Nov. 15--For those bemoaning The Kroger Co.'s planned acquisition of Mariano's and asking why such a thing would happen, the answer's actually quite simple.
It's you.
Grocery shoppers today are a finicky lot. Across demographics, consumers are increasingly reaching for food they trust to be natural, fresh and high-quality. But, as industry experts point out, they're aren't satisfied with just that. No, these savvy modern-day gatherers of sustenance want indulgent foods, too. The bacon might be in the shopping cart right beside the organic kale.
They trade up for quality, down for staples. They want it all, basically, and they want it cheap.
Those trends have reshaped the grocery landscape across the nation, a tidal wave that reached Chicago well before Dominick's closed in 2013. Natural and gourmet-type stores have flourished and, on the other end of the spectrum, so too have discounters. Relative newcomers like Mariano's and Fresh Thyme, as well as Costco Wholesale and Sam's Club, are battling for a share of the weekly grocery bill.
"It spells trouble for any organization that has a hard time evolving," said Tom Schoenwaelder, principal at Doblin, consulting firm Deloitte's design and innovation arm. "And large organizations often struggle to be as nimble as their smaller competitors."
Traditional grocery store companies, like Albertsons, parent of Jewel-Osco, or Kroger, have been forced to compete through consolidation and overhauling their offerings, particularly at the perimeter of the store where customers are increasingly hunting for fresh produce, meat and prepared foods to shape their meals.
The most successful stores are curating a shopping experience to accommodate both health and indulgence in a way that's not overwhelming with the abundance of choices, Schoenwaelder said. "Consumers have no idea what to do with 30 different kinds of ketchup on the shelves," he said.
As consumers have increasingly shown willingness to spend more on high-quality meat and produce, while spending less for other food staples, they've strayed from traditional grocery stores, said Michelle Malison, an analyst for Euromonitor International.
Nationally, the top five fastest-growing grocery brands from 2006 to 2014 were either premium stores or discounters, according to Euromonitor data. In order, they were Bottom Dollar, Sprouts Farmers Market, Walmart Neighborhood Market, Whole Foods and The Fresh Market.
"This (trend) leaves grocery stores such as Kroger having to reach scale to compete on price, especially against retail giants such as Wal-Mart," Malison said. "Mergers and acquisitions enable increased economies of scale and therefore efficiency."
Fifty-nine of the 72 former Dominick's stores that were closed have since been filled, according to commercial real estate firm CBRE, and 22 of them are now Mariano's or Whole Foods stores.
For Jewel-Osco, by far the largest traditional grocery store in Chicago, the new onslaught of competition has presented new challenges.
The closing of the Dominick's chain "changed the playing field," said Phil Irwin, store director for Jewel-Osco's store in Chicago's Fulton River District neighborhood. "There's a lot more competition and you've got to be on top of your game."
Jewel-Osco isn't standing still. Its Bensenville store opening in January will represent its 10th takeover of a former Dominick's store and the company's 185th store in the Chicago area. And in the past three years, 72 stores have been remodeled to help meet changing consumer demands, according to company spokeswoman Mary Frances Bragiel.
Jewel's 65,000-square-foot store in the Fulton River District, opened in 2008 and remodeled in 2013, reflects efforts to beat back competition.
Cascading displays of produce greet customers when they walk in the door. The store's perimeter offerings include an abundance of prepared foods, from fresh tamales to hand-rolled sushi. The center of the store carries familiar name brands, alongside Jewel-Osco's growing number of private-label products marketed as natural or organic.
And in mid-December, , the store plans to open a full-service bar called Kinzie on the Rocks. This isn't "the Jewel" of 10 years ago, or even five years ago, though executives are still banking on that longtime name recognition to resonate with customers.
"We've got to be better because they're all trying to get our business," Doug Cygan, the company's vice president of merchandising and marketing, said of the competition.
One competitor -- Fresh Thyme Farmers Market -- didn't even exist 18 months ago.
Now, it operates seven stores in the Chicago area, with plans to grow to 18 to 20 in Illinois within the next four years, said Fresh Thyme CEO Chris Sherrell said. Fresh Thyme's modus operandi is all about striving to sell high-quality meat and organic produce at a lower price than competitors, Sherrell said.
The stores -- averaging about 28,000 square feet -- offer fewer packaged grocery items than one might find at a Mariano's or a Jewel-Osco, but Sherrell said Fresh Thyme is planning on rolling out 2,500 new private-label products, most of them shelf-stable, within the next 18 months.
"When Dominick's went out, it left $3 billion to be had," Sherrell said of the frenzied competition in the Chicago market. "I think you'll see it tighten up over the next couple years, in terms of growth."
Pete's Fresh Market also has seized upon changing consumer tastes to spur its growth. Back in the 1970s, James Dremonas and his brother started their business as a produce stand, said Vanessa Dremonas, an executive officer with the company and one of James Dremonas' daughters.
The family-run business has 12 grocery stores in the Chicago area and its newest, which recently opened in Oak Park, is its most ambitious yet. The 45,000-square-foot store, a former Dominick's, has various in-store offerings, such as a taqueria and a sushi bar, as well as a full-service bar.
The Pete's concept is geared to high-quality meat and organic produce, Dremonas said, while offering the familiar brands alongside imported products and natural food in the center store.
"We have to stay on top of our game and pivot quickly," Dremonas said. "Right now, it's fresh squeezed juice, but tomorrow it may be something completely different."
As organic food has become more ubiquitous and affordable, upscale stores like The Fresh Market and Whole Foods have faced pressure to cut prices. The Fresh Market announced last month it's conducting a financial review that could lead to the sale of the company.
The battle is on for the middle-income customers driving the Toyotas and the Volkswagens.
An increasing number might end up in the parking lot of Aldi, the no-frills discounter with 141 stores in the Chicago area. In the next five years, the company expects to add another seven stores, according to Heather Moore, an Aldi regional vice president. Aldi stores average about 10,000 square feet.
In recent years, Aldi has expanded its organic produce selection.
Aldi, which relies on its private-label brands to deal in volume and keep prices low, is also working to remove synthetic colors, partially hydrogenated oil and MSG from those brands. "It's what our customers want," Moore said.
Time will tell what impact Kroger's planned acquisition of parent company Roundy's will have on Mariano's.
Mariano's opened its first Chicago-area store in 2010 in Arlington Heights and has grown to 34 stores. Bob Mariano, Roundy's CEO, vowed Wednesday the quality would only improve at Mariano's stores after Kroger's planned $800 million purchase of the Milwaukee-based chain.
On a recent tour of the 83,000-square-foot NewCity location on Chicago's North Side, before the deal was announced, Mariano pointed out examples of how things have changed in his many years in the grocery business. He held aloft a bottle of Coffeemate nondairy creamer, with its lengthy and complicated ingredients list, as a sharp contrast to the many non-GMO, all-natural products carried in the store.
The idea is to give consumers the option, he said. But in the years to come, he predicted, customers will increasingly reach for labels with fewer ingredients and heavily processed foods will be phased out.
"People have access to the information. It's a universal thing. They want to feel good," Mariano said. "... To the extent that what you eat helps, and we know it does, it matters what you eat."
gtrotter@tribpub.com
