With a new Lunds in downtown St. Paul, Fresh Seasons Market and Rainbow succumbing to competitive pressure and local co-ops sprouting all over the metro, it’s tough to judge whether the Twin Cities’ grocery business is healthy, hurting or in a prolonged state of flux.
“You will continue to see changes,” says David Livingston, a supermarket analyst and former Roundy’s market research manager. “Cub and Rainbow have been financially distressed and unable to respond to more modern formats. . . . When market-share leaders are crippled with debt and can’t compete on price, competitors get like a bunch of hungry dogs; the result has been a building spree.”
Examples include Whole Foods Market, which has opened four new stores in recent years; Mississippi Market, planning its third natural foods store in St. Paul; Longfellow Market, which opened in Minneapolis in April; and Iowa-based Hy-Vee, which announced plans for five suburban stores.
Increasing specialization has complicated the business. “These days, middle- and upper-class shoppers go where they can find specific unique things,” says Jean Kinsey, a former University of Minnesota professor and director emeritus at the U’s Food Industry Center. “And they’re willing to make two or three stops to fill their pantries.”
Kinsey says she wasn’t surprised at Rainbow’s fate. “Rainbow’s fatal flaw was trying to be a store without any differentiation.” Cub has a similar mentality but has been more successful. “Although Cub is a somewhat fragile business, they have a toe-hold with customers and have the advantage of local warehouses and smaller distribution costs.”
While commodity retailers like Cub and Rainbow have to compete with Target and Wal-Mart on price, specialty stores compete on products, service and ambiance—which can be equally difficult. Jim Hagen, a Hamline School of Business global marketing strategy professor, says he’s rarely surprised when new operations don’t last even a generation, such as the recently shuttered Fresh Seasons Markets in Minnetonka and Victoria.
Up-front investment and overhead is incredibly high. “It’s a very risky business, and there are a lot of stars that need to align,” says Hagen. “Any little detail can make it not work—being on the wrong side of the road in p.m. rush hour, parking lot layout, having the wrong assortment of food.”
Despite the flood of new entrants, oversaturation is not likely. “There are always going to be distressed stores that will leave and make space for new brands,” Hagen says. “There is a constant churn. Some work and some don’t and some chains disappear overnight. But it always balances out over time.”
comments powered by