Twin Cities grapple with glut of grocers

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Twin Cities grapple with glut of grocers

By John Karolefski - 04/25/2018
After a bit of a shakeup, the drug channel is stable in the Twin Cities of Minneapolis-St. Paul. It began to evolve in 2010, with the purchase of the remaining 25 stores of 80-year-old Snyders Drug Stores Walgreens.

At the time, Love Goel, CEO of Minnetonka, Minn.-based private equity firm GVG Capital Group, said, “The reality of specialty retail is that if you’re not No. 1 or No. 2, you’re not going to be around. Walgreens and CVS dominate, and eventually, the others will evaporate or be consumed by these guys.

Eight years later, Goel seems to have been proven right. Today, ARM Insight reported that Walgreens enjoys an 82% market share in the Twin Cities, while CVS holds 16% and 2% goes to “Other.”

And while the drug channel has stabilized in the Twin Cities, the grocery channel is another story. For retailers, it’s a food fight. For shoppers, it’s a foodie’s dream.

“The grocery scene started to heat up and change toward fresh and local in 2016,” Todd Huseby, a partner with the global consultancy A.T. Kearney, said. “About the city as a foodie destination, local chef and TV personality Andrew Zimmerman said, ‘What used to be fly-over country is now as white-hot as any food destination in America, and is the most interesting.’”

Analysts consider the affluent Twin Cities to be an over-stored grocery market today. What led to this situation began in 2014 when Rainbow Foods closed or sold 27 stores, giving other grocers an opportunity to step in and snatch up its shoppers.

With some 58 stores in the Twin Cities, Cub Foods, a subsidiary of the once-powerful Supervalu, holds the top spot among grocers with a 21.6% share, according to ARM Insight. But analysts have reported a consistent market share decline for several years due to growing retail competition.

Other retailers with double-digit market shares are Target and Walmart at 20.6% and 18.9% respectively. Club stores Costco and Sam’s Club hold respective shares of 7.6% and 5.2%. Trailing Cub Foods in the grocery channel are Edina, Minn.-based Lunds & Byerly’s at 6.6% and Des Moines, Iowa-based HyVee at 4.2%

“Generally speaking in the food sector, there seems to be stifled growth from the publicly traded chains, as Wall Street is paying close attention to CapEx beyond e-commerce and technology investments,” Douglas Munson, principal at MTN Retail Advisors, said. “This is providing a window for some niche formats and chains to try to take advantage of the slow down by the larger publicly-traded companies. In Minneapolis, Hy-Vee is continuing steady growth.”

Hy-Vee is considered the most aggressive grocer in the market. It entered Minneapolis-St. Paul in 2015 and built its eighth store there last year. The family-owned Lunds & Byerly’s is an upscale operator that branched out into e-commerce two years ago. It operates five stores in the Twin Cities. Nipping at the heels of its larger competitors are such specialty retailers as Whole Foods, Trader Joe’s and Aldi.
Cub Foods is enlivening the grocery scene by modernizing stores and adding such attractive departments as a honey bar, popcorn stand, a burrito bar, and a juicery.

Grocers in Minneapolis/St. Paul are stocking more halal products to meet the cultural and dietary needs of the growing Somali population. Lari Harding, vice president of product strategy and marketing at Inmar, said offering this special product assortment is a necessity nowadays.
“If retailers don’t have the correct merchandise to appeal to immigrants, they may not at first perceive change because immigrants won’t be shopping at their stores,” she said. “Retailers seeing a decline in sales may not necessarily attribute it to changing demographics. Therefore, it’s important for retailers to maintain maximum awareness of how the population makeup is changing in the neighborhood outside of the store.”