Charlotte is ‘ground zero’ for grocery wars. Here’s what could happen in next few years

October 15, 2018

By Katherine Peralta | The Charlotte Observer

As Charlotte’s cutthroat grocery-store scene continues to evolve, experts say shoppers can expect lots of change coming, from sleek tech that makes online shopping easier to store closures to new supermarkets entering the market.

Experts say those moves over the next decade will be powered by how grocers respond to the area’s booming population as they fight to win customers.

One of Harris Teeter’s newest stores underscores how much grocery chains have changed in a generation — and how much they’ll continue to evolve.

It’s on the site where the company’s second-ever store was, back when Harris Teeter was called Harris Food Store. The company announced its store in the Sedgefield shopping center on South Boulevard in 1952.

An Observer article at the time said the store would be completely modern and equipped with “the most-up-to-date fixtures available.” The 15,000 square-foot store would be one of the largest in the Carolinas. That store lasted until 1988, unable to expand in that location and add a deli.

Other stores occupied that space for the next few decades. The new Harris Teeter that opened in its place in summer 2017 is more than triple the size of the original. It’s equipped not only with a deli, but also a Starbucks, a bar with wine and 16 beers on tap, filling stations for beer growlers and a sit-down eating area.

The store’s now a destination: On any given afternoon you’ll find shoppers sitting down for after-work beers, and even couples on date nights.

New-to-town grocers like Publix, Sprouts and Lidl are also expanding their footprints and taking market share from established companies like Harris Teeter and Food Lion. Retailers competing for customers are lowering prices. Grocers that are feeling the pinch have been forced to close stores, declare bankruptcy and merge with larger companies.

“What used to be your typical drab experience hardly exists anymore. You have to have sushi. You have to have a cheese selection,” Bill Urda, senior retail analyst at the Boston Consulting Group. “It’s fun to go to the grocery store.”

Newcomers

Urda describes Charlotte as “ground zero for grocery competition.”

For one, the region is home to a number of popular supermarkets. Charlotte’s top grocer, Harris Teeter, is based in Matthews (although its parent company, Kroger, has its headquarters in Cincinnati.) Food Lion, Charlotte’s No. 3 grocer by market share, is headquartered in Salisbury. The Fresh Market is based in Greensboro and Earth Fare is out of Asheville.

That Charlotte’s population is growing so rapidly (an estimated 60 people move here every day) has meant it’s a prime target for out-of-town grocers to plant new roots.

That was the case with Florida-based Publix, which opened in Charlotte in 2014, for instance, as well as the Phoenix-based organic grocer Sprouts, which opened its first Charlotte store last spring in Ballantyne. The German grocer Lidl opened its first Charlotte-area stores last summer, and a recent study showed other grocery stores are responding to Lidl’s entrance by lowering prices to stay competitive.

Wegmans, based in upstate New York, began construction on its first North Carolina stores in Raleigh and Cary this year. The grocer has two other stores planned for Chapel Hill and West Cary, too.

Wegmans and Publix are considered the most popular grocers in the U.S., according to several surveys.

“They’ve always kept out of each others way,” Urda said. “Now they’re meeting in North Carolina.”

Like Publix, Wegmans has a cult-like following, especially among transplants from the northeast.

Wegmans spokeswoman Valerie Fox said there are “no plans for Charlotte at this time.”

But that doesn’t mean the grocer will never come here. It makes sense from an economic standpoint, Urda said, since the retailer would want to get the most use out of its distribution network.

“(Charlotte is) such an attractive market, it certainly wouldn’t be surprising. It would be consistent with the way Wegmans has expanded in the past.”

Store closures
There will continue to be store closures in the near future, too. The grocers that don’t understand their customers and don’t reinvest in their stores will be the first to go, according to Phil Lempert, a national supermarket analyst.

“If they don’t get it, they’ll be out of business,” Lempert said.

A few months after Fresh Market was bought by Apollo Global Management in 2016, the grocer started making some major changes that experts say ultimately hurt the company. For instance, Fresh Market, long known as an upscale specialty store, started selling hundreds of “everyday items” like baby, pet and household cleaning products.

Earlier this year, the grocer said it was slowing its expansion, and this summer, the company closed 15 under-performing stores nationwide. (New CEO Larry Appel told the Observer recently the company is re-focusing on getting “back to its roots” as a European grocery store, with a focus on fresh pastas, cheese, olive oils and wines sourced from across Italy, France and other countries.)

