Denver: Retailers court Hispanic, millennial shoppers
Two major demographic shifts are happening in Colorado. One is a surging Hispanic population, and the other is the emergence of millennials, who in 2015 became the largest generational group, surpassing baby boomers, resulting in nearly 40% of residents being under the age of 18 years old.
These factors are affecting the retail marketplace throughout the state and especially in Denver, the biggest city.
“The ethnic operators, including Hispanic formats, continue to grow methodically,” Douglas Munson, principal at MTN Retail Advisors, said. “With KKR making a huge investment in the Hispanic sector, and with the purchase/merger of Mi Pueblo and Cardenas, look for a greater investment in markets like Denver.”
But that investment will be in a rapidly evolving market. Hispanic grocery stores will likely consolidate as they have in the natural food channel. One Latino grocery chain, Rancho Liborio, closed the last of its Colorado stores in May 2017. Azteca Ranch Market filed for bankruptcy and Avanza Supermarkets recently was sold.
King Soopers, a subsidiary of retail giant Kroger, is the leader in Denver’s mass market channel with a 29.1% share, per ARM Insight. Safeway trails in grocery at 10.2%. Mass retailers and clubs collectively dominate with nearly half of the mass market business. That includes Walmart at 26.8%; Target at 9%; Costco at 8.2%; and Sam’s Club at 4.7%.
Meanwhile, there isn’t a competitive situation in the drug store channel. ARM Insight reported that Walgreens controls the business with an 86% market share. Rite Aid and CVS Pharmacy are behind at 10% and 4.0% respectively.
Whether it’s the drug or grocery channel, winning retailers are adapting their product mix, promotions and services to appeal to the market demographics that are growing — a health-and-wellness focus for millennials and Latino food and beverages for Hispanic shoppers.
“Adding bilingual signage and packaging will make shopping easier for non-English speaking customers, and will increase brand loyalty,” Ken Morris, principal at Boston Retail Partners, said. “Retailers are also expanding product offerings to appeal to various ethnic interests, including specialty food items, makeup with broader skin tones, broader clothing sizes and styles, etc.”
Lari Harding, vice president of product strategy and marketing at Inmar, cautioned retailers that first-generation immigrants are particularly sensitive to the relationship between pricing and assortment. For example, such items as mangos and papayas are typically considered by U.S. retailers to be specialty items and are priced as such. Shoppers who view these as everyday items will expect to see the products in stores and priced in kind.
“This combination of assortment and pricing can be very difficult and expensive for traditional chain retailers to manage at the store level, she said. But if retailers can identify and invest in making the right SKUs affordable, then they can make real progress in appealing to immigrant populations.”
That’s what King Soopers is doing, but its playbook also includes catering to the growing number of millennials, which is the demographic group that favors online grocery shopping and delivery more than others. The Kroger subsidiary is speeding up its delivery of online-ordered groceries to a two-hour window via Instacart, a third-party service. The moved followed the entry of AmazonFresh grocery delivery service in Denver.
The grocer also is building urban stores in Denver, as more millennials prefer an urban lifestyle. King Soopers also operates in-store pharmacies in 13 Denver stores.
“Metro Denver’s retail scene appears to be struggling, but King Soopers is the grocery store to watch,” Todd Huseby, lead partner in the pharmacy sector practice for global consultancy A.T. Kearney, said.
Tampa, St. Petersburg: Convenience is king for older-skewing shoppers
The growing Tampa/St. Petersburg, Fla., market is becoming one of the more competitive retail battlegrounds in the country. Buoyed by retiring baby boomers from the North, the area is seen as a great place for retailers to grab market share.
Several small, innovative retailers and discounters are chipping business away from operators of big-box stores: Walmart, the struggling Winn-Dixie and Publix, the dominant grocer in the area.
Over the last few years, Publix has lost market share to Trader Joe’s, The Fresh Market, Whole Foods Market, Sprouts Farmers Market and Lucky’s Market. Also, Save-a-Lot, Aldi and soon Lidl lure shoppers with their blend of limited assortments, private labels and low prices. These smaller-than-average formats appeal to millennials, a key demographic, because they will soon be starting families. Many of them tend to prefer smaller stores with unique offerings instead of the traditional grocery store.
Publix commands a 36.5% share of the mass retail business, according to Portland, Ore.-based ARM Insight. Mass retailers and clubs combine to exceed that heady figure with a total of 52.8%. The breakdown is Walmart at 34.7%; Target at 7.9%; Sam’s Club at 6.4%; and Costco at 3.8%.
Food, drug and mass merchants continue to tweak product assortments and merchandising programs to appeal to retiring baby boomers, and other elderly shoppers, who have traditionally been drawn to the Sunshine State. Walgreens dominates among drug store chains with a 61% share, according to ARM Insight. CVS Pharmacy follows at 37%, with small independent drug stores accounting for 2%.
