Food Wholesaling, Retailing
and Food Service
• Changing food manufacturing and
distribution – market channels
• Integration and concentration
• Growth in food service
• Information technology
• Walmart
• Product introduction
Top Food Processors, Million
Dollars of Sales, 1998
1
Philip Morris
31,416
2
PepsiCo, Inc.
22,348
3
Coca-Cola Company
18,813
4
ConAgra, Inc.
17,928
5
IBP, Inc.
12,849
6
Sara Lee Corp.
10,832
7
Anheuser-Busch
9,239
8
H.J. Heinz Company
9,209
9
Nabisco, Inc.
8,400
10
Bestfoods
8,374
11
Tyson Foods, Inc.
7,414
Food processing
• Increasing concentration , e.g.
• Phillip Morris (Kraft, General Foods, Oscar Mayer,
Miller Brewing) buying Nabisco
• General Mills buying Pillsbury
• Cargill acquiring Continental Grain
• Tyson buying IBP
• Smithfield getting into beef
• Sara Lee-Earth Grains
• Unilever – Ben and Jerry’s
Wholesaling: Added value services
• Approximately 10% of food dollar in 1993
• Wholesalers add place, time, and possession
utility to food
• Assembly, dis-aggregating, delivery
• Transactions and risk-bearing functions
Leading Wholesalers, 2001
Firm
SuperValue
Fleming
C&S Wholesale Grocers
Wakefern Food Corp
Giant Eagle
Sales $B
20.9
15.6
8.5
5.9
4.5
Wholesaling trends
• Concentration
• Driven by competitive pressures
• Integration: Forward and backward
• Retailers and processors doing their own
wholesaling
• Technological advancements
• Information flow and management
Types of food wholesalers
• Merchant wholesaler
• Largest, but declining
• Buy, store, sell and other marketing functions
• Important for small independent stores
• Manufacturers’ sales division
• Fastest growing
• Extension of processor
• Agents and brokers
• Smallest share and declining
• Do not take title, work on commission
Retail Grocery Wholesalers
• Value-added service to smaller retailers
• Assembly, disaggregate, reassemble
• Integration
• Larger stores can deal direct
• Retailers into wholesaling
• Walmart, Kroger
• Wholesalers into retailing
• SuperValu, Flemming
Food Service Wholesalers
• Value-added service
•
•
•
•
Assembly, disaggregate, reassemble
Menu planning
R&D
Quality control (branded products)
• Largest players
• Sysco $22.6 Billion (Leopold, IBQSN)
• US Food Service $17.7 Billion
• Performance Food Group $3.2 Billion
Food retailing
• Largest retail sector in US
• Grocery and food service
• Food accounts for 25% of retail sales
• Employs 80% of food system workers
• Trend to concentration and integration
• Inflation-adjusted sales are flat
• Growth by market share
• Economies of scale
• Information
• Bargaining power
Share of Grocery Store Sales (%)
70
60
CR 4
CR 8
CR 20
50
40
30
20
10
0
1967
1972
1977
1982
1987
1992
1997
2001
US Supermarkets, 2000
1 The Kroger Company/Fred Meyer
2 Albertson's, Inc./American Stores, Inc
3 Safeway Stores, Inc
4 Wal-Mart Supercenters
5 Ahold, USA
6 Publix Supermarkets
7 Winn-Dixie Stores
8 Delhaize America
Sales $B
49.0
31.5
28.5
22.9
21.8
14.7
13.7
12.7
Club Stores Grocery Sales $Billion
Costco
Sam's
Total
1995
17.9
19.8
39.9
2000
31.9
26.4
63.2
Foodstore Sales, 2002
Specilaized food
store
4%
Conveniencece
store
4%
Superettes, small
grocery stores
12%
Supermarket
80%
Trend in Foodstore Sales by Store Type
400
350
300
250
200
150
100
50
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Supermarkets
Conventional
Superstore
Other
Concentration concerns
• Growing national market share
• Moderate increases in average combined
shares in cities indicating no substantial
lessening of competition for consumers
• Increased market power concerns by sellers
• Slotting fees paid to get market access
Growth of Foodservice
• 46% of total food sales
• Growth of fast food
• 1996 first time that more that half restaurant
meals eaten off premise.
