Chicago's shifting grocery landscape mirrors changing city economics

A huge growth in discount and high-end grocers has followed the decline of those chains in the middle.

August 25, 2014

By: Natalie Moore and Monica Eng

Once upon a time Jewel and Dominick’s ruled the grocery game in Chicago with more stores than any other chain.

Now, Jewel, under its third new owner in 14 years, is facing stiff competition. And Dominick’s? It doesn’t exist anymore.

Today the most ubiquitous chain is a discount grocer that actually grew during the recent recession, attracting everyone from traditional discount shoppers to hipsters to middle-class families.

Aldi.

With 36 stores in Chicago alone, we wanted to understand what this says about Chicago’s changing grocery store landscape and the shoppers who fill their carts.

To see what goes into Aldi’s “secret sauce,” we took a trip to the chain’s U.S. headquarters in west suburban Batavia.

Officials led us into a huge white industrial kitchen with tables full of various products. Aldi’s main ingredient for success is its use of mostly in-house labels to keep prices down. No Betty Crocker or Cheerios here. But that only works if customers think those brands hold up to the national brands.

Like their national buyers do, we conducted blind taste testing with national brands and the Aldi brands. We sipped orange juice and Riesling, munched on blueberry muffins and party cheese, sampled yogurt and guacamole. In most instances, we could barely detect a difference between the national brand and Aldi’s. Except of course, in price. The Aldi brand orange juice we tried cost 32 percent less.

The grocery business is super competitive. Profit margins are in the low single digits. So Aldi’s other recipe for keeping costs down can be found in the stores themselves. Aldi stores occupy a smaller footprint than other big supermarket chains. You might almost miss it if you’re driving by.

There’s no music, no frills. Customers pay a deposit to use the shopping carts. Grocery bags aren’t free. Everything is calibrated to be as efficient as possible.

“For example when we look at the product in the store, you can notice it’s all stocked in cases. If I didn’t point that out, you may not notice it,” said Aldi vice president Scott Patton.

“They match the label of the product. They’re the same color scheme. It has the brand on it. So we’ve made the case and the box an extension of the product, which we can now stock eight to ten units of potato chips in two or three seconds versus unit by unit.”

The rise of a low-end grocer like Aldi isn’t the only trend worth noting. More upscale chains like Whole Foods have also seen serious growth. In 2001, there were three in Chicago. Today there are six. And that doesn’t include the former Dominick’s spaces the organic chain is snapping up.

We looked at the data for major Chicago grocery stores since 2001. In addition to Aldi and Whole Foods we tracked the numbers for Jewel, Trader Joe’s, Mariano’s, Pete’s, Tony’s, Save a Lot, and Food for Less.

Map: Tracking Chicago's shifting grocery stores

Ken Perkins, an analyst for Morningstar, said in some ways changes in the industry reflect changes in the city.

“As the economy has really been difficult you’ve seen people on the low end shift to discounters and a lot of people who are willing to pay for premium for in store experience and quality food. I think that polarization is what you’ve seen not only in Chicago but across the country,” Perkins said.

University of Illinois at Chicago researchers found much the same thing when they looked at income gaps in Chicago. Higher-income households have increased -- so have lower-income households. But those in the middle have shrunk. Not unlike Jewel and Dominick's, the middle-of-the-road grocers that served them.

Food and retail researcher Mari Gallagher has a few theories about what happened to those grocers.

“It used to be that the middle-market was about 30,000 sq ft. It was pretty ubiquitous in different neighborhoods. It might look a little different in Lake Forest than in it did in Roseland, a Chicago neighborhood for example. But it pretty much offered the same kind of cookie cutter thing and then stores got much bigger and as stores got bigger they tried to go a little bit upscale and they struggled with are we an upscale bigger store or are we a middle-market store. So they lost a bit of their identity,” Gallagher said.

She also noted other players have grabbed a big chunk of the grocery business, such as gas stations, mini marts, dollar stores and big-box retailers like Walmart and Costco.

But customer taste has changed, too. Organic is more popular and, for some, pushing a cart around a grocery store became more of an experience than a chore.

“We see more and more customers now even those customers with means shopping at multiple stores,” Gallagher said. “It’s not so uncommon for thrifty shopper to go to Aldi or Save A Lot for staples or key items and then go to speciality stores or high-end stores for organic produce. They might go to Whole Foods and Aldi’s and two or three other stores.”

Increasingly, that includes Mariano’s. The fast-growing chain appears to be reinventing the middle-market grocery store. The stores aren’t super premium, but there’s also a focus on hospitality. The workers wear black ties, there’s a wine bar, and on the weekends somebody playing a grand piano.

It’s CEO, Bob Mariano, once worked for Dominick’s. In fact, old man Dominick was his mentor. Company officials declined an interview on its strategy, but a few months ago the CEO spoke at a press conference to announce that a Mariano’s was coming to Bronzeville. That neighborhood is a food desert and residents were excited by the idea of having a real grocery store.

After a round of applause, Mariano said: “That’s a lot of pressure because I’m just a grocer. People sometimes ask me what do I do for pleasure, what’s my hobbies? I tell them I don’t golf, I don’t sail. I just open grocery stores.”

Three years ago there were no Mariano’s in the city. Today there are 10 with more opening up all the time.

In Chicago today there are more grocery stores overall than there were a decade ago. But not everyone is sharing in this abundance. There are still large parts of the South and West Sides that are left out.

Part two of our series The Check-Out Line, will explore whether race plays a role in determining where grocery stores are built.

Map: Tracking Chicago's shifting grocery stores

Monica Eng is a WBEZ producer and co-host of the Chewing the Fat podcast. Follow Monica at @monicaeng or write to her at meng@wbez.org

Natalie Moore is WBEZ’s South Side bureau reporter. nmoore@wbez.org Follow Natalie on Google+,  Twitter