The Real Deal New York

Why grocery stores are pulling back

Same-store sales at conventional chains were flat in 2016
July 31, 2017 10:30AM

Kroger CEO Rodney McMullen and Murray’s Cheese On Bleecker Street

Sales of food and groceries at the nation’s retail stores have gone flat as consumers shift from making big weekly trips to making more frequent and smaller purchases.

And as the amount of retail space dedicated to selling groceries is at a peak, the segment is vulnerable to wave of closures, the Wall Street Journal reported.

Same-store sales at conventional chains were flat in 2016 and are forecasted to remain static this year, according to FactSet. And the square footage of retail space per capita hit a new record of 4.15 square feet last year, according to Costar Group.

The surge in space is the result of a huge build-out by retailers, part of which came from grocers who accelerated store openings to drive sales growth after the recession, and also by club chains, dollar stores, pharmacies and even gas stations that increased their food offerings to grow profits and traffic.

“Everybody is getting into the grocery business,” said David Hirz, chief executive of the California-based warehouse grocer Smart & Final Stores Inc.

Major chains are in retrenchment mode. Kroger, the country’s largest supermarket chain, is cutting back its new-store openings this year from 100 to 55. Kroger made its New York City debut in February when it purchased Murray’s Cheese in Greenwich Village.

And Wal-Mart plans to build only 55 supercenters and smaller-format stores in the 2018 fiscal year, down from the 132 it opened during the 12 months ending in January.

The company is looking to expand a keyless-entry system in Manhattan and Brooklyn to help streamline home deliveries to buildings without doormen.

Competition in the sector is heating up at opposite ends. European discounters like Aldi and Lidl are looking to grab more U.S. market share, while Amazon’s $13 billion purchase of Whole Foods signals changes for the upscale grocer. [WSJ] – Rich Bockmann