Competition in the U.S. supermarket industry has never been greater or in such a state of turmoil. We are seeing this first hand in the Truckee Meadows as several dynamics unfold.
Whole Foods’ recently surprised Wall Street and all of us in the real estate business when they announced their pending deal to buy rival Wild Oats, a similar though much smaller natural foods grocer. Save Mart Supermarkets of Modesto, a privately held company, just confirmed their sale was final to acquire Albertson’s in northern Nevada and northern California, and that they intend to operate the stores under one of their banners within nine months. There is also a strong likelihood that Target’s new stores in our region will be super-stores selling groceries. In addition, Wal-Mart continues to aggressively expand in our market with their super-store concept and has started to effectively carry products that cater to specific demographics and neighborhoods currently selling organic foods in over 400 stores nationwide. The conventional supermarket and food/drug combination stores typically associated with grocery shopping have also lost a great part of their market share to other retailers like Sam’s Club, Costco, and a variety of dollar-store concepts.
Although Whole Foods is new to Reno, they had defined the market for natural and organic foods and had differentiated themselves from the pack with great success. However, in recent years, its competitors scrambled to get into their niche, often at cheaper prices. Competition, it appears, finally caught up with them. Their merger with Wild Oats will enable the chain to better position them to compete with Wal-Mart, Safeway, Trader Joe’s and other chains looking to crack into the $13.8 billion U.S. organic and natural foods market. The merger, which adds 110 stores in the U.S. and Canada to Whole Foods’ existing portfolio of 193 stores gives the retailer access to several geographic regions where they were underrepresented.
Whole Foods will evaluate each market as they re-brand, relocate, remodel and close some of the Wild Oats stores. No one knows for certain right now what this means to us in Reno with both a new 55,000-square-foot Whole Foods under construction in a portion of the former Shopko building on South Virginia Street and Wild Oat’s relocation and expansion to a larger 28,000-square-foot space that The Good Guys vacated in Redfield Promenade, one-half mile away. It is speculated that Wild Oats will not open in their new store. Nonetheless, because they signed a lease agreement with the shopping center landlord, Wild Oats will have to pay rent until a replacement tenant is obtained.
The supermarket industry is faced with the challenges of maintaining market share and profits while attempting new concepts and store formats in an effort to distinguish themselves from other types of retailers. Major demographic and consumer lifestyle changes have affected not only how consumers shop, but also where they choose to shop and eat their meals. Traditional supermarkets have seen a decline in how much shoppers spend and how frequently they shop in a particular store.
Customer’s hectic lifestyles mean that they have less time to prepare meals. It is estimated that 40 percent of the population says that it has no idea of what it is having for dinner at 4 p.m.
Supermarkets are constantly striving to capture the booming market in ready-to-eat food. It is also estimated that 45 percent of food dollars are spent away from home. Additionally, today’s consumers are more intelligent than ever before.
In the Truckee Meadows, we currently have 40 existing supermarkets (excluding other retailers that greatly impact traditional grocers such as Costco, Sam’s Club, and dollar stores). Additionally, several new stores are proposed in our region, including the possible entrance of new players. Supermarket retailers, both large and small, will keep facing increasing survival pressures as consolidations and expansions continue. Those that remain standing will be the ones that learn how to reinvent themselves and become experts at targeting specific consumer segments and not losing sight of what customers want and need. Some will make it work. Others will fail. All this competition should raise the bar in the industry and benefit all of us in the Truckee Meadows with better choices, pricing, convenience and service.
Retail broker Roxanne Stevenson is a senior vice president with Colliers International and has been involved in the retail industry and retail brokerage in Reno since 1980.
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