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Upscale grocery stores lose customers to Kroger, Wal Mart
(St. Louis Post-Dispatch Via Acquire Media NewsEdge) Mar. 25--LADUE -- Nine months ago, it seemed as if upscale grocers such as The Market at Busch's Grove stood a chance at shining in a shaky economy.
Cost-conscious consumers would cut back on eating at restaurants, and opt instead to splurge on nicer groceries and prepared meals -- touted as restaurant-quality food at a lower price.
Or that's what some analysts thought during the time Paul Poe was making plans to open a gourmet grocery store at the old Busch's Grove restaurant. But the venture hasn't gone exactly as planned.
"Obviously, frugal is in," said Poe, the general manager of the Ladue grocer that opened in December.
And in today's economy, frugal apparently means going straight for the store brand at Kroger or Wal-Mart, not trading down from restaurant food to high-end groceries, such as organic, natural or ethnic food.
When The Market at Busch's Grove opened, it employed 45 people. Now, three months after opening, that number has dropped to 25.
The food industry is faring better than other retail markets, said Jim Hertel, a managing partner at consulting firm Willard Bishop, but shoppers have changed their habits since the depth of the recession became more apparent in September and October.
In June, Barrington, Ill.-based Willard Bishop released a report stating that sales at upscale grocers were growing faster than at traditional supermarkets, such as Schnucks. But that doesn't seem to be the case anymore, Hertel said.
"I think things have changed dramatically since this summer," he said.
In fact, the situation basically has been reversed. A few factors, including food-price inflation and consumer fears about the economy, have driven shoppers to seek the cheapest-available groceries, he said.
A consumer research consultant working with the Food Marketing Institute has found that the economic recession dramatically has changed consumer shopping habits generally -- changes that could be longer-lasting. Among the changes discovered by Information Resources Inc., some consumers are reducing costs by cutting out more expensive organic food and staying away from luxury items. The study was not geared to a specific income level.
"We've identified major changes in shopper rituals that will impact manufacturing and retailing strategies during the current recession and in the future," said Thom Blischok, president of consulting and innovation at IRI. "Shoppers are now overwhelmingly more focused and organized when planning their shopping trips."
As a result, IRI research shows that shoppers are altering their diets at home as an additional strategy to save money.
The National Association for the Specialty Food Trade Inc. reports that retail sales of specialty -- or gourmet -- food rose in 2008 until the fourth quarter, when sales began to fall.
Traditional supermarkets also have made improvements to meat and produce sections, Hertel said, allowing them to better compete with the "Fresh Format" stores, such as Straub's or Whole Foods.
Some higher-end stores are seeing more business at their delis -- probably as people choose them over restaurants -- but that boost serves mostly to "soften the blow," Hertel said.
"Everything is kind of moving down," he said.
Before he opened The Market at Busch's Grove, Poe said that while the economy was not the greatest in which to start a business, he believed the Ladue area was "underserviced" and he was confident in the business. He said he still expects business to pick up as local residents continue to discover the former restaurant is now a grocery store. And sales seem to be increasing as more people hear about the business. But Poe admits he anticipated business to be better than it recently has been.
"When we started the project, it wasn't nearly as bad of economic times as it is today," he said.
Unlike Poe, large bargain grocers are seeing benefits from the shift in consumer habits.
Kroger Co. announced Tuesday its fourth-quarter profits were up 8 percent compared to last year, and sales of its store-brand items hit an all-time high.
But more upscale chains haven't had the same success. At the Whole Foods location in Town and Country, store team leader Matthew Mell said lagging sales have caused a hiring freeze as well as a cut in hours for employees.
The marketing strategy also has shifted recently, Mell said. Instead of advertising small discounts on many items, the store has begun to offer bigger discounts on only a few. That way, the increasing number of bargain shoppers can find something there, he said.
"We are conscious that people are trying to make their dollars stretch," he said.
Straub's, which opened its fifth location in Ellisville in December, also has been catering toward more frugal consumers, said owner Trip Straub. While products such as Straub's chicken salad still might cost more than a competitor's -- because, Straub said, it's better quality -- the gourmet grocer is trying to keep costs down on basic items such as milk and eggs.
Straub's also has cut some employees' hours, he said, as the company adapts to a rapidly changing economic environment.
"It's been interesting," Straub said.
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Copyright (c) 2009, St. Louis Post-Dispatch
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