ORANGE COUNTY, CA—Diversification of the grocery sector over the last 25 years has changed shopping patterns, fragmenting the business and market share away from traditional “mom-and-pop” grocers, Westwood Financial Corp.'s EVP Randy Banchik tells GlobeSt.com. In the light of all the change happening in this sector of the retail market, we spoke exclusively with Banchik about these changes and whether or not it's possible to achieve dominance in this arena—particularly in Southern California.

GlobeSt.com: With all the shake-ups and heavy competition in the grocery sector, what will it take for a grocery retailer to gain dominance, particularly in the Southern California market?

Banchik: I don't think that dominance is really achievable anymore in Southern California. Over the past 25 years, the diversification of grocery shopping destinations available to Californians and commensurate changes in shopping patterns have fragmented the business and market share away from traditional, “one stop” grocers. With the diversity of operators vying for grocery dollars, purveyors need to be satisfied to create a viable reason to exist in our special part of the world. New grocers entering into Southern California terrain cannot underestimate their clientele. While Southern California boasts an entire landscape of grocery choices, successful operators have matched their location, product mix and service orientation to create their niche among a variety of micro economies and a plethora of economically and socially diverse shoppers with various wants and needs. Customers are looking for different shopping experiences, and differentiating retailers have excellent opportunities to succeed. 

To gain a strong foothold in this area, grocers must cater to their demographic and cannot remain static or depend on a “one-store-fits-all” mentality, unless their real estate logic and discipline are near perfect. Trader Joe's, for example, has an extremely strong loyalty base, thriving in areas dominated by universities or in areas with a high concentration of Millennials, where low price and high quality are important. Its customers really believe that Trader Joe's “gets them.” Other sectors tend to be served best by ethnic markets like Seafood City or Northgate, while even more niche areas populated by young, upwardly mobile families may find more loyalty in a Sprouts, Erewhon or Whole Foods.  Even the higher-end specialty grocers are not immune to the changing socioeconomic values of Southern Californians, with Whole Foods doubling down on its lower priced “365” brand and making other efforts to compete with value supercenters and traditional grocers.

GlobeSt.com: What do consumers seek from the grocery realm that they may not have been getting from stores like Haggen?

Banchik:Established grocers and newcomers alike cannot pigeonhole themselves into a “one-size-fits-all” model. Grocers need to be able to adapt to changing environments and changing demographics or risk failure and obsolescence. An example of a successful corporate response to changing demographics is Kroger's recent rebranding of one of our portfolio stores in Long Beach, CA, from a more service-oriented brand—Ralphs—to   its more value-oriented Food 4 Less concept. Kroger, with great input from its experienced, on-the-ground Southern California team, utilized a newly designed format with a modified layout to open up the store and provide an immediate focus on fresh produce and service areas, which upgraded the feel of the store beyond a strict value concept.  Store sales nearly doubled as a result of the investment, and the company benefitted as well by lowering costs of operation. Successful conventional grocery-chain operators that have been able to adjust to local demographic changes and larger shopping trends, finding niches that attract their slice of an increasingly divided pie, are making the largest impact in this rapidly changing segment, and those conventional retailers that have been slow to react have lost significant market share, with some losing the battle altogether.

It's important to realize that customers, especially in Southern California, are no longer limiting themselves to the “one-stop shop” experience that dominated the late '70s, '80s and '90s. Customers are opening up their horizons and getting what they need from a variety of retailers. With the constant building of various grocers in relatively small metro areas, it's not unusual for a family to break up what was once a weekly trip to the chain grocery into separate stops, including a monthly or bi-weekly stop at Costco or Target and weekly stops at Whole Foods, Trader Joes and a traditional grocer like Safeway or Ralphs. Add in grocery availability at drug and dollar stores, and the tempting deals at the deep discount grocers or big-box specialty stores like Total Wine or BevMo, and the fragmentation of overall market share away from traditional grocers becomes clear. High-end operators and discount operators are doing well in the “barbell” retail economy that we are currently experiencing. The traditional retailers are experiencing competition from all sides, and they are responding by growing bigger corporately and growing bigger in real estate, the later to compete with the big-box, general-merchandise, heavy competition. 

When traditional grocers like Haggen or Albertsons are unable to respond and adapt to the needs of their community, customers just move on. Attrition spares no one, grocery stores included. Supermarkets didn't really flinch when Fresh & Easy came into the state, despite grand expansion plans. Customers didn't like the Fresh & Easy products or approach, avoided it, and the stores along with the possible threat of competition vanished.

One of the key failings of certain traditional supermarket chains has been an inability to evolve in the face of Southern California neighborhoods' ethnic and socioeconomic changes. However, the challenge has opened the door for strong niche tenants like Vallarta, Northgate González Markets, 99 Ranch, and Seafood City, as well as innovative discounters like Grocery Outlet or dollar stores like 99 Cents Only Stores, which has continued to increase grocery offerings.      

GlobeSt.com: In what types of grocery stores do you see the greatest potential growth in this market?

Banchik:There is not one homogenous Southern California—there is a vast web of places to live, shop and work in California for all subsets of socioeconomic and ethnic diversity, each carrying with it loyalties to their grocery stores. The great thing about Southern California is how possible it is for a creative and astute operator to create viable market share.  Who would have thought that Costco, with a relatively small amount of stores, could impact shopping the way it has? Or consider a little upstart like Trader Joe's, enticing customers with unique, “treasure-hunt” finds, before transitioning into one of Southern California's favorite regular shopping experiences with more rounded organic, health-conscious and prepared food offerings. If you look at the wide array of grocers in the area, you can see every kind of niche and demographic opportunity possible, with almost all of them finding submarkets and locations that can work for them, adapting and ultimately thriving amongst each other. 

GlobeSt.com: What else should our readers know about this topic?

Banchik:Southern California is the land of opportunity, a diverse culture with cutting-edge ideas and expectations of choice and innovation. We live in our cars and have a culture that accepts stepping out of our neighborhood to get what we want. Progressive retailers with innovative ideas and the ability to respect and understand their local customer base will always have a good opportunity to thrive in Southern California.