Market Report: Greater Madison's Grocery Scene
From the pages of In Business magazine.
If ever we needed a little home cooking, the last decade provided a hearty portion size. Thanks in part to Food Network programming, an increasing array of celebrity chef cookbooks, and the popularity of farmers’ markets, home cooking has made a huge comeback. Those copper pots and pans that hang from kitchen ceilings are no longer simply there for decoration; they are actually being put to use.
As a result, the grocery business is as competitive as it’s ever been, with new stores entering the local market at a rapid pace. The latest entry to the Greater Madison market is Festival Foods, which in September will open a much-anticipated grocery on East Washington Avenue as part of Gebhardt Development’s 170,000-square-foot Galaxie project.
There are between 180 and 200 grocers in Dane County, depending on how they are classified, and they feed a market of about 510,000 hungry consumers. “We have just about everything and everybody in this market, from the regional chains, to very successful independent operators, to a national chain like Hy-Vee,” noted Brandon Scholz, president and CEO of the Wisconsin Grocers Association. “We have a little bit of everything.”
A little bit of everything, but with the same basic business objectives: deliver quality products, offer them at competitive prices so that customers aren’t muttering in regret as they exit the store, and offer a superior brand of customer service. Those who do all three on a consistent basis have the best chance of fending off competitive threats and preserving market share.
Locating Grocery Stores
Whether and where to open a new grocery store is a decision that requires careful study, says Dr. David Rogers, president of DSR Marketing Systems in Northbrook, Ill. Groups should first identify the competition in the relevant area, known as the primary trade area, and then analyze population and demographic characteristics to develop estimates of spending potential per week in the trade area. It’s a time-consuming process, he said, that many retailers often sidestep — and as a result, many stores fail.
The Freshmobile, shown here with driver Paul Borowsky, is no longer available to serve disadvantaged areas.
In an urban setting, a 2- to 3-mile radius around a potential site would typically be studied, said Rogers. The viability of a new Walmart Supercenter, in contrast, could expand that to a 5- to 7-mile radius.
Food deserts, such as the Allied Drive area in Madison, which lack easy or walkable access to healthy grocery options, pose unique problems when attracting retailers, especially since food deserts are usually found in economically challenged neighborhoods.
The City of Madison is currently offering a $300,000 incentive to lure a retailer to the Allied Drive area, which lost a Cub Foods in 2009 and a Walgreens last December, and it hopes to receive initial interest in a request for proposal by May 1. The Freshmobile, a mobile grocery once provided by Fresh Madison Market, is no longer running due to significant expenses and losses.
It’s all about the cost of operation, Rogers said. “Locations have to be highly secure, well lit, and will often provide less service.” A larger problem, he added, is that “many retailers can’t change their business models to operate profitably in those locations. That’s why you’ve seen all the closures.”
Some national chains, such as Save-A-Lot (SuperValu), Food4Less (Kroger), and Aldi have had success in these areas.
Meanwhile, the introduction of new stores (Festival Foods, Metro Market) is leading some to wonder if the area will become “over-stored.”
It’s possible, Rogers acknowledged. “You tell that by the average sales per square feet. If it gets significantly less than $10 or $11 per square foot, then you’re getting an over-store situation,” he explained.
4 Trends Sparking Home Cooking
A new generation of home cooks has arisen in recent years, sparking a resurgence in the grocery business. The following ingredients have produced this trend toward home cooking:
1. Food Network stars like Bobby Flay and Rachael Ray have inspired many in the millennial generation and beyond, as have YouTube instructional videos, social media, mobile apps, and food and grocery websites with links to recipes. All have helped home chefs go beyond meat and potatoes, and grocery stores have followed suit, with some employing chefs and nutritional experts who offer food demonstrations, nutrition classes, and meal planning.
