2017 Year of the Remodels for Survival

We have read many articles of how the online battle is getting more focus and more investment from most major mass and food retailers, but 2017 is also panning out to be the year of refreshing and enhancing the in store experience. In the short term, this strategy could and should be a bigger win. It used to be that if you had a clean, well run store that was easy to shop, had the products consumers wanted at a reasonable price and good service, it was your store for life. Now, with new competition getting better and filling consumer voids, each retailer needs to up the ante with their point of difference or "draw" for each consumer's spend in addition to maintaining the basics.

The new entrants (not brand new) that are gaining traction or making a splash are filling voids of fresh, value and simplicity. Aldi has successfully made a brilliant transition to the US and is filling a need for consumers that want quality fresh and non-perishable food at a great value, but don't particularly have brand loyalty. I am sure as Lidl gets up and running this year, they will run a similar playbook. The foresight of Aldi now is that they realize the demand for fresh food is larger than expected and thus are one of the many retailers investing this year. A $1.6B investment from an already differentiated and successful business to drive fresh is really a terrific move by their leadership. The other retailers making a splash at different are the value natural foods players of Sprouts, Lucky's and Fresh Thyme markets. These are great formats that offer natural and fresh foods at an affordable price, something others have been unable to execute. Although Sprouts has seen some slowdown, there are aggressive growth plans for both Lucky's and Fresh Thyme.

The larger players, Target, Ahold Delhaize, Walgreen's and Meijer to name a few are either playing defense or have struck a point of differentiation or both. Target announced this week, after disappointing earnings, a remodel plan for 600 stores over the next 3 years. But besides the expansion of the urban format, did not outline a plan of differentiation, which is disappointing. Ahold Delhaize announced plans to remodel 93 Food Lion stores to the easy, fresh and affordable format, which seem to be outperforming existing store formats. Also, the bFresh format has been changed yet again in hopes of better performance. My expectation is this will be rolled out rather quickly if they can get this latest version right. Walgreen's announced last year plans to roll out their beauty concept to 1,800 stores and are calling that phase I. I would anticipate this to be tweaked and many more stores get remodeled this year as their key front of store focus has been beauty since the Boots merger. Lastly, Meijer announced and investment of $375MM with 22 remodels and 7 new stores, but didn't talk much about any changes to the format or offer.

As many retailers are not investing or only looking to maintain the status quo, you are missing an opportunity. Who would have thought a few years ago that we would see Target begin a sales decline or Kroger announce their first negative comp in 13 years? With the influx of the differentiated retailers mentioned earlier and the growth of Amazon and category specific online players, now more than ever the in store experience is critical. Even large, successful retailers constantly need to keep up with and get ahead of the competition because in today's environment, if you aren't keeping a strong pulse on what consumers want, you will become irrelevant. Test, measure, tweak and roll out or be left behind.