Stage set for drug market share battle in San Diego
The retail marketplace continues to churn in San Diego, a metro area that is growing by leaps and bounds, but also is hounded by high real estate and worker costs. Albertson’s pending acquisition of Rite Aid could shake up the drug channel here, which is dominated by CVS Pharmacy as it competes with a growing number of grocers in a club- and mass-dominated market.
Meanwhile, other factors affecting retail competition are the growing Hispanic population and the increasing popularity of such specialty stores as Sprouts, Trader’s Joe’s and especially Whole Foods, which is sure to flex its muscles due to its new owner, Amazon.
Change began in this area three years ago with the merger between Albertsons and Safeway, the parent company of the Vons banner. Today, according to ARM Insight, Vons has an 18.5% market share in San Diego, while Albertsons only has 2.9%. Adding 7.0% from Ralphs gives traditional grocery slightly more than a quarter market share. More than half of the marketplace is controlled by market leader Costco (22.8%), Walmart (17.6%) and Target (10.8%).
Retailers are certainly aware of the growing population in the San Diego metro market, especially among Hispanic consumers. This will naturally lead to more store growth, which will intensify retail competition. Neil Stern, senior partner at Chicago-based McMillanDoolittle consultancy, predicted that much of this new growth will be in the value grocery segment.
“The immigrant population will also drive significant change in retail,” he said. “The millennial generation is already more than 40% ethnic, as an example. This leads to potential changes, large and small. From a merchandise standpoint, food, drug and mass must make changes to the assortment to accommodate the profiles of various ethnic consumers. On a larger scale, we will see the emergence of more specialty-focused chains, particularly around the Hispanic consumer, with a number of very strong regional chains already emerging.”
The demographic changes also will affect drug stores, which are carrying more food items and other nontraditional drug store merchandise to drive impulse and convenience purchases.
CVS Pharmacy dominates the San Diego marketplace with a 57% share, per ARM Insight. Rite Aid trails at 30% and Walgreens at 12%.
The drug channel in San Diego and across much of the country will be affected by Albertsons’ pending purchase of Rite Aid. “The move will allow Albertsons to go public as a “fully-integrated one-stop shop,” Albertsons’ CEO Bob Miller said when the merger was announced.
Brandt Sharrock, vice president of development and acquisitions of Wellesley, Mass.-based Charterhouse Development, said, “For drug stores, the pharmacy market has become extremely competitive through acquisitions of supply chains and individual drug store chains, small or large. Drug store companies that are successful will be those that focus in an area that is hard to duplicate and is based on health and wellness.
Consumers still want to go to a trusted provider, and the convenience of a wellness clinic in a pharmacy is hard to beat. Combined with a personalized experience in health and beauty, there is a strong, personalized market that is impossible to duplicate online.”
As more retailers offer pharmacy services outside the drug channel, Sharrock said that retail drug chains are well-adapted to compete.
“Grocery providers remain strong in the day-to-day needs, but many drug stores recognize that and are providing convenience store needs to add on to the general checkout ticket and provide immense value in urban markets where convenience is extraordinarily important,” Sharrock said.
Twin Cities grapple with glut of grocers
Minneapolis and St. Paul
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.”
Seattle: The area’s retail scene is more than just Amazon
To say Seattle and its surrounds have been experiencing a growth spurt as of late is an understatement. Simply put, this region’s economy is thriving. The job growth rate during the past decade has been impressive thanks in large part to Amazon. But its growth stretches beyond Amazon in that a significant number of Fortune 500 companies, many of which operate engineering and research businesses, also call Seattle home.
Not surprisingly, the area is highly attractive to millennials. But it is not a region without challenges. Real estate prices and escalating rents have severally limited the amount of affordable housing options, and the increasing number of people moving to the area is heavily straining the city’s roadways. Additionally, Seattle has long struggled with effectively addressing its large homeless population.
Taking what some have called an aggressive stance to remedy these issues, Seattle officials are working hard to make changes, from increasing the local minimum wage to $15, working with developers to create more affordable housing and opening access to preschool. The city also has pushed through a tax on short-term rentals, the funds of which will be earmarked for services for the homeless.
Hometown drug chain Bartell Drugs has been expanding both its footprint to 67 stores while building out its services. It has opened new Kaiser Permanente CareClinics, growing the total number to 15, and recently named its first CEO who wasn’t a member of the Bartell family. All of this has taken place as it looks to meet the needs of its Amazon-friendly city, offering its products through Amazon Prime.
In terms of retail growth, the Kirkland area added a Whole Foods and Trader Joe’s in 2017, a new Fred Meyer’s opened in Gig Harbor, while a new Town & Country Market was built in the Village at Harbor Hill also in Gig Harbor.
Other key retailers with a strong presence in the area include PCC Community Markets; Kroger, under its corporate banner, QFC, Metro Market and Fred Meyer; Whole Foods; Safeway; and new addition Amazon Go.
For shoppers whose driving factor is cost, Fred Meyer remains a top choice, but for many of the younger, urban professionals, retailers offering unique assortments are sought out. PCC’s Fremont location in Seattle, for example, is routinely touted for its quality prepared foods selection, gluten-free offerings, coffee bar and bakery goods, as well as its exemplary customer service.
QFC earns high points as well from shoppers for its friendly staff, well-organized floor plans, quality food offerings and affordable price points. Often cited for its local/farm/organic produce options, the retailer also carries a wide assortment of higher-end items and ethnic foods, as well as has an extensive beer and wine offering. The cheese island, sandwich station and restaurant-quality soup are also well sought after. And QFC earns extra brownie points from shoppers for offering free parking.
All eyes have been on the much-discussed Amazon Go, the experimental cashier-free convenience store located in downtown Seattle. The 1,800-sq.-ft. mini-market is stocked with many items easily found in other convenience stores, plus some items normally found at Whole Foods. Armed with Amazon’s smartphone app, shoppers place whatever they want to buy in a shopping bag and leave without the need to check out using a traditional cashier system. Minutes later, their Amazon account sends them a receipt via their smartphone. It’s still too early to know whether shoppers will love or hate the new concept, and Amazon remains mum on plans for expansion, but it does have some wondering if Whole Foods stores will benefit from the technology in the future, or if Amazon is interested in selling the system to other retailers.