February 16, 2004
Grocery Glut | More players. More and bigger stores. If you thought there were already too many grocery stores in southern Maine, you ain't seen nothing yet.
By Michaela Cavallaro
Need groceries? If you live in southern Maine, you've got plenty of choices already ˆ and you're about to get more, as each of the major supermarket companies in New England attempts to take another bite out of the state's most populous market. What was already a competitive arena is about to become even more so.
All three of the state's current major players, as well as a newcomer, are jockeying for ever-larger slices of the southern Maine grocery pie. Hannaford has been on a rebranding, renovation and expansion tear, and recently opened a 47,000-square-foot store in Westbrook, with plans for another new location on Route 302 near the Portland-Westbrook line. Not to be outdone, Shaw's is about to open a new store in Freeport, and it plans to start work this spring on redevelopment of the former Bradlee's plaza in Westbrook (near the Exit 8 interchange on the Maine Turnpike) into a 63,000-square-foot store. In addition, the chain recently announced plans to tear down a former Ames store in Saco and build a new, 68,000-square-foot supermarket that would replace the existing, 39,000-square-foot Shaw's across the parking lot.
Also, late last year Wal-Mart announced its intention to build a 203,000-square-foot supercenter, which includes a full grocery section, in Westbrook, not far from the new Hannaford and Shaw's locations. The retailer's new Lewiston distribution center, scheduled to become operational this year, means Wal-Mart will be better equipped to deliver goods to new and existing supercenters across the state. And, finally, Stop & Shop hopes to make its first inroads in Maine with a 65,000-square-foot Super Stop & Shop proposed for Kennebunk, and an 81,000-square-foot Super Stop & Shop proposed for Portland's Morrill's Corner.
The reason for all this activity, say grocery experts, comes down to the simple economic mandate of the modern public company. Though the chains themselves refuse to comment on their reasons for expansion ˆ grocers are notoriously tight-lipped about strategy ˆ observers say they simply need to grow. "Most of the public companies have to continue to show sales and earnings growth," says Mark Hamstra, retail editor of Supermarket News, an industry magazine based in New York. "Supermarkets always think their next store is going to do well."
Hamstra's point is echoed by Jeanne Munger, associate professor of marketing at the University of Southern Maine. Grocery chains, she says, are "going into market areas that might not have been [seen] as lucrative years ago, but they're just striving for growth. We're overstored," she adds. "There is more retail space [in use] than we're able to sustain over time."
A choice bonanza
But the grocery chains aren't just competing against one another anymore. Instead, due to what marketers call "channel blurring," grocery items are increasingly available in places they've never been found before. "More and more nontraditional food formats are picking up bigger and bigger shares of the grocery market," says Hamstra. "Both convenience and drug stores are seeing the advantage of offering grocery to drive the frequency of customer visits."
It's a strategy, like many others in retailing, popularized by Wal-Mart. The Bentonville, Ark. chain began building supercenters in the 1990s in order to draw more frequent visits from people who might otherwise stop in for general merchandise only once a month. As in every other category, Wal-Mart's strategy with groceries is to compete on price. But the company says it doesn't use food as a loss leader just to get people in the door. "The grocery component is definitely a money maker for us," says Mia Masten, Wal-Mart's community affairs manager for the eastern region. "We're building supercenters faster now than we are general merchandise stores."
With Wal-Mart's supercenters proliferating across the country ˆ there are currently 10 in Maine, plus the store proposed for Westbrook ˆ and hammering home the message that their prices are the lowest available, traditional grocery chains have been forced to compete on aspects of the shopping experience other than price alone. The competition is relatively new for New England grocers, who once enjoyed a relatively uncompetitive market. A 2003 report by Deutsche Bank Securities in New York pegged profit margins in the region at about 8% prior to Wal-Mart's arrival, compared to the industry standard of 5%.
Though the other chains never mention Wal-Mart in their communications with the public, much ˆ if not all ˆ of their marketing is aimed at describing how shopping at their stores is better, more pleasant or more convenient than making a trip to the retail behemoth. At Shaw's, the East Bridgewater, Mass. subsidiary of U.K.-based J Sainsbury, the strategy has been to focus on customer service and tailoring individual stores to the communities in which they're located.
