Food Retailing
AG BM 102
Introduction
• Major interface with the customer – 2/3 of
all food
• Place where customer shows preferences
• A sector in transition
• First stores to act as a group
• Consumer’s number one criteria for choice
of supermarket is convenience
Percentage of disposable
income spent on food
2010
food-at-home
5.5%
food away-fromhome
3.9
Source: USDA
Some PA Markets
• Philadelphia
• Pittsburgh
• Central PA - Harrisburg
Chains
• 11 or more stores working as a group
• Corporate chains – company owns
everything
• Voluntary chains – independent
wholesaler – Thriftway, Foodland, Shop N’
Save
• Cooperative chains – stores jointly own
wholesaler – Shop N’Bag
Supercenters
• 20.7% of grocery sales in 2010 (est)
• 28% of sales in WalMart supercenters are
groceries & tobacco in 2005
Convenience Stores
•
•
•
•
4.5% of business
High gross margins
Access obviously key – Uni Marts, Sheetz
Cigarettes, lottery tickets, snack food, etc.
Sam’s Club & Costco
• 1,600 items rather than 25,000 for regular
store
• Large sizes, one choice, high turnover
• Membership fees.
Food Away From Home
Share of Food Expenditures
50
45
40
35
%
30
25
20
15
10
5
0
1970
1975
1980
Source: USDA
1985
1990
1995
2000
2005
2010
Share of Food at Home Sales, 2012
Supercenters
Convenience stores
Specialty food stores
Farmers, etc.
Other stores
Home deliveries, etc.
Supermarkets
Share of Food at Home
Traditional Food Stores
Sales, 2012
Supercenters
Convenience stores
Specialty food stores
Supermarkets
Source: USDA
Vertical Integration
• The food chain controls an input supplier
• Private labels - 17% of food & beverage
sales in 2009
• Bakeries
• Dairies
• 24% of Kroger's total grocery sales come
from its house brands; 41 company-owned
manufacturing plants produce 7,500
Kroger products.
Buying Power
•
•
•
•
Key to recent mergers
Buy for whole country – over a long period
Makes access difficult for small sellers
Royal Ahold – Dutch Company – bought
up lots of chains, including Giant & Stop &
Shop – largest retailer on East Coast
• Summer 2015 Ahold merging with
Delhaize Group of Belgium (Food Lion),
and Hannaford
Concentration
• Market share – how much of market do
leading four firms have? Leading firm?
• Relevant market – On selling side small –
distribution of major newspaper
• On buying side seems to be whole country
Supermarket Chains
Chain
Share 1993
Share 2001
WalMart
6%
Kroeger
0%
9.6%
(19% now?)
7.3%
Albertsons
3%
5.6%
Safeway
4%
5.0%
Ahold
2%
3.4%
Sources different – numbers may not be strictly comparable
WalMart
• After the 2.3 weekly trips the average consumer
makes to the food store – not profits from food
• Past decade- 29 chains have sought
bankruptcy-court protection, Wal-Mart a catalyst
in 25 of those cases
• Wal-Mart pays about 20% less in labor costs
• 19% of U.S. grocery sales
• Sell 32% of Disposable Diapers
• 44% of grocery sales in Arkansas in 2002
Walmart has 15% share in at least 75 markets
Sales of Top 8 Chains as a % of Total Grocery Sales
60
30
0
53.5
26.5
'29
26.3
'48
26
25
'63
'75
29
'94
'99
By 2004 - Top 8 food chains will account for 65% of total
U.S. retail food sales
Cornell Horticultural Business Management and Marketing Program
Supermarket market share
Minneapolis-St. Paul 2009
Cub Foods 35.4*
SuperTarget 13.9
Rainbow Foods 12.9
Wal-Mart Supercenter 9.5
Byerly's 3.7
Lunds 2.8
Trader Joe's 2.0
Festival Foods 1.9
Kowalski's Markets 1.9
Source: IRI InfoScan, published by Nielsen Co.'s Trade Dimensions
Supermarket market share
Central Florida 2012
Firm
Share
Publix
42.9%
Walmart
26.3%
Winn-Dixie
10.1%
Sweetbay
6.3%
Super Target
3.2%
Save-A-Lot
2.9%
Source Tampa Bay Times, July 15, 2012
The number of fresh produce items
carried by
food retailers
400
350
300
200
173
100
0
1987
2001
Source: Supermarket Business, Progressive Grocer
Economies of Scale
•
•
•
•
In store- beyond 30,000 sq. ft. not much
Advantage of large stores – non-food
Disadvantages – search costs, supervision
Warehousing & distribution – considerable
economies within about 200 mi. circle –
more stores better
Chain Economies
• Buying!!!
• Advertising
• Dis-economies - management
Pricing
•
•
•
•
Mark-up pricing – e.g., cost times 1.33
Coupons
Image
competition
Margins
Item
Margin
Item
Margin
Canned
goods
Dairy
16%
Frozen foods 25%
19%
Housewares 33%
Meat
20%
Produce
Non-foods
>25%
31%
Profit
• 1 to 2% of sales
• Depends on turnover of inventory
• If profit goes over 2% competition gets
fierce
• Much (or most) of profit comes from
promotional allowances from
manufacturers
• Labor ~70% of a traditional grocer's
overhead.
Industry Trends
•
•
•
•
•
•
In-store banking
In-store pharmacies
More private labels
More customer service
Home delivery
Home meal replacement
Concluding Comments
• An Industry in transition
• Mergers and increased concentration
affecting access
• Competition on selling side local