Walmart versus Target? Check.

Kroger and Albertsons versus the FTC and Congress? Check.

Aldi versus Lidl? Check.

Dollar stores versus…well, versus all of the above? Check.

If you’re keeping score, 2023 promises to be one of the most turbulent years ever in the business of selling groceries, with skirmishes, battles and out-and-out wars happening across the entire channel. Just about every major player in the segment is in the middle of some sort of upheaval, major expansion or at the very least confrontation that together promise to result in a significant reshaping of the business before it’s all over…whenever that is.

This comes as the overall business of selling food, CPG and other related products works to reinvent itself in the post-pandemic era. Supermarkets got through Covid as well as any other channel of the retailing industry. Stay-at-home sequestering in 2020 and 2021 produced outstanding years for just about anybody who was selling products to be used for home cooking, cleaning, and household improvements. As conditions began to improve and Americans started to venture out again, the boom moderated but supermarkets and the overall grocery segments have held up better than most other areas of retail due to inflationary pressures squeezing household spending on non-essentials. It may help explain why so many companies are focusing on food and looking to expand their share of the market pie.

It’s a tasty pie to be sure…but there’s not enough to go around for everybody.

Walmart vs Target

When the two giants of discount retailing reported their last set of financial results, there were several disparities — but the biggest one was that Walmart had a massive supermarket business…and Target didn’t. It represents more than half of Walmart’s overall U.S. sales and even as discretionary spending on apparel and home slowed in 2022, Walmart continued to excel as Americans kept up their buying of groceries and household consumables. Target was far behind in this area with only about 20 percent of its total revenues coming from the grocery side of the store. That places it at a significant disadvantage to its bigger competitor. So, as Walmart continues to play off its food and household revenues Target is trying to play catch up.

At the recent National Retail Federation conference earlier this month Rick Gomez, Target’s chief food and beverage officer, spoke about the retailer’s efforts as it works to be more of a one-stop resource for shoppers. He, along with his fellow executive, chief growth officer Christina Hennington, who spoke at another NRF session, pointed to the retailer’s loyalty program, its private label brands and differentiated assortments as ways it is upping its grocery game. “We think about building a shopping experience that’s differentiated on multiple dimensions,” Hennington said according to a report on Retail Dive. “But it’s really about creating an emotional connection to the consumer.” Said Gomez, at his session, “We have to think about value more holistically than just price.”

He pointed to Target’s Good & Gather brand – now doing $3 billion in annual sales – and its Favorite Day label – growing by double digits since its introduction in 2021 – as ways the retailer is differentiating its merchandise mix in grocery. Both Target and Walmart have stepped up their omnichannel efforts, particularly in same-day delivery and curbside pick-up, giving them decided advantages over traditional supermarkets that often rely on third parties, like Instacart, to fulfil online orders. Together these two “massest” of mass merchants are formidable competition for legacy food retailers – more on that next – but they continue to duke it out between themselves as well. That’s a battle likely to go for years.

Kroger and Albertsons vs the FTC and Congress

The two biggest of the grocery-centric retailing conglomerates out there, certainly in response to the efforts of Walmart and Target, are trying to become one, but the government is not going to make it easy. Late last year Kroger – the country’s largest pure-play supermarket chain with multiple nameplates from its eponymous flagship to brands like Ralphs, Fred Meyer and Pay-Less – announced it wanted to acquire its largest competitor, Albertsons, in a $24.6 billion deal. Albertsons, whose brands range from its own to regional banners like Safeway, Acme and Jewel-Osco, is a public company having been taken public in 2020 by Cerberus, the private equity firm that owns 73 percent of the company and retains several seats on its board including co-chairman Chan Galbato, CEO of Cerberus.

The proposed deal has so far had some rough sailing. The FTC is deep into its process to see whether it will approve it but, in the meantime, Congress has held hearings to evaluate it and some 100,000 employees at both companies have come out against it, citing decreased competition, higher food prices and, of course, reduced workforces.

Then there’s the matter of a $4 billion special dividend Albertsons’ board declared in advance of any merger closing. This too has come under scrutiny from various parties as a cash-grab for the company’s shareholders, including Cerberus, which stands to clear as much as $3 billion of that dividend. After approval from a group of state’s attorneys general the dividend is scheduled to be paid in the third week of January. The company claims it will still leave it with enough capital even if the merger does not go through.

