Things are changing outside of Whole Foods, too. The industry is not only scared by the marriage of Whole Foods and Amazon, it is also now facing the infiltration of European competitors Aldi and Lidl, discount grocers that are attacking traditional grocery stores on price.
Kroger’s stock dropped from $31 to $22 a share when the Whole Foods deal was announced. It now trades at $24, a level that many industry sources say represents a new normal.
In the past year, grocery stores have slowed their new store growth and instead focused on acquisitions of technology or platforms. Walmart bought Indian e-commerce company Flipkart, Target bought delivery service Shipt, Kroger invested in British online supermarket Ocado and bought meal kit company Home Chef, and Albertsons also bought a meal kit company, Plated.
Still, these retailers are at a disadvantage when it comes to technology investments. Unlike Amazon’s shareholders, investors in retail companies punish retailers when their investments are unprofitable or take longer to pan out.
Retailers are also increasingly focused on fresh food, prepared food and even restaurants to draw shoppers to their stores. There’s a big push for private label brands, which are more profitable for the stores.
Organic and specialty products, the space where Whole Foods made its name, remains a big focus for the industry. As they give those brands more and more shelf space, new companies no longer view Whole Foods as the singular place to launch. They are looking to other grocers like Target, Costco and Walmart.
For smaller grocers, these changes could mean trouble and an uncertain future. Many don’t have the funds to invest in technology and capabilities as their larger competitors. They also can’t rely on those retailers as an escape clause anymore. It used to be when life as a grocery store got too hard — or when control of a family-owned grocery store shifted to a new generation — they would call up one of the main consolidators, Kroger or Albertsons. Now, those grocers have shifted focus elsewhere, and the price they are willing to pay for a deal is far less.
