The PG 100: The New Competitive Battleground

The PG 100: Walgreens, Dollar General Stand Out in New Competitive Battleground

(Editors' Note: This is part two of a three-part series.)

The overwhelming majority of companies on the PG 100 enjoyed strong growth in 2019, and it was easy to see why. Unemployment rates were at or near historic lows throughout North America. There was a modest degree of food inflation in five of the six food categories contained in the Consumer Price Index compiled by the Bureau of Labor Statistics. It was just enough inflation to benefit retailers’ year-over-year sales comparisons, but not so much as to deter spending. Fuel prices were relatively low and proved to be a tailwind for spending, especially among lower-income households, which spend a higher percentage of their income on fuel.

While this rising tide of favorable economic conditions lifted nearly all retail boats, major structural changes continued to unfold in the food and consumables world. These changes involved the wide range of nontraditional food retailers that have earned spots on the PG 100 for their efforts to gain share from more familiar food retailing names such as Kroger, Albertsons, Publix, H-E-B and Aldi, to name a few.

Most notably, chain drug store retailers Walgreens, CVS Health and Rite Aid operated a combined 19,177 stores and generated annual sales of $223 billion. However, only about 20% to 25% of those sales are from nonpharmacy categories, or what drug store retailers refer to as the front end. And only a portion of those front end sales are from food and consumables. Even so, if grocery categories accounted for just 5% of each retailer’s sales, it would equate to total sales of $11.2 billion and place the companies’ combined volume at No. 32 on the PG 100.

Chain drug stores, with their convenient locations and traffic-generating pharmacies, represent a major force in the food and consumables world. And the potential exists to have an even greater impact. Consider the intriguing pilot program that Walgreens and Kroger have undertaken to leverage their respective strengths by operating branded departments in one another’s stores.

Like chain drug stores, convenience stores pose a similar, but often overlooked, competitive threat. The collective impact of c-store operators — an industry sector that includes more than 150,000 locations — is considerable and growing. When the National Association of Convenience Stores (NACS), the trade organization representing the c-store channel, surveyed members in January, three-fourths said that their in-store sales increased in 2019, and a strong contributor to growth was better-for-you items such as fruit, vegetables, nuts, health bars and yogurt.

In addition to packaged products, leaders in the c-store channel are moving aggressively to sell more fresh food and improve foodservice operations. An industry best known for a heritage of selling beer, tobacco and gas now has many operators (Wawa, RaceTrac, Casey’s) that are well known for the quality of their food and beverage operations.

While drug and convenience stores have many dimensions of competitive overlap with traditional food retailers, the channel with the greatest overlap is broadly described as “extreme value,” a phrase that serves as a catch-all for a diverse group of operators with different business models.

The most notable of these is Dollar General, a company that ended last year with 16,278 locations, has plans to open 1,000 new locations this year, is expanding frozen and refrigerated sections at a breakneck pace, and is rolling out self-distribution of fresh food. Dollar General is in the midst of a major pivot to become a new breed of grocer and unlock the sales potential of a massive footprint as its opportunities to add new stores diminish the closer it gets to 20,000 locations.

Other extreme-value retailers, such as Dollar Tree, Family Dollar, Grocery Outlet, Big Lots, 99 Cents Only and Canada’s Dollarama, each come at the food and consumables world from different angles, with unique strategies. However, they collectively operate roughly 35,000 stores and conservatively account for upwards of $30 billion in sales of food and consumables.

It may seem unusual for extreme-value retailers, c-store operators and drug store chains to be part of the PG 100, but such is the evolving nature of retail competition in the world of food and consumables. It’s a place where consumers have many, many alternatives to satisfy their needs, a point illustrated by the diversity of operators comprising the PG 100. 

Also Worth Reading