2. The resurgence of grocery shopping and eating at home dates back to the 1990s, when grocery operators started thinking of ways to recapture market share lost to restaurants. Thanks in part to a booming economy, people had more money in their pockets and were eating out three to five times a week. With fewer meals being prepared in the home, grocers responded with more “ready to go” meals. By the time the 2000s arrived, grocers were less concerned about competing with restaurants because worse economic conditions kept people at home. “I wouldn’t call it all ‘from scratch’ because they like to buy some of the ingredients partially prepared, but it’s more than just the ‘heat meat,’” noted Marlin Greenfield, senior vice president and COO of Skogen’s Festival Foods. “They like to assemble and have a portion of the meal that allows them to claim, ‘I made this.’”
3. The desire for healthier lifestyles, including healthier eating, reinforced the eat-at-home trend. “We’ve got a really good staff of registered dietitians that are very in sync with today’s younger families and the types of foods they want to eat,” Greenfield said. “Eating healthy is more important now than ever before in my lifetime, and by far.”
4. With gas at $4 per gallon, grocery shoppers headed to the store once or twice each week instead of three or four times per week, but they didn’t necessarily put more food in their carts during those less-frequent visits. They were shopping smarter, planning meals more thoroughly, and had grocery lists in hand to stretch their food dollars. But don’t expect today’s lower fuel prices to have the opposite impact, unless they have some staying power. “I’m really hoping that eight months to a year from now, we will see beef prices going down, and chicken and pork and everything related,” says Steve McKenzie, owner of Jenifer Street Market.
One reason why home chefs are going beyond meat and potatoes is the rise of ethnic food aisles, as grocers compete to provide more ethnic food ingredients and spices. Whether it be Italian, Mexican, Greek, Indian, or Asian food offerings, they not only want to appeal to a more diverse population of customers, they also strive to attract consumers who might otherwise travel elsewhere for their favorite ethnic food ingredients.
Grocers try to stock all the necessities for creating a variety of ethnic dishes, but they fall short due to the sheer number of specialty items.
Marlin Greenfield of Skogen’s Festival Foods touts a significant variety of ethnic foods in his stores, but his Greek acquaintances in the Appleton area sometimes have to drive to a Greek store in Chicago because it’s hard for Wisconsin grocers to carry all of the items that appeal to every ethnic group. “It’s almost impossible,” Greenfield says. “We certainly have the items that are most popular, but there are always some things out there that are too hard to procure.”
For grocers to respond with the right product selection, they obviously have to know the ethnic composition of their surrounding neighborhood. Jeff Maurer, owner of Fresh Madison Market, serves the UW-Madison campus area. Since roughly 8% of the UW student population is of Asian descent, the store caters to Chinese, Japanese, and Korean cuisines. Similarly, a sizeable population of Muslim students compels the store to carry (and sell) a fair volume of Mediterranean food.
The interest of traditional grocers impacts smaller ethnic grocery stores to a point, but aisle space is limited and there is only so much depth traditional grocers can provide. “There are certainly some very good competitors in the ethnic market, and they do offer more items,” Maurer noted, “and some of the purely authentic, maybe harder-to-find items.
“They offer a lot of variety when it comes to that particular culture. They are certainly more focused on that particular clientele, whereas we are trying to serve as much diversity as we can.”
Meenu Kaushal, owner of Ohm Asian Market in Madison, knows there is some impact on ethnic groceries, but it’s hard to quantify. “People look for the personal touch when it comes to buying their food,” she noted, “so I think there is some impact, but it’s not so great that they close down other businesses.”
How Grocers Monitor Changing Tastes
Whether they’re courting aging baby boomers who have rediscovered the joy of cooking or an unfailingly adventurous millennial generation that loves to entertain at home, it’s imperative for grocery operators to know which trends to cater to. Grocers have always looked for ways to differentiate themselves from the competition, but with the resurgence of home cooking, it’s important to be creative in meeting customer needs. Here’s how they stay on top of things:
The easiest way is simply to listen to their customers — paying attention not only to their verbal suggestions but also their buying habits. Today, technology supports the store aisle conversation as stores invite feedback via their websites and social media, and often it’s a two-way exchange when the stores provide links to recipes.