Other major grocers have shuttered stores in the area recently, too. Bi-Lo, for instance, closed six Charlotte-area stores this year as part of a major restructuring. Longtime organic grocer Healthy Home Market this year closed its two remaining area stores.

New technology
Ordering groceries online isn’t as common these days as ordering clothes, toys, books and electronics. According to global consulting firm Bain, online grocery shopping makes up only 3 percent of all U.S. grocery sales.

Nonetheless, grocers have been aggressively investing in technology, such as mobile apps that let customers order online and earn loyalty rewards, as well as in home grocery delivery. Expect that tech trend to continue, experts say.

In five to seven years, up to 70 percent of American consumers will buy at least some groceries online, according to a recent report from the Food Marketing Institute and Nielsen.

Food Lion last month launched its “to-go” service that lets customers order groceries online and pick up their orders at several Charlotte stores. “Food Lion’s focus will always be on remaining relevant to evolving customer needs,” a Food Lion representative said in an email.

Also last month, Whole Foods, which was bought by Amazon last summer, launched grocery delivery to customers in Charlotte.

Several grocers, such as Publix and Harris Teeter, work with a third-party company called Instacart to provide delivery to customers. That’s less costly than investing in their own fleet of trucks that would require refrigeration, said Urda, the BCG analyst.

Urda, however, doesn’t anticipate that online grocery shopping will ever become more popular than shopping in person.

“People aren’t all going to flock to digital,” Urda said.

Urda says many grocery stores can be “fun places” to go as long as they are perceived as destinations.

“There’s a certain segment of the population that’s purely convenience driven. But a lot of people like the experience, and the experience is getting better and better,” Urda said.

Lempert noted that the evolution of technology in the home is already starting to change the way people shop.

Whirlpool partnered with Amazon a few years ago to add the tech giant’s “Dash” auto-replenishment feature into its dishwashers, washers and dryers. The appliances prompt customers via a mobile app that they’re running low on products like detergent, and lets them reorder the products easily in a few clicks from Amazon.

Some retailers are looking ahead at ways to cater to online-only shoppers in some locations.

For instance, Walmart has proposed opening a pickup-only grocery store for a former Dominick’s supermarket in Lincolnwood, Ill., according to Supermarket News, an industry publication. Moving some inventory to warehouse-like locations would free up space for other more in-demand grocery products in the future.

Store formats
One surprising thing customers could see happening with Charlotte grocers is move into malls to replace department stores.

That’s what’s happened elsewhere in the U.S.: In Arlington, Ohio, for instance, Kroger will open in a former Macy’s store, according to a recent Business Insider report. Wegmans opened a store this year in a former J.C. Penney space in Massachusetts.

Sears, J.C. Penney and Macy’s have all closed stores in the Charlotte area in recent years, and many of their spots remain vacant for now.

Down the line, traditional grocery stores may also opt to start building smaller stores, especially if they scale back on non-food products (like toilet paper and bleach) that customers can easily buy online.

Already, many grocery stores have about triple the square footage of retail space than shopper demand dictates, according to Burt Flickinger, managing director of consumer industry consulting firm Strategic Resource Group.

In Charlotte, the typical grocery store is about 40,000 square feet.

Some of the newer stores to open up are much smaller: Lidl and Aldi, for instance, have stores that are about half that size. This month in Tallahassee, Fla., Publix opened its new-format, 29,000-square-foot GreenWise Market that sells natural and organic items like antibiotic-free meats and vegan snacks. Publix is planning another GreenWise in Charleston.

Other grocers in Charlotte are much larger than the typical 40,000 store: Harris Teeter’s new Rea Farms store is 78,000 square feet and has features like a drive-through pharmacy, a Starbucks and a beer and wine bar.

Using different store formats are a way grocers are seeking to set themselves apart.

“Shoppers will benefit from new formats, price wars of unprecedented proportions (and) innovation,” Flickinger said.

At the same time, many grocers are looking to boost their selection of fresh offerings to appeal to health-conscious shoppers, many of whom happen to be millennials.

“The stores will become much more focused on fresh foods, and they’ll become much more based on relationships with bakers, fishmongers, butchers and dieticians,” said Lempert, the national supermarket analyst. “It’s going to become much more experiential.”