Supermarkets Adopt Expansion Plans

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Internet grocery shopping has taken the supermarket sector by storm. Research firm IBIS World cited in Supermarket News pegs market growth in this segment at nearly 10% a year, which will value the Internet grocery shopping opportunity at nearly $10 billion in the next 5 years. Domestic and international supermarkets are bracing for the growth and streamlining operations so that they are positioned to benefit.  

Expansion in the grocery market is not limited to the Internet, as supermarket retailers are also strategically adding to the number of brick-and-mortar locations to capture market share and consumer dollars despite economic uncertainty.

2012 ushered in organic and natural food supermarket IPO, Natural Grocers by Vitamin Cottage (NYSE: NGVC), which has seen its stock climb 28% since trading in the security began in July. With a market cap of only $420 million, the company lists industry heavyweights including Whole Foods, Kroger, Safeway and others as its competition.

Market-Cap Muscle

Company Market Cap
Natural Grocers $420 million
Whole Foods $17 billion
Kroger $13.7 billion
Safeway $4 billion

Natural Grocers plans a rollout of a dozen new retail stores in 2013 from Nebraska to Oregon in what are deemed prime locations. The company is investing millions into its expansion and is expecting to be rewarded with especially high sales from these new locations, according to Supermarket News.

Growing Pains

With growth sometimes comes growing pains. Village Super Markets (NASDAQ: VLGEA), which owns and operates about 30 retail grocery locations in the Northeast under the Shop Rite brand, is experiencing some of those pangs. The company recently expanded its brick-and-mortar presence by opening a pair of maiden stores in Maryland. Despite its history in the region having operated stores in nearby New Jersey and Pennsylvania for decades, Maryland has not been as kind to Village Super Markets. Lackluster sales have persisted there as the company struggles to create better brand awareness and secure its foothold in the state.  

In its fiscal first quarter, Village Super Markets suffered a 13% decline in profits to $5.8 million amid rising costs and shrinking gross margins. Total sales were a bright spot, and climbed 4.5% to $358.2 million while same store sales advanced 2.6% in the quarter. The company forecasts fiscal year 2013 same store sales of 3.5%, up from 1.5% in the 2012 fiscal year.

Village Super Markets appears to be focused on its shareholders. It is part of the dividend-paying club that decided to make payments early, moving up the distribution date of its regular scheduled dividend to December 2012 from January 2013, to capitalize on the current tax rate and paying a special dividend as well.

Mobile Push

Economic headwinds raging from Europe and in the U.S. -- have begun to cut into gross margins at Netherlands-based supermarket retailer Ahold The company is striking back with a plan to ramp up spending in its online shopping segment, where it sees growing opportunity. Indeed, Dick Boer, Ahold's chief executive, says online grocery shopping represents the greatest shift that the retail food industry faces today, according to Supermarket News.

To finance this investment, Ahold is nearly doubling its cost-reduction effort to 600 million euros over the next three years, and will focus on cutting expenses in areas such as marketing and private-label packaging, all according to Supermarket News.

Ahold has already demonstrated its commitment to the online growth segment with the recent acquisition of Bol.com, an online shopping company based in its homeland. The company is also focused on increasing its presence on the other side of the pond via PeaPod, an online shopping offering owned by Ahold's U.S. arm and used by the company's Stop & Shop grocery retail chain.

Incidentally, in early December, PeaPod attained a coveted status when it became part of OwnerIQ's Branded Audience Networks, according to Supermarket News. This designation makes PeaPod website activity a standard for online advertising opportunities.

Ahold also recently introduced a mobile application for grocery shopping that targets busy commuters in key cities from New York to Philadelphia and Chicago.

Big Box's Share

Discount retailer Target (NYSE: TGT), while clearly not a pure-play supermarket company, expects big things from its grocery segment. Grocery sales have been a bright spot for the company. Target, which is preparing for a Canadian-market roll-out and which recently shed its credit-card business to TD Bank, has been growing its grocery-store presence.

Indeed, Target increased the number of expanded food assortment stores by nearly 30% in 2012 to 1,130 locations. The company has been remodeling its expanded food stores via its P-Fresh initiative in which the retailer dedicates more floor square footage to groceries. Looking ahead, Target expects "mid-to-high- comps" for grocery items, based on the 3Q earnings conference call.

The expansion road-map for 2013 is compelling considering the economic pressures coupled with persistent food inflation that grocery retailers are facing. Nevertheless, they continually strive to pass along savings to customers, hedge their buying when they can and offer incentives. This model is being driven into the consciousness of consumers and when the economy emerges stronger should only benefit the consumer-retailer relationship and supermarket profits.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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