• Home meal replacement: HMR
• Supermarket response to food service
Share of US Food Expenditures
65%
60%
55%
50%
45%
40%
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
35%
At Home
Away from Home
Top U.S. Resturants
1
2
3
4
5
McDonald's
Tricon
Diageo
Wendy's
Darden
2000 Sales
Million
20,415
14,500
8,620
5,837
3,826
Chg 99-00
Percent
6.5
0.0
-1.2
7.4
9.7
1) McDonalds, Boston Market, Donatos Pizza, Chipotles Mexican Grill
2) Taco Bell, Pizza Hut, KFC 3) Burger King, Haagen-Dazs 4) Wendy's, Tim Horton
5) Bahama Breeze, Olive Garden, Red Lobster, Smokey Bones
Food Service Trends
• Pushing growth
• Rising incomes
• Demand for convenience
• Smaller households
• Limiting growth
• Aging population
Food Service Strategies
• Nontraditional locations
• McDonalds at Walmart
• Fast food at gas stations
• More variety
• Choice of bread at Subway
• McDonalds is largest US beef retailer, but
less than half of McDonalds menu is beef
items
New Products
•
•
•
•
•
Supermarket carries 30,000
Over 16,000 introduced in 2000
Seller pay “slotting allowance”
Buyers reject 60%
Information technology allows better
targeting
New Products Introduced
25,000
20,000
15,000
10,000
5,000
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
0
Food
Nonfood
Product Proliferation
• Strategy to control shelf space
• Movement away this strategy
• Still control space
• Reduce the number of items
• Issue for industry: how to meet consumer
demand for varied products (organics,
labeled non-GMO, animal friendly, etc.)
• Ex. UK retailers
Emerging Retailing Developments
•
•
•
•
•
Efficiency of supply chain
Walmart
Growth of foodservice
Expansion of private labels
New consumer issues
Information Technology
• Trading partners work closely together to eliminate
excess costs from the supply chain and efficiently
serve the consumer.
• A system based on time-phased replenishment of
products based on consumer demand that allows the
manufacturer to be proactive and more directly
respond to consumer purchase behavior.
• Efficient Consumer Response (ECR)
• Efficient Foodservice Response (EFR)
• Collaborative Planning, Forecasting and Replenishment
Adoption of UPC Bar Code
• Started in 1972
• Now used to track inventory, order products
automatically, and report purchases by time
• Beginning to use data collected
• 50% of all retailers offer frequent shopper
programs
• Ways to reduce costs and increase sales
• Walmart going to RFID
Rise of Wal-Mart
• Has built business on knowing what
consumers buy when and asking vendors to
replenish shelves in a timely manner
• Largest retailer in the world
• Largest food retailer in the US
• 90 million customers per week
• EDLP strategy in food sales
• Low fixed margin
• Nearly infinite growth
Efficient Consumer Response
•
•
•
•
Wal-Mart model
Retailer & vendor share information
Electronic Data Interchange
Collaborative planning, forecasting and
replenishment
• Scan-based trading, vendor is paid for what is
sold when it is sold
Expansion of Private Labels
• Previously a cheaper product
• Battle for “brand equity”
•
•
•
•
House brand
Wholesale brand
Packer brand
Farmer brand
• New premium quality
• Wal-mart, KMart
• 16% of sales, 20% of volume
Private Label Market Share, U.S.
20.0%
1982
18%
15.0%
1988
10.0%
Years 1970-2000 in 2 year increments
Merril Lynch, The Food Industry, 2000
Private Label Users
American Heavy Users:
Income: $20-40,000
Age: 35-44
Household Size: +5
Education: High School
European:
In U.K. Over 50% Private Label
Merrill Lynch: The Food Industry, 2000
New Consumer Issues
• Natural
• Laura’s Lean http://www.laurasleanbeef.com/?source=goto
• Coleman’s Natural Meats http://www.colemanmeats.com/
• Organic foods
• http://www.ers.usda.gov/publications/agoutlook/apr2000/ao270d.pdf
• Welfare friendly
• Niman Ranch http://www.nimanranch.com/
• Farmer-friendly
• Good Natured Family Farms http://www.goodnatured.net/
• Environmentally-friendly