First Rainbow, now Cub? Food competition claims casualties
ST. PAUL—To see how rough the local food fight is getting, don't bother visiting a new Hy-Vee or a Lunds & Byerlys.
Check out your local Menards.
The building-supply giant has 10—count 'em, 10—aisles of food in its suburban Oakdale, Minn., location. It's like having an entire Aldi store lurking among the lumber and ceiling paint.
It's part of an avalanche of competition that may bury the metro area's No. 1 supermarket chain—Cub Foods—just as it did to No. 2 Rainbow Foods four years ago.
"That makes me laugh—there are more people taking pieces out of the grocery store pie," said Deb Carlson, when she heard about the Menards food aisles. She tracks developments in retail food as director of Cushman & Wakefield/NorthMarq.
Competition has come roaring in from Target and Walmart. It's creeping in from drug stores such as Walgreens, now the nation's eighth-largest food retailer. It's sliding in from farmers' markets, gas stations and even—like Menards—building-supply stores.
Above all the chaos looms the shadow of Amazon, which is promising to deliver groceries nationwide. "That is the real threat," said David Livingston, Milwaukee-based supermarket consultant. "They are going to start delivering groceries the next day, for free."
Cushman's Carlson doesn't know exactly what's going happen.
"But I will say," she said, "it's fun to watch."
Rainbow Foods sold its 28 metro-area stores in 2014, and now Cub Foods' 47 metro stores are on the auction block.
Livingston said it's almost unprecedented to have the two biggest food-sellers in a market sold off within four years.
The sale of Cub was preceded by a 90 percent drop in the value of parent company Supervalu and the slipping of market share from a one-time high of 40 percent to 25 percent.
Who's new in town?
After seeing Rainbow vanish, and sensing weakness in Cub, Hy-Vee swooped in. The Iowa-based company is on track to build 12 stores by the end of 2019.
Fresh Thyme followed, with several new stores. Chains including Target, Walmart and Aldi expanded, and local chains Kowalski's, Lunds & Byerlys and Jerry's added stores.
The space devoted to selling food in Minnesota surged 30 percent in 10 years, according to Aaron Sorenson, spokesman for Lunds & Byerlys.
Hungry residents can now meander through 12.5 million square feet of food-selling retail space in the metro area, the equivalent of seven U.S. Bank stadiums.
That is consistent with nationwide trends. The square feet per capita devoted to food by chain stores has soared 30-fold since 1950, according to the commercial real estate firm CoStar Group.
Drug stores, gas stations and building-supply stores are also on the food wagon.
Kwik Trip, for example, has muscled into the food market with cheap and convenient vittles, according to Livingston. "They have bananas and dairy products, and their prices are competitive," he said.
Walgreens may be known as a drug store, but it sells enough food to rank as the nation's eighth-largest food retailer, according to the 2018 rankings of Supermarket News.
What will happen to Cub?
It's not clear what will happen to the Cub stores. Supervalu was purchased by United Natural Foods of Providence, R.I., in July. The new owner announced that Cub Foods stores would be sold—but didn't say when, or to whom.
One possibility is breaking up the Cub chain, in the way that Rainbow was dissolved.
Rainbow stores metrowide were shut down, or sold and reopened under the names of the new owners. Today one metro Rainbow Foods remains open.
But retail analyst Carlson doesn't think the same fate awaits Cub.
"Rainbow closed because they were not doing well. They were underperforming and they did not keep their stores up," she said.
But Cub stores—and most other local food outlets—have seen good sales per square foot, she said. Cub stores have been well-maintained, and several have been remodeled.
She predicts that a company will buy several Cub stores and keep the name and food selection the same.
"It could almost be a nonevent. Why would you change the name Cub? You want the loyalty, and you want the brand," said Carlson.
Other experts aren't so sure.
"Supervalu isn't very good at retail. In fact, they are pretty bad," said consultant Livingston. It's hard to say whether a supermarket chain with falling market share would be better off under new management.
But Supervalu is highly successful, he said, as a food wholesaler selling directly to supermarkets. That's why he predicts that Cub stores will be sold to companies that are supplied by Supervalu—not chains like Kroger, which supplies its own stores.
"I would want to sell to someone local, like Kowalski's or Byerlys or Jerry's," Livingston said.
He doesn't think Hy-Vee will buy many of the Cubs, because the Cub workforce is mostly unionized.
Regardless, he said, sales will drop in Cub stores when the sale is complete.
"There is always a 15 percent drop after any acquisition. You are moving people's cheese, and no one likes that," Livingston said.
Lunds & Byerlys' Sorenson is watching the market warily. "Anywhere food is sold is competition for us," he said. "Without a doubt, Menards is competition."
Is he worried?
"No," said Sorenson. "There are always going to be retailers entering and exiting this market."
Lunds & Byerlys, like so many of its competitors, is expanding, and plans to open a new store in White Bear Lake this fall.