Reading all about it
Trade publications like Progressive Grocer, Supermarket News, and Wisconsin Grocer help keep grocers up to date on industry news and trends, research and analysis into areas like consumer behavior, best practices in sustainability, marketing techniques, and new food products.
There are myriad grocer and food-related trade shows at which grocers can sample and demonstrate new products. These include the annual Food Marketing Institute show in Chicago and the Wisconsin Grocers Association show in Milwaukee.
Knowing where to look
Many food trends start on the coasts, especially the West Coast, and even burger-and-brat-loving Midwesterners appreciate variety. The Food Network and publications such as Martha Stewart Living can give grocers some early clues. “We watch very closely what’s happening on the coasts, both east and west, because traditionally what might start out as a trend on the coast eventually moves inward toward the Midwest,” says Fresh Madison Market’s Jeff Maurer. “We watch that very closely.”
Dining out might be anathema to grocers, but restaurant and food service trade magazines are the most likely to highlight newer trends in California or New York.
There’s always something new, not just once or twice a year. “Last year alone, there has just been a real boom in new items,” noted Steve McKenzie of Jenifer Street Market. “We’re probably going to have in the neighborhood of at least 200 new items coming into the store in the next couple of months — brand-new products that we’ve never carried.”
Are Coupons Still Hot?
The grocery industry is one of the most competitive because grocers know that if customers don’t like what they see at one store, there are plenty of others to choose from. That’s why savvy store operators are always looking at ways not only to engage their customers but to keep them coming back.
Coupons in newspaper circulars have been used for eons as a way to attract the clip-and-save crowd and push specific grocery items. But in this electronic age, online coupons and social media are gaining steam. And while paper coupons remain popular, they’re not as popular as they once were.
“I think you’re starting to see [couponing] scaling back,” said Brandon Scholz, president of the Wisconsin Grocers Association, “both from the standpoint of the manufacturer’s-offer side and from the consumers finding equally good deals in the store.”
Manufacturers may still offer coupons for individual products, he noted, but the deals may not be as attractive as they once were. “So instead of 35 cents off on a bottle of something, it’s 10 cents off. There are fewer ‘buy one, get one free’ offers.”
At Hy-Vee on Whitney Way, store director Carl Haidar says there is still an active demand for paper coupons, but those redeeming them are usually the same customers across all age groups. Coupons for reduced prices on chips and soda are particularly popular.
Loyalty cards, such as Hy-Vee’s Fuel Saver card, have really taken hold. Fuel Saver customers not only receive in-store special pricing, their purchases also add up to per-gallon reductions at PDQ and some participating Shell stations. (Copps ran its Fuelperks program with BP stations prior to Hy-Vee’s entry into the market.)
“The nature of the program is that the more you buy, the more you save,” Haidar said.
And the more you come back.
Haidar said he was a bit concerned when gas prices recently dropped to under $1.75 per gallon, thinking the Fuel Saver program would lose its appeal. On the contrary, the program thrived. “People were trying to see how close they could get to free gas,” he laughed.
3 Reasons Groceries Don’t Threaten Restaurants
Of all the trends that make restaurateurs nervous, the one they find the most troubling is the sudden interest that grocers have in offering sit-down dining on store premises. Just about everybody wants to sell groceries — Menards, Walmart, and Kwik Trip also offer grocery items that bring decent profit margins — but is it now the grocers’ turn to steal another industry’s business?
The WGA’s Brandon Scholz reassures his restaurant acquaintances that they have nothing to worry about, and even grocers who offer sit-down dining say they are merely trying to enhance the experience of people already in their stores, not peel away people who would otherwise be inclined to dine out. Here are three reasons why grocers don’t believe it’s a significant threat to restaurants:
Hy-Vee’s full-service restaurants are considered by some to be a competitive threat to traditional restaurants.
