The Wall Street Journal reported that supermarkets are losing market share in the United States. Traditional supermarkets - such as Jewel, Stop & Shop, or Albertson's - accounted for nearly 2/3 of all grocery sales in the nation a decade ago. Today, those supermarkets generate only 51% of all grocery sales. Where have the grocery shoppers gone? Mass merchandisers (Target and Wal-Mart), Pharmacies (CVS, Walgreen's), and warehouse clubs (BJ's, Costco, and Sam's Club) have all taken a bite out of that pie. Target, for instance, recognized that food may not be very profitable, but it generates traffic. When people come to the store more often, they buy other higher margin items. Traditional supermarkets are also feeling their profits squeezed because many are "caught in the middle" between premium players like Whole Foods and hard discounters such as Aldi or Dollar General.
Interestingly, I read another article in the Wall Street Journal recently about Target collaborating with Neiman Marcus on some special designer collections to be sold in both chains. It is a unique collaboration. Target, of course, is pursuing this type of strategy because they continue to try to seek unique items for their stores. They don't want to simply be selling the same items that you can find at Kohl's, Wal-Mart, etc. That makes a ton of sense. However, that triggered a thought in my mind... why don't more supermarkets pursue such strategies? Why aren't more traditional supermarkets trying to create unique product lines that can't be found elsewhere. A few players have done this successfully (think Trader Joe's and Whole Foods). However, the mainstream supermarkets don't do this much at all. They ought to be doing that, because otherwise all they are doing is competing on price. The struggles recently at firms such as Supervalu show that price competition can be deadly.