story by Kim Souza
ksouza@thecitywire.com
Grocery giant Safeway announced the closing of nine stores across the Denver market, which is 45% of its real estate in the mile-high metro area. The culprit of these closures slated for mid-June is the continued loss of market share to Wal-Mart Stores and trendy food retailers like Trader Joe’s, Sprouts and Whole Foods which entered the market in recent years.
Safeway confirmed to the Denver Post on Saturday (May 9) the nine grocery store closures across Denver which included three in Aurora. Kris Staaf, spokeswoman for Safeway said these stores have been under close corporate scrutiny for several years. She said the decision to close the underperforming stores was made because they were not profitable.
Retailer market share data across the Denver metro area indicates that Kroger’s Kings Soopers/City Market garners the biggest share at 33.4% as of December 2014. Wal-Mart Stores comes in at No. 2 with 24% of the market share, while Safeway had 19.5%. More trendy Trader Joe’s which entered the market last year had amassed just 1%, while Whole Foods had 2.8% and Sprouts accounted for 1.3%.
According to the Shelby Report, Wal-Mart has grown its market share in Denver from 2.5% in 2001 to 24% today. In that same period, Safeway’s share declined from 24.3% to 19.5%.
Safeway attempted to lower its prices in 2009, but Staaf said the long battle to shore up the unprofitable stores had gone on long enough, and the decision was made to close nine stores.
Wal-Mart has made no secret that the Denver market is important to the retailer’s strategy. The Bentonville-based retailer behemoth operates 36 stores in the Denver metro area, all of which offer online grocery ordering and pickup or home delivery. Wal-Mart began testing the grocery pickup and home delivery in Denver about two years ago under the leadership of then Walmart U.S. CEO Bill Simon.
Denver was chosen as the first metro wide test for pickup and delivery of online grocery orders because it had so many stores in the city. Wal-Mart has since said more than 80% of this online grocery pickup business comes from repeat shoppers. The service also has indexed well in terms of customer satisfaction, according to Judith McKenna, chief operating officer for Walmart U.S.
“We are really encouraged by the tests in pickup,” McKenna said, adding that 80% of the customers in Denver rate the service positively.
McKenna said population density is needed for the home delivery option to make financial sense for retailers. But in commuter markets, click & collect models for grocery could find favor among many shoppers. This model is perceived by analysts to be a major advantage for Wal-Mart given that it has amassed more than 4,300 stores across the U.S. that can be distribution points for online orders of grocery and general merchandise.
The online grocery market, worth $6 billion annually, is projected to grow at 9.5% a year between 2012 and 2017, according to the market research firm IBISWorld.
One important lesson McKenna said Wal-Mart learned from Denver is that despite a low $5 to $10 home delivery charge, the store pickup option is more popular and works well with busy consumers juggling hectic schedules.
While Safeway offers grocery home delivery in several U.S. metro areas, Denver was not one of them. The West-coast-based grocery veteran said it also does not offer curbside pickup for online grocery orders at this juncture.
Retail experts like Carol Spieckerman, CEO of newmarketbuilders, has told The City Wire that first movers in the space of grocery home delivery and more specifically grocery pickup services are likely to gain marketshare advantages over laggers. Spieckerman has lauded Wal-Mart’s ongoing investment and pilot testings that bring digital and physical together. She said Wal-Mart’s nimble actions to test multiple formats in grocery pickup make logical sense.
“Retailers that offer a full portfolio of delivery and pick-up options will make the most of their physical scale (the one true advantage over Amazon), while mitigating “jumping off” points with customers who define convenience differently depending on need states, categories being shopped and even the time of day,” Spieckerman said.