"For Wal-Mart, customer service is not one of their strengths," explains Tom Vesey, regional vice president of what Shaw's calls its "mountain region" ˆ Maine, New Hampshire, Vermont and parts of Massachusetts. "How many times do you walk in there and you can't find something? If you speak to an associate at Shaw's and say, 'Where's the orange juice?,' the associate will say, 'Sure,' and bring you to that item, rather than just saying, 'It's in aisle four.'"
In addition, says Terry Donilon, a Shaw's spokesman, the company tries to strike a delicate balance between the economies of scale gained when stores are cookie-cutter replicas of one another and the customer attraction made possible when the product mix in an individual store is tailored specifically to its community. The chain unveiled a series of new prototype stores last year, including an upscale store in Boston's Prudential Center aimed at customers on foot who are stopping in for five to 10 items, a "neighborhood" store in Providence that caters to the area's Italian and Latino residents and a South Burlington, Vt. store designed to appeal to busy families by offering housewares ˆ "you can buy a pillow or sheets or utensils for the kitchen," Donilon says ˆ as well as groceries.
In addition, Shaw's is in the planning stages for what Vesey calls a "community" store in Wiscasset. At about 40,000 sq. ft., the store will be significantly smaller than those the chain has developed recently. "It's going to be a totally different concept," he says. "We're looking at putting in modules" ˆ grocery-speak for stand-alone departments like a prepared foods kiosk or Wild Harvest, Shaw's natural/organic section ˆ "that fit the community. I'm not sure yet if we're going to put in a service meat counter. [We'll consider questions such as] what are you going to offer? What's your competition? Are you going to be able to have toys? What type of Wild Harvest section? It could be a smaller version of the [regular] modules in that community store ˆ how much can we fit?"
The differentiation game
Vesey, who's worked for Shaw's for nearly 30 years, says it's readily apparent what his traditional grocery competitors have chosen to focus their attentions on in order to attract and retain customers. Wild Oats, the Boulder, Colo. company that early last year opened its first Maine store in Portland, a block away from the newly expanded Hannaford, "does a great job at impulse buying," he says. "They're really tough. They have health drinks that people just stand in line to buy."
Quincy, Mass.-based Stop & Shop, on the other hand, does a little bit of everything, Vesey says. The company, which is owned by Netherlands-based Royal Ahold, has recently begun partnering with other retailers; its superstore format, which it unveiled in late 2002, includes Dunkin' Donuts, Office Depot, Toys R Us and Boston Market mini-stores under the Stop & Shop roof. Rick Stockwood, a spokesman for the company, wouldn't comment on its expansion into Maine, other than to say that Stop & Shop is "excited about entering Maine" and that the company is "looking to bring our one-stop-shopping concept to customers throughout the Northeast."
According to Munger of USM, Stop & Shop traditionally has competed on the basis of low prices. She anticipates the chain may enter the Maine market aggressively, perhaps offering enticements like double coupons to lure shoppers away from their current favorite store. "To do well, Stop & Shop is going to have to do a really good job on produce and meat, and maybe have lower prices," she says. "It's going to be hard for them to win a lot of consumers over. It's going to take time and effort, and they might lose money for a while in this market."
Scarborough-based Hannaford, on the other hand, has been the shining star of Belgian parent Delhaize's American companies, which also include the Food Lion and Kash 'n Karry grocery chains operating primarily in the southeast. The company refused to comment for this story, saying it didn't want to tip its hand regarding its strategy, even when the results of that strategy are visible in its stores. "Competitors can walk in your door and see a lot of what you're doing ˆ count the square footage, see how much product you've got. So anything you can keep on the q.t., you're going to," explains Munger.
As Vesey of Shaw's sees it, Hannaford has "focused on perishables, including bakery. They've been able to do what Wal-Mart doesn't do, and they have quite a marketing strategy to say what they do that's different than Wal-Mart." What's different, it seems, is the notion of the shopping experience that Hannaford is trying to provide, complete with product samples, free recipes and an abundance of once-exotic produce items like lemongrass and star anise. "Hannaford has gone through a major transition; they've moved from being the low-cost provider to what we call a differentiated approach," says Munger. "They're trying to position themselves as an enjoyable shopping experience, and they're trying to attract busy working professionals, with the food that's already made, the eggrolls and the rotisserie chickens ˆ they're trying to be convenient and low price."