1. It’s more about the customer experience: Rob Budd, store director of Hy-Vee’s east side Madison store, says his store’s dining area is being revamped to accommodate a full-service restaurant to provide a higher level of service to customers in the store. Budd noted that Hy-Vee’s Fitchburg and west side locations already have full-service restaurants, and even though the east side location would like to have an adult beverage option in the evening and perhaps allow patrons to enjoy a Friday fish fry with a Spotted Cow, the purpose is not to “compete head-to-head” with local restaurants.
2. Disincentive in state law: Jeff Maurer of Fresh Madison Market owns a grocery that has in-store seating, but it’s near Purdue University, not the UW. The reason is that under Wisconsin law, grocers are only allowed to accept electronic food stamp benefits for items consumed off premise. “Once we put in any kind of tables or chairs, or make it available for in-store seating, I’m not allowed by law to sell that product to people using food stamps,” he noted. “I would not be able to serve all of the customers that use them daily and, frankly, we have a lot of people in this market who rely on those benefits, and we may be their only opportunity for a hot meal.”
3. Restaurants provide a social experience: The new Madison Festival Foods location is expected to have the largest seating area to date of any Festival Foods store, and the company anticipates there will be more food and meals consumed on the premises. Even with that, Marlin Greenfield of Skogen’s Festival Foods believes people dine at restaurants for the convenience and a social experience that grocers don’t provide. “Could they choose Festival’s dining deck for a social experience? Sure, and that may happen on occasion, but it’s still not a full-service restaurant,” Greenfield noted.
‘‘Grocery stores are one of the biggest energy users on the planet,” admitted Tim Metcalfe, president of Metcalfe’s Market, which has three stores in Madison. That’s why he made the commitment years ago to take a lead in sustainability efforts at the family-owned stores.
But being green and sustainable is something all grocers are looking at, or should be, according to Brandon Scholz, president of the Wisconsin Grocers Association, because what they do directly affects the bottom line and drives expenses down, which in turn helps keep prices competitive.
To enhance energy savings, night shades have been added to refrigeration cases at Metcalfe’s Hilldale store.
“That’s what keeps them awake at night,” Scholz said. “‘How do I drive expenses out of my profit-and-loss equation?’” Whether choosing to tint windows, change lighting, or install more energy-efficient equipment, grocers are trying to wring out as much cost as they can.
At Metcalfe’s Hilldale store, night shades have been added to refrigeration cases to enhance energy savings, according to Kevin Metcalfe, vice president. “The shades come down at the end of each business day, which maintains refrigeration within the case and maintains products longer.” The result, he notes, is a “truly fresher product.”
But Metcalfe’s, which is Renew Wisconsin’s 2014 Green Power Champion of the Year, does so much more, from installing more energy-efficient ECM motors to run the fans in refrigeration cases to crediting customers 10 cents for every paper or plastic bag they reuse. “In 2014, we saved 677,599 paper and plastic bags from being used, resulting in about $68,000 in bag credits,” Kevin Metcalfe reported.
An arrangement with Middleton-based Purple Cow Organics assures that produce the store deems too old or not suitable for sale gets collected, run through a digester, and turned into fertilizer that the store then sells back to consumers. Last year, more than 465,000 pounds of non-consumable produce was composted.
“If someone actually notices something that we’re doing and they decide to do 10% of that, we say, ‘way to go,’” Tim Metcalfe said. “We hope to set an example. If our employees take notice, maybe they take 10% of their house off the grid or turn the water off when they’re brushing their teeth.”
Why Co-ops Will Not Be Co-opted
A lot of the health foods and organic foods that once set food cooperatives apart are available elsewhere. As they see these items making their way into mainstream groceries, do the managers of cooperatives worry about being co-opted? According to Anya Firszt, general manager of Willy Street Co-op, the answer is no. Her reasoning:
There’s room for everyone
Madison is a “foodie town,” with a great deal of grocer competition entering the market over the past five years and cutting-edge chefs staffing restaurants across the city. Yet, “we are continuing to see a lot of growth in local and organic product sales, which I don’t think is news to anybody at this point,” Firszt stated. “That should be a pretty solid trend that’s not going anywhere.”
