Hot 100 Retailers 2016

Food retailers benefit as still-frugal consumers start to loosen their purse strings.

This article was published in the August 2016 issue of STORES Magazine.

One glance at STORES’ Hot 100 Retailers chart shows that food retailing is thriving. Nearly a quarter of the country’s fastest-growing retail businesses last year were supermarkets. “The supermarket channel remains remarkably vibrant,” says John Rand, senior vice president of retail insights for Kantar Retail.

“As a response to the many obvious challenges to the traditional business, many supermarket retailers are in a high state of activity as they seek to differentiate, adopt new practices and reconsider their brand and shopper focus.”

About one in five supermarket operators is “firmly positioned” as a premium grocer; Rand says this group enjoyed a collective compound annual growth rate above 5.5 percent.

“We have seen dynamic movement away from the central one-size-fits-all approach to supermarket retailing to reinforce more complete positioning on price and value,” he says. “Mainstream retailers who have not adapted, by contrast, are only growing at about 1.7 percent, which is mostly driven by core inflation.”

Northwest ambition

The rise of this year’s hottest retailer, Haggen, is a tale of ambitious ownership intersecting with government regulation that led to a regional grocery chain becoming the nation’s fastest-growing retailer based on year-over-year sales increase in 2015 — before being reduced to bankruptcy and takeover by a former adversary.

It started five years ago when private investment firm Comvest Partners bought a majority interest in Haggen, operator of 30 supermarkets in Washington and Oregon under the Haggen Food and Pharmacy and Top Food & Drug banners.

Sprouts Farmers Market ranks No. 23 on this year’s chart.

Sprouts Farmers Market ranks No. 23 on this year’s chart.

Three years later, as part of the 2014 negotiations to win merger approval for Safeway’s acquisition by Albertsons, the chains agreed to sell 168 stores. Haggen was interested in 146 locations, and the Federal Trade Commission approved the purchase. By December 2014, Haggen had more than quintupled in size and was operating a chain that stretched from the Pacific Northwest to Southern California and Arizona.

Haggen worked to convert the former Safeway and Albertsons units to the Haggen banner through the early months of 2015, but the effort was for naught: In September Haggen filed for Chapter 11 bankruptcy protection, saying “a number of Albertsons’ actions” caused the plan to fail.

The FTC wasn’t happy with the notion of Albertsons getting back most of the stores it had been forced to sell; after many smaller communities complained at the prospect of having only one supermarket — or even none — the FTC dropped its opposition and allowed Albertsons to buy stores in a bankruptcy court auction. The Idaho-based company purchased 29 original Haggen stores on June 1 for $106 million.

Small-format’s growth

Supermarkets are the retail industry’s hottest companies almost by default since consumers continue to buy groceries even as they direct discretionary spending away from merchandise and toward services and entertainment.

While the vast majority of the current and future sales volume in supermarkets is concentrated among a few players at the top, “a ‘long tail’ of smaller players collectively make up more volume than suppliers can ignore,” says Mike Paglia, a director of retail insights for Kantar Retail.

Dollar Tree climbs to No. 2 on this year’s list, up from No. 57 in 2015.

Dollar Tree climbs to No. 2 on this year’s list, up from No. 57 in 2015.

Small-format discounters in both groceries and general merchandise continue to be “the fastest-growing channel of bricks-and-mortar retail that we track,” he says, “which hints at the complexity and dynamism of its players. Collectively, these retailers have been highly disruptive to the larger retail industry and will likely remain in that role for some time.”

Dollar Tree employed a tried-and-true tactic to gain runner-up laurels on the Hot 100 chart, acquiring major rival Family Dollar Stores in July 2015. Family Dollar contributed $6.2 billion of Dollar Tree’s $6.9 billion sales increase in 2015.

As a group, dollar stores added nearly 6,000 locations in the five years through 2015, and segment sales grew 50 percent during that period, according to research firm Conlumino. “A typical dollar store today looks very different to one 10 years ago,” says Neil Saunders, Conlumino’s managing director. “It’s lighter, it’s brighter, it’s more shoppable.”

