looking at smaller footprints, natural and organic products, and more prepared foods. So are the discounters – Target has rolled out PFresh markets at about two-thirds of its 1,500 stores nationwide, offering fresh, frozen and refrigerated offerings in a 1,500-square-foot area. And based on sheer size, Walmart sells more organic food than any other retailer in the country.

Smaller stores are obviously a better fit for densely populated urban areas with expensive real estate. King Soopers will open a downtown Denver location in the Union Station redevelopment by 2015, and the chain has also moved into smaller stores with its Fresh Fare concept, the first being the 30,000-square-foot store at University Boulevard and Hampden Avenue in Denver. There is more focus on prepared foods than your typical King Soopers – an 8,000-square-foot mezzanine is dedicated to preparation.

Then there are the inescapable national trends added to the mix: More than 2,000 new Dollar stores were planned for the country for 2010, according to the ChainLinks Retail Advisors 2013 U.S. National Retail report. The report also highlighted an influx of grocery sections at drugstores and other retailers – even Big Lots is expanding into groceries this year.

“Colorado’s a pretty competitive market,” says Livingston, citing popularity of specialty retailers like Whole Foods as well as Hispanic-format grocers.

Livingston says WinCo, based in Boise, Idaho, is making inroads in Arizona and Nevada and could target Colorado soon. The company is approaching 90 total locations from Washington to Utah and outpacing average industry growth. “They’re employee-owned, have no debt and are price competitive,” says Livingston.

Livingston says same-store sales growth of 3 percent is actually the break-even point for a grocer. “If you’re not seeing 3 percent, you’re going backward.”

Walmart has struggled to keep its massive stores stocked and hit a rough patch in recent months. Same-store sales were down 1.4 percent during the first three months of 2013. Research shows customers have a far lower opinion of fresh produce at Walmart than traditional or specialty grocers.

On the other end of the spectrum, Whole Foods enjoyed 6.9 percent same-store sales growth during the same period and saw that healthy uptick increase even more in the spring. Natural Grocers by Vitamin Cottage was even more dynamic, with 10.6 percent same-store sales growth.

Traditional grocers didn’t fare as well as the specialty stores, but did much better than Walmart. Safeway’s same-store growth was moribund – 1.5 percent for January to March 2013 – while Kroger essentially broke even by Livingston’s metric, with 3 percent same-store increase during the same three-month period.

Who are the winners in Colorado’s recent grocery skirmishes? Specialty retailers, for one. Then there are the local food producers, enjoying an upsurge in demand from retail accounts large and small. But it’s hard to ignore the fact that the consumer is the biggest winner. All these salvos mean more options and more competition, translating to better products at lower prices.

And to think, people in Colorado once had to go to a grocery store to buy groceries.

King Soopers bringing bacon and a lot more to LoDo

The Nichols Partnership and Greystar Real Estate are developing downtown Denver’s first full-service grocery store. The 40,000-square-foot King Soopers, just west of Union Station at 20th and Chestnut streets, is slated to open in early 2015 under a 312-unit apartment building.

Nichols Partnership President Randy Nichols says downtown’s residential boom underpins the $82 million mixed-use development. “Downtown Denver over the last 20 years has been growing its 24-hour city status with lots of housing in the downtown core.”

King Soopers’ “typical 55,000 square feet on one level with 300 parking spaces out front” does not work in dense urban areas with expensive real estate, Nichols adds. “What took us the longest amount of time was to get Kroger to look at this differently and we spent a long time working on a model for a downtown store.”

The result: 47,000 square feet on two levels with an underground parking garage. Like the University and Hampden King Soopers, it is a Fresh Fare store, with more prepared foods and a heightened focus on local and organic products. “They’re moving towards a Whole Foods clientele in the downtown buyer,” explains Nichols.

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Denver-based writer Eric Peterson is the author of Frommer's Colorado, Frommer's Montana & Wyoming, Frommer's Yellowstone & Grand Teton National Parks and the Ramble series of guidebooks, featuring first-person travelogues covering everything from atomic landmarks in New Mexico to celebrity gone wrong in Hollywood. Peterson has also recently written about backpacking in Yosemite, cross-country skiing in Yellowstone and downhill skiing in Colorado for such publications as Denver's Westword and The New York Daily News. He can be reached at Eptcb126@msn.com

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