Food co-op’s bankruptcy signals trouble for independent grocers – Chicago Tribune

There are a whole bunch of reasons why Central Grocers, a longtime area food store operator and wholesaler, recently filed for bankruptcy, but here's a big one: The traditional supermarket experience is over.

An immediate result of its Chapter 11 filing is the sale or closing of its grocery stores and the winding down of its Joliet-based warehouse operation, including firing 550 mostly blue-collar workers.

In the long run, however, this bankruptcy serves as a harsh example of the devastation that occurs when an established business does not, or cannot, adapt to changing customer appetites and the accompanying technological advances reshaping an industry.

Customers are moving away from once-a-week trips at staid neighborhood grocers to shopping anytime via online providers. When shoppers do go into a store, it's often in search of more organic products and fresh, ready-made meals.

Considering these seismic shifts, don't be surprised if other area grocery stores and chains suffer Central Grocers' fate.

"The traditional supermarket is a dinosaur and about to become extinct," contends Phil Lempert, founder of California-based Supermarket Guru, which tracks grocery store and e-commerce trends. "It's time to evolve or die."

Central Grocers' predicament is a window into the unprecedented competitive challenges facing older, independent grocery store owners and operators.

At the forefront is the relentless encroachment of deep-pocketed online rivals. It's a roster that includes titans like Amazon Fresh and Google Express; tech-based firms focused solely on delivering food; and huge grocery chains that are expanding online ordering along with store pickup or delivery.

"While the traditional, independent grocer has long faced peripheral competitive challenges from the likes of warehouse clubs, drug stores, and convenience stores, it now is losing market share to online retailers," Central Grocers stated in the bankruptcy filing.

Note the use of the term "traditional."

What's more, Central Grocers admits it couldn't keep up financially or marketingwise with growing customer cravings, such as "gourmet shopping experiences" and more natural, organic and gluten-free foods.

Another ingredient to this recipe for disaster: Food deflation, which is suppressing grocery retailers' already razor-thin profit margins.

Since 1967, the grocery retail business has enjoyed a slow but increasingly steady rise in annual prices. That is until last year, when prices dipped below 2015's level, according to government data cited in the Central Grocers' filing.

The pressure that Central Grocers felt also is going to press down on the area's hundreds of independent food chains and stores. The online onslaught is building as is consumer hunger for more specialized and custom-made shopping choices. There also will continue to be greater emphasis on providing fresh, healthy fare at food stores.

This is daunting news for cash-strapped grocery retailers.

Increasingly, they'll be pushed to expand or introduce restaurantlike capabilities and product lines, including offering meal kits and meal plans for busy people, the elderly or just folks who hate to cook.

Millennials and the Gen X generation are driving these changes, so food stores and chains will have to relate technologically to these customers or risk losing them.

"They are smarter shoppers than we have ever experienced and see no difference between buying online or in a physical store," says Lempert, the food retailing expert.

In the meantime, a beleaguered Central Grocers is winding through federal bankruptcy court. (The company declined to comment, referring questions to an outside public relations firm.)

With assets of $262 million against liabilities of $232 million, the cooperative is hoping to secure debtor-in-possession financing to keep it going during the bankruptcy process.

As the Tribune reported, the company intends to sell 19 of its Strack & Van Til stores. It also plans to close nine of its Ultra chain stores along with the 1 million-square-foot Joliet warehouse, unless buyers emerge to acquire these assets during the bankruptcy process.

The company's reign as a food cooperative is drawing to a close after almost 100 years in business. It distributed food and some private-label products wholesale to 400 independent grocers scattered throughout city neighborhoods and the region.

Those stores and small grocery chains are now scrambling to get new suppliers. But finding a replacement for Central Grocers is only one of the big changes in store for them.

roreed@chicagotribune.com

Twitter @Reedtribbiz

Read this article:

Food co-op's bankruptcy signals trouble for independent grocers - Chicago Tribune