(Oct. 15) U.S. and Canadian consumers increasingly are buying their groceries in stores other than those run by traditional retailers.

A study released in late September by the English analysis group M+M Planet Retail, London, shows that seven of the top 10 food sellers in 2003 were traditional retailers. But Wal-Mart topped the list, Issaquah, Wash.-based Costco came in at No. 5, and Deerfield, Ill.-based Walgreens came in at No. 9.

Bryan Roberts, global retail research manager for M+M Planet Retail, said he did not have a breakdown of produce sales for the retailers.

“But sales mix data that we do have for some of the retailers in North America suggest that produce is running around 7% of traditional grocery outlets’ sales, obviously with lower rates in supercenters, c-stores, discounters, etc.,” Roberts said.

Roberts said produce often is the category by which consumers judge a store.

“Get that wrong, and a retailer is in trouble,” he said.

WAL-MART’S STRONG LEAD

In M+M Planet Retail’s rankings, Bentonville, Ark.-based Wal-Mart Stores Inc. (including Neighborhood Market and Sam’s Club divisions) had food sales of $91.23 million, dwarfing nearest competitor Ahold, which had $39.5 million. Cincinnati-based Kroger came in third with $39.3 million; Pleasanton, Calif.-based Safeway was fourth with $28.5 million; and Costco was fifth with $25.7 million.

The study showed that only four traditional retailers — Kroger, Ahold USA, Safeway and Boise, Idaho-based Albertson’s Inc. — were in the top 10 in 2003 in market share.

According to M+M Planet Retail, despite the dominance of Wal-Mart, the North American grocery market remains fragmented.

“The 10 largest businesses (in market share) account for just 40% of modern grocery distribution sales (15% of which is Wal-Mart), so it is accurate to suggest that consolidation has a fairly long way to travel in the USA and Canada,” the report says.

The top five companies in market share in the U.S. account for 29% of grocery sales, compared to 56% in the United Kingdom, 65% in Canada and 67% in Germany.

The best performer in the rankings in 2003 was Canadian market leader Loblaw, based in Toronto, which moved up three places in market share to 12th on the back of robust expansion and healthy same-store sales growth, the report said.

And Dallas-based 7-Eleven owner Ito-Yokado advanced two places.

NONTRADITIONAL STORES

It is in stores such as 7-Eleven that the industry can expect to see increased produce sales growth, Roberts said.

“Only recently, 7-Eleven CEO Jim Keyes said that the chain wishes to increase the share of sales that it derives from fresh foods from the current 10% to a level nearer the 40% generated by 7-Eleven in Japan,” Roberts said. “While the bulk of this growth will be generated by the lines like sandwiches, it will also see much greater emphasis on products like bagged salads and packaged prepared fruit.”

Roberts said other convenience store chains were set to follow suit, and nontraditional channels such as warehouse clubs and even dollar stores also are bulking up their produce offerings.

Natick, Mass.-based BJ’s Wholesale Club Inc., with 153 stores in East Coast states and in Ohio, is breaking from the traditional warehouse store strategy of targeting large families, said Dick Spezzano, president of Spezzano Consulting Service, Monrovia, Calif.

Even as Costco, with 442 stores worldwide, and Wal-Mart-owned Sam’s Club, with 522 stores, continue to target larger — and, particularly in the case of Costco, more affluent — families, BJ’s is going after more empty nesters and offering smaller pack sizes, Spezzano said.

Consumers are discovering other nontraditional retailers, Spezzano said. Consumers are turning to stores such as Smart & Final and Long’s Drugs, which in San Diego now carries produce items.

And discount stores and chain drug stores have improved their appearances and are even running ads featuring produce, Spezzano said.

“The 99 Cent store has 12 produce items a week at 99 cents, from Dole salads, to spinach to three pounds of Dole bananas,” Spezzano said. “Dole sees them go through 8,000 boxes of bananas a week in the 125 to 130 stores in Southern California. That’s a lot of bananas. All alternative formats are now having an impact.”

Stores such as Walgreens, with nearly 4,600 outlets in 44 states and Puerto Rico, which are trying to build reputations as convenience-oriented neighborhood stores, also may boost produce offerings, Roberts said.