Gluten-free items, for example, are prevalent in many stores, but there’s another dimension to the trend — special food prep. “We have a good selection of gluten-free products,” she said. “Other stores probably do as well, but understanding what those foods are and making sure that when we prepare something in our kitchen, that it’s prepared in the spirit of a gluten-free environment” is every bit as important. “It’s not just if someone has an allergy or a restriction, sometimes they’re searching for ways to eat better. … It’s not just driven by your doctor.”
A rising buy-local tide
Do organic food aisles in mainstream grocery stores threaten Willy Street Co-op? The short answer is, no.
For a long time, Willy Street Co-op has sourced products locally. It’s helped to develop some local farms, and as it bought more and more product from them, they were able to grow their market. Buy-local might not be new anymore, but it should be in vogue for a sustainably long time. “I’d like to think the boat ride is higher for all of us,” Firszt says. “Our vendors are becoming better at growing product and providing it to us as well as other grocery stores.”
One key difference
For Willy Street, being a co-op is the only difference between it and other grocery stores. “Profit margins for grocery stores are relatively small, as most operate on less than a 4% income, and Willy Street is no exception,” said Firszt. However, as a cooperative, Willy Street returns its profits to its owners through patronage or provides sponsorship dollars to organizations in the community, so there are ways to give back. And because it is consumer-owned, “our shoppers very much can dictate what we sell on the shelves and how we serve our owners,” Firszt noted. “It is a competitive advantage.”
When Willy Street Co-op opened its west side store, it held a bond drive to raise capital, and it raised $1 million in less than 40 days. “That’s the kind of commitment our owners have with our business,” she noted. “You own it, so you’re a huge resource for us, not only because you bring sales but because you dictate what we put on our shelves. It’s also kind of a cycle. If you shop at this store, we can make money and give it back to you and you can shop at the store some more, and so it’s that ongoing cycle of sustainability.”
Destination Stores Defy Location, Location, Location
We’ve become such a foodie culture that it’s not unusual for people to frequent out-of-the-way grocery stores to find particular items they specialize in. Some stores develop a reputation for excellence in one area or another, which draws people from great distances and offers stores a chance to show what else they have to offer.
Jenifer Street Market in Madison is such a store. Tucked away on a block bounded by Helena, Division, Jenifer, and Russell streets, the market is not easy to find (even for the locals), but people know that its selection of meats is well worth the trouble. Even with plans in the works to build a more spacious store on East Washington Avenue, the current location remains a favored place for meat lovers.
Jenifer Street Market may be located off the main drag, but its selection of meat attracts customers from well outside its immediate neighborhood.
Owner Steve McKenzie has never done anything formal to track those who travel off the beaten path, but a review of checks shows how much customer geography expands around the holidays. “Our meat department is the reason we’ve been able to exist in a location that’s not on a main drag,” he said. “People have to know exactly where we are. You don’t just stumble across it.”
Because many customers are making a special trip, McKenzie knows that it’s all the more important to offer a good customer experience. “They frequent us as many as 2.5 times what they will one of the big-box stores,” McKenzie noted. “They will still spend an incredible amount more at the big-box stores stocking up on things, but we’re more than happy to get that perishable part of the equation.”
The nice thing about being an independent store, noted McKenzie, is that you don’t have to go to the corporate warehouse and ask it to carry a product. Independent operators can go directly to the manufacturer to determine the distributor, and in Madison, a number of local food incubators are willing to help source a product.
Hy-Vee’s gluten-free aisles serve as a destination for people with celiac disease and, somewhat surprisingly, others who simply want healthier choices. Gluten-free pizzas and lasagnas are offered in the store’s Italian department, and the store has a dedicated gluten-free fryer to make French fries. The store doesn’t have a certified gluten-free kitchen, but it takes steps to prevent cross contamination with flour, said Hy-Vee’s east store director, Rob Budd. “Madison,” he noted, “is ahead of the curve in the culinary scene.”
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