“An aging demographic benefits the pharmacy business as there is a direct link between aging and prescription drug use,” Neil Stern, senior partner at the McMillanDoolittle consultancy, said.
Operating a pharmacy in a grocery store, or a Target or Walmart store, would be an obvious asset. Inmar’s 2018 Shopper Behavior Study found that more than 44% of shoppers rate the ability to shop for groceries at the same location as “important” or “very important” in selecting a pharmacy to fill their prescriptions. Publix operates a Publix Pharmacy in 19 supermarkets in Tampa and 12 in St. Petersburg.
“Elderly shoppers, which is an expanding segment in these metro markets, want shopping to be more convenient and easy,” Ken Morris, principal at Boston Retail Partners, said. “In-store product displays should be at appropriate heights, especially for products more frequently purchased by people who are potentially in a wheelchair. Some stores are carpeting more areas to help prevent slipping and falling. Offering magnifying glasses near packages with fine print or working with manufacturers to offer product packaging with larger print are added conveniences for shoppers with limited vision. Drive-through lanes at drug stores are becoming expected and are especially popular with elderly people who have difficulty getting in and out of their cars.”
Target is taking a bold step into the future of this retail battleground with its dual-concept store that aims to provide an edge over Publix, Walmart and Amazon.
A Target in Tampa Bay is undergoing a multimillion-dollar renovation to become “a next-generation store” that emphasizes convenience. One entrance leads time-crunched shoppers into the part of the store designed for convenience, where they can buy groceries and pick up online orders. The other part of the store, with its own entrance, is designed for leisurely browsing of typical Target merchandise.
That compares unfavorably with the plight of Winn-Dixie. Its parent company, Southeastern Grocers, will close 10 Winn-Dixie stores in the Tampa Bay area as it restructures the debt that bankrupted the grocer.
Stage set for drug market share battle in San Diego
The retail marketplace continues to churn in San Diego, a metro area that is growing by leaps and bounds, but also is hounded by high real estate and worker costs. Albertson’s pending acquisition of Rite Aid could shake up the drug channel here, which is dominated by CVS Pharmacy as it competes with a growing number of grocers in a club- and mass-dominated market.
Meanwhile, other factors affecting retail competition are the growing Hispanic population and the increasing popularity of such specialty stores as Sprouts, Trader’s Joe’s and especially Whole Foods, which is sure to flex its muscles due to its new owner, Amazon.
Change began in this area three years ago with the merger between Albertsons and Safeway, the parent company of the Vons banner. Today, according to ARM Insight, Vons has an 18.5% market share in San Diego, while Albertsons only has 2.9%. Adding 7.0% from Ralphs gives traditional grocery slightly more than a quarter market share. More than half of the marketplace is controlled by market leader Costco (22.8%), Walmart (17.6%) and Target (10.8%).
Retailers are certainly aware of the growing population in the San Diego metro market, especially among Hispanic consumers. This will naturally lead to more store growth, which will intensify retail competition. Neil Stern, senior partner at Chicago-based McMillanDoolittle consultancy, predicted that much of this new growth will be in the value grocery segment.
“The immigrant population will also drive significant change in retail,” he said. “The millennial generation is already more than 40% ethnic, as an example. This leads to potential changes, large and small. From a merchandise standpoint, food, drug and mass must make changes to the assortment to accommodate the profiles of various ethnic consumers. On a larger scale, we will see the emergence of more specialty-focused chains, particularly around the Hispanic consumer, with a number of very strong regional chains already emerging.”
The demographic changes also will affect drug stores, which are carrying more food items and other nontraditional drug store merchandise to drive impulse and convenience purchases.
CVS Pharmacy dominates the San Diego marketplace with a 57% share, per ARM Insight. Rite Aid trails at 30% and Walgreens at 12%.
The drug channel in San Diego and across much of the country will be affected by Albertsons’ pending purchase of Rite Aid. “The move will allow Albertsons to go public as a “fully-integrated one-stop shop,” Albertsons’ CEO Bob Miller said when the merger was announced.
Brandt Sharrock, vice president of development and acquisitions of Wellesley, Mass.-based Charterhouse Development, said, “For drug stores, the pharmacy market has become extremely competitive through acquisitions of supply chains and individual drug store chains, small or large. Drug store companies that are successful will be those that focus in an area that is hard to duplicate and is based on health and wellness.
Consumers still want to go to a trusted provider, and the convenience of a wellness clinic in a pharmacy is hard to beat. Combined with a personalized experience in health and beauty, there is a strong, personalized market that is impossible to duplicate online.”
As more retailers offer pharmacy services outside the drug channel, Sharrock said that retail drug chains are well-adapted to compete.
“Grocery providers remain strong in the day-to-day needs, but many drug stores recognize that and are providing convenience store needs to add on to the general checkout ticket and provide immense value in urban markets where convenience is extraordinarily important,” Sharrock said.