If that deal does go through it would include some store closings between the two chains where there is overlap but even with those, the newly combined company would have close to 5,000 locations in the U.S…curiously enough, just a few more than Walmart currently operates. Coincidence, of course.

Aldi vs Lidl

While these big boys fight it out for share, they all may be losing sight of a common enemy that is gaining on them rapidly. Call them deep-discount grocery stores, mini-warehouse clubs or any one of other labels but they all have one thing in common: Aldi and, to a lesser extent, Lidl, have proven they have a winning formula that consumers respond to, representing the first real threat to the conventional supermarket since the emergence of the superstore format created in this country by Meijer’s and exploded by Walmart and later, Target.

Aldi, which entered the American market in 1976 from its native Germany, now has about 2,400 locations in 38 states and by store count it is the third largest chain in the country, behind Walmart and Kroger. If you consider stores with the same nameplates, it is the second largest.

Lidl, also from Germany and from a different branch of the same family that founded Aldi, only came to America in 2017 and is far behind its distant cousin with only about 175 stores. Like Aldi it is working on a significant expansion of its store base even if it will take it many years to catch up.

The two stores have much in common besides their family tree. Each relies heavily on private label goods – 80 percent in Lidl’s case – and no-frills displays where shopping carts require deposits and shoppers bring their own bags…which they fill themselves too. But neither features a cheapo, low-end assortment with fresh produce, meats, wine, and even seasonal mix-ins of general merchandise like housewares and apparel.

With stores generally in the 20,000 to 25,000-square-foot range they can drop locations into busier shopping neighborhoods and don’t require the large footprints of their bigger competitors. In the world of physical retailing Aldi and Lidl represent the first new store format to come onto the shopping landscape in decades. Neither is going away anytime soon.

Dollar Stores vs All of the Above

Then there’s the dollar stores. Home of chips, dips, pop and questionable general merchandise, retailers led by Dollar General and Family Dollar are increasingly turning to the consumables sides of their stores to drive increased revenues, particularly as they learn their customers will spend a little more if given the chance. And it’s working. A new study just released from the American Journal of Public Health reports that dollar stores are the fastest growing food retailers in the country. Their market share remains small compared to big discount stores and supermarket chains, but the research says spending for food at dollar stores increased nearly 90 percent between 2008 and 2020. And that was before the pandemic.

This growth comes primarily in the sectors one would expect: lower income households, “rural Hispanic Black” shoppers and in the south where these chains have the largest percentage of their stores. And that’s a lot of stores: including Family Dollar’s parent company Family Tree the three nameplates have more than 35,000 locations around the country and are opening thousands more each year. This doesn’t include smaller competing banners like Five Below, Popshelf and literally dozens of regional chains.

A Vice report quotes Tufts health care policy professor Wenhui Feng on the study who suggests dollar stores’ shares will only get larger. “Dollar stores may challenge and force out local grocers through competitive pricing. In some places local grocers may not have enough business to support maintaining a store or that grocery stores’ consolidation may leave residents with less food options.”

Feng, as do others, points to the fewer healthy and fresh food choices in dollar store assortments as a serious issue, particularly in “food deserts” where shoppers have few if any other options. Dollar General’s CEO has pushed back at that premise, saying it now offers fresh produce in 3,000 of its locations and plans to add such offerings to another 7,000 stores, although he declined to give a time frame. Given that there is a Dollar General store within five miles of 75 percent of the U.S. population, according to Forbes, it stands to reason that more and more shoppers will turn to it and its namesake competitors with increasing frequency for their grocery needs – healthy or not.

Food Inglorious Food

None of this takes into account a few other wildcards that could upset the grocery apple cart…so to speak. Drugstore chains like CVS and Walgreens continue to expand their food offerings, as well as their store counts. Ocado, the French automated fulfillment processing company, is expanding its presence in the American market making big chains that can afford its massive facilities even more dominant.

Online, delivery services like Uber Eats and Door Dash are increasingly getting involved in grocery and household products, giving smaller retailers a chance to pick up some additional sales. And let’s not even talk about car washes, laundromats and gift stores that see food consumables as their next area of add-on sales.

The modern American supermarket has been around for more than 100 years, ever since southern chain Piggly Wiggly opened its first self-service/central check-out “supermarket” in Memphis in 1916. That model has grown, evolved, been reinvented, and reinvented again ever since. And it’s far from done…as we’re going to have first-hand proof of in 2023.

Fasten your shopping cart seat belts, it’s going to be a bumpy ride.