Large Retailers Stock More Groceries

Walgreens, Target and CVS/Pharmacy shift focus away from dry goods to fresh produce.

January 19, 2011

NEW YORK - The grocery revolution continues as CVS/Pharmacy, Target and Walgreens, among other nontraditional grocers, expand their food sections with fresh produce and frozen meats, the New York Times reports.

Last year, Target poured $500 million into its redesign of some existing stores to offer extensive food selections, a strategy that paid off with sales and traffic at those stores up around 6 percent. Walgreens has added some 500 food products to some stores last year. Also in 2010, CVS/Pharmacy retrofitted around 200 urban stores to add more grocery items.

With more options to purchase groceries, consumers are eschewing the once-weekly trip to a supermarket and are shopping at these alternative grocery retailers. "It??s going to be a big food fight in the sense that you??re going to have so many people going after this sector," said Bill Dreher, a Deutsche Bank retail analyst.

Traditional supermarkets are left scrambling to counter the siphoning away of customers. For example, Safeway and Supervalu saw profits drop because of fixed real estate and labor expenses, increasing food costs and now added competition. While discount and convenience stores do not generate a lot of profit with groceries, the additional food products do bring in more consumers.

With customers buying food around 2.5 times weekly on average, compared with a monthly stop at a drugstore or discount retailer, Dreher said stores that get shoppers in the door for groceries usually can turn that purchase into a larger one. Currently, Wal-Mart has captured around 33 percent of the grocery market, with Kroger, Safeway and Supervalu each garnering 4 percent to 9 percent, and Target having 3 percent, estimated Janney Capital Markets.

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