If the strategy sounds fairly close to those employed by Shaw's and Stop & Shop, that's because it is. But when you can't compete solely on price due to the Wal-Mart effect, there's not much room for other ways to draw customers. "A lot of chains are investing a lot in having good bakeries, good in-store meat cutters; organic departments are getting bigger," says Hamstra of Supermarket News. "It is hard to differentiate the big chains from one another."
All three of the state's current major players, as well as a newcomer, are jockeying for ever-larger slices of the southern Maine grocery pie. Hannaford has been on a rebranding, renovation and expansion tear, and recently opened a 47,000-square-foot store in Westbrook, with plans for another new location on Route 302 near the Portland-Westbrook line. Not to be outdone, Shaw's is about to open a new store in Freeport, and it plans to start work this spring on redevelopment of the former Bradlee's plaza in Westbrook (near the Exit 8 interchange on the Maine Turnpike) into a 63,000-square-foot store. In addition, the chain recently announced plans to tear down a former Ames store in Saco and build a new, 68,000-square-foot supermarket that would replace the existing, 39,000-square-foot Shaw's across the parking lot.
Also, late last year Wal-Mart announced its intention to build a 203,000-square-foot supercenter, which includes a full grocery section, in Westbrook, not far from the new Hannaford and Shaw's locations. The retailer's new Lewiston distribution center, scheduled to become operational this year, means Wal-Mart will be better equipped to deliver goods to new and existing supercenters across the state. And, finally, Stop & Shop hopes to make its first inroads in Maine with a 65,000-square-foot Super Stop & Shop proposed for Kennebunk, and an 81,000-square-foot Super Stop & Shop proposed for Portland's Morrill's Corner.
The reason for all this activity, say grocery experts, comes down to the simple economic mandate of the modern public company. Though the chains themselves refuse to comment on their reasons for expansion ˆ grocers are notoriously tight-lipped about strategy ˆ observers say they simply need to grow. "Most of the public companies have to continue to show sales and earnings growth," says Mark Hamstra, retail editor of Supermarket News, an industry magazine based in New York. "Supermarkets always think their next store is going to do well."
Hamstra's point is echoed by Jeanne Munger, associate professor of marketing at the University of Southern Maine. Grocery chains, she says, are "going into market areas that might not have been [seen] as lucrative years ago, but they're just striving for growth. We're overstored," she adds. "There is more retail space [in use] than we're able to sustain over time."
A choice bonanza
But the grocery chains aren't just competing against one another anymore. Instead, due to what marketers call "channel blurring," grocery items are increasingly available in places they've never been found before. "More and more nontraditional food formats are picking up bigger and bigger shares of the grocery market," says Hamstra. "Both convenience and drug stores are seeing the advantage of offering grocery to drive the frequency of customer visits."
It's a strategy, like many others in retailing, popularized by Wal-Mart. The Bentonville, Ark. chain began building supercenters in the 1990s in order to draw more frequent visits from people who might otherwise stop in for general merchandise only once a month. As in every other category, Wal-Mart's strategy with groceries is to compete on price. But the company says it doesn't use food as a loss leader just to get people in the door. "The grocery component is definitely a money maker for us," says Mia Masten, Wal-Mart's community affairs manager for the eastern region. "We're building supercenters faster now than we are general merchandise stores."
With Wal-Mart's supercenters proliferating across the country ˆ there are currently 10 in Maine, plus the store proposed for Westbrook ˆ and hammering home the message that their prices are the lowest available, traditional grocery chains have been forced to compete on aspects of the shopping experience other than price alone. The competition is relatively new for New England grocers, who once enjoyed a relatively uncompetitive market. A 2003 report by Deutsche Bank Securities in New York pegged profit margins in the region at about 8% prior to Wal-Mart's arrival, compared to the industry standard of 5%.
Though the other chains never mention Wal-Mart in their communications with the public, much ˆ if not all ˆ of their marketing is aimed at describing how shopping at their stores is better, more pleasant or more convenient than making a trip to the retail behemoth. At Shaw's, the East Bridgewater, Mass. subsidiary of U.K.-based J Sainsbury, the strategy has been to focus on customer service and tailoring individual stores to the communities in which they're located.
"For Wal-Mart, customer service is not one of their strengths," explains Tom Vesey, regional vice president of what Shaw's calls its "mountain region" ˆ Maine, New Hampshire, Vermont and parts of Massachusetts. "How many times do you walk in there and you can't find something? If you speak to an associate at Shaw's and say, 'Where's the orange juice?,' the associate will say, 'Sure,' and bring you to that item, rather than just saying, 'It's in aisle four.'"