Younger shoppers have noticed: NPD Group’s Checkout Tracking service found that of Millennials shopping national dollar store chains in the year ended in April, some 29 percent have annual incomes in excess of $100,000.

Convenient loyalty

There are a dozen different convenience store retailers on this year’s Hot 100 Retailers list, double the number that appeared last year. Low gasoline prices have been a double-edged sword: Cheap gas has lured consumers back into their cars, positive for c-stores since they sell about 80 percent of the gasoline purchased at retail in this country. For many oil companies, however, reduced profits on the petroleum end of the business squeezed earnings on the refining and distribution side.

How c-stores merchandise their offerings is more important than gas prices. “Real contributors are the shift to larger stores with multiple food service options, greatly improved private label and merchandising that is far more pleasant to shop,” says David Marcotte, senior vice president of retail insights at Kantar Retail.

“Additional investments have been made in moving bathroom facilities to the inside of the store and much better lighting for the pumps and parking areas.”

Alimentation Couche-Tard debutes on this year’s chart at No. 12.

Alimentation Couche-Tard debutes on this year’s chart at No. 12.

Millennials, Gen X and Gen Z are the core c-store shoppers and “have a strong loyalty to the channel,” he says. “QuikTrip, Sheetz and Wawa are able to sell logo wear and most chains now have successful loyalty programs in place to increase trade.”

The highest-ranking c-store on the Hot 100 list is No. 3 GPM Investments, a 13-year-old company that set an expansion course in 2011 when it closed a $50 million credit facility to fund growth. At the time GPM operated 212 locations under the Fas Mart and Shore Stop banners in nine Mid-Atlantic states. In the past three years, GPM has acquired more than 400 stores from three companies, extending its reach south and west.

Two of the larger c-store operators in the United States are No. 12 Alimentation Couche-Tard and its Arizona-based Circle K chain, and No. 38 Casey’s General Stores, which in April ended a fiscal year that generated record earnings boosted by inside same-store sales gains of 7.1 percent with an average profit of 31.9 percent.

Canada-headquartered Alimentation Couche-Tard began rebranding many of its 8,000 stores around the world with the Circle K name. That includes the United States, where the conversion involves many units carrying the Kangaroo Express brand that came with the acquisition of the 1,500-store The Pantry chain. Last year Alimentation Couche-Tard also bought 21 Tiger Tote convenience stores in Texas.

Non-store players

Fully one-tenth of the merchants on the Hot 100 chart are doing very nicely without any physical stores. Among these is No. 5 Evine Live, which comes out of the broadcast shop-at-home tradition, as does No. 14 QVC. No. 8 Bluestem Brands, with roots in the catalog business, last year acquired multichannel operator Orchard Brands, a $1 billion business with strong apparel sales in its 13-brand portfolio.

Shop-at-home e-commerce company QVC makes the Hot 100 list at No. 14.

Shop-at-home e-commerce company QVC makes the Hot 100 list at No. 14.

“Non-store retailers are continuing to resonate with shoppers because they offer a distinct value proposition,” says Robin Sherk, a director of retail insights at Kantar Retail.

Other non-store retailers include No. 7 Wayfair, No. 26 FreshDirect, No. 48 Overstock.com and No. 76 Newegg. “We continue to see more established competitors such as Wayfair and Newegg perform well,” Sherk says. “We will see newer pure-play online retailers such as Blue Apron and Dollar Shave Club add to the landscape with distinct shopping experiences and connections.”

While Amazon has its fingerprints all over retailing, the question arises as to whether there might be some pushback from consumers as it becomes a more-dominant player.

“As Amazon scales, this adds complexity and bureaucracy,” Sherk says. “It will get harder for Amazon to remain nimble and consistent across markets. If this causes Amazon to miss on customer expectations, customer satisfaction and loyalty will suffer."