In addition, says Terry Donilon, a Shaw's spokesman, the company tries to strike a delicate balance between the economies of scale gained when stores are cookie-cutter replicas of one another and the customer attraction made possible when the product mix in an individual store is tailored specifically to its community. The chain unveiled a series of new prototype stores last year, including an upscale store in Boston's Prudential Center aimed at customers on foot who are stopping in for five to 10 items, a "neighborhood" store in Providence that caters to the area's Italian and Latino residents and a South Burlington, Vt. store designed to appeal to busy families by offering housewares ˆ "you can buy a pillow or sheets or utensils for the kitchen," Donilon says ˆ as well as groceries.
In addition, Shaw's is in the planning stages for what Vesey calls a "community" store in Wiscasset. At about 40,000 sq. ft., the store will be significantly smaller than those the chain has developed recently. "It's going to be a totally different concept," he says. "We're looking at putting in modules" ˆ grocery-speak for stand-alone departments like a prepared foods kiosk or Wild Harvest, Shaw's natural/organic section ˆ "that fit the community. I'm not sure yet if we're going to put in a service meat counter. [We'll consider questions such as] what are you going to offer? What's your competition? Are you going to be able to have toys? What type of Wild Harvest section? It could be a smaller version of the [regular] modules in that community store ˆ how much can we fit?"
The differentiation game
Vesey, who's worked for Shaw's for nearly 30 years, says it's readily apparent what his traditional grocery competitors have chosen to focus their attentions on in order to attract and retain customers. Wild Oats, the Boulder, Colo. company that early last year opened its first Maine store in Portland, a block away from the newly expanded Hannaford, "does a great job at impulse buying," he says. "They're really tough. They have health drinks that people just stand in line to buy."
Quincy, Mass.-based Stop & Shop, on the other hand, does a little bit of everything, Vesey says. The company, which is owned by Netherlands-based Royal Ahold, has recently begun partnering with other retailers; its superstore format, which it unveiled in late 2002, includes Dunkin' Donuts, Office Depot, Toys R Us and Boston Market mini-stores under the Stop & Shop roof. Rick Stockwood, a spokesman for the company, wouldn't comment on its expansion into Maine, other than to say that Stop & Shop is "excited about entering Maine" and that the company is "looking to bring our one-stop-shopping concept to customers throughout the Northeast."
According to Munger of USM, Stop & Shop traditionally has competed on the basis of low prices. She anticipates the chain may enter the Maine market aggressively, perhaps offering enticements like double coupons to lure shoppers away from their current favorite store. "To do well, Stop & Shop is going to have to do a really good job on produce and meat, and maybe have lower prices," she says. "It's going to be hard for them to win a lot of consumers over. It's going to take time and effort, and they might lose money for a while in this market."
Scarborough-based Hannaford, on the other hand, has been the shining star of Belgian parent Delhaize's American companies, which also include the Food Lion and Kash 'n Karry grocery chains operating primarily in the southeast. The company refused to comment for this story, saying it didn't want to tip its hand regarding its strategy, even when the results of that strategy are visible in its stores. "Competitors can walk in your door and see a lot of what you're doing ˆ count the square footage, see how much product you've got. So anything you can keep on the q.t., you're going to," explains Munger.
As Vesey of Shaw's sees it, Hannaford has "focused on perishables, including bakery. They've been able to do what Wal-Mart doesn't do, and they have quite a marketing strategy to say what they do that's different than Wal-Mart." What's different, it seems, is the notion of the shopping experience that Hannaford is trying to provide, complete with product samples, free recipes and an abundance of once-exotic produce items like lemongrass and star anise. "Hannaford has gone through a major transition; they've moved from being the low-cost provider to what we call a differentiated approach," says Munger. "They're trying to position themselves as an enjoyable shopping experience, and they're trying to attract busy working professionals, with the food that's already made, the eggrolls and the rotisserie chickens ˆ they're trying to be convenient and low price."
If the strategy sounds fairly close to those employed by Shaw's and Stop & Shop, that's because it is. But when you can't compete solely on price due to the Wal-Mart effect, there's not much room for other ways to draw customers. "A lot of chains are investing a lot in having good bakeries, good in-store meat cutters; organic departments are getting bigger," says Hamstra of Supermarket News. "It is hard to differentiate the big chains from one another."
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