food retailing ag bm 102. introduction major interface with the customer – 2/3 of all food place...
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Food Retailing
AG BM 102
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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
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Percentage of disposable income spent on food
2010food-at-home
food away-from-home
5.5%
3.9
Source: USDA
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Some PA Markets
• Philadelphia
• Pittsburgh
• Central PA - Harrisburg
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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
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Supercenters
• 20.7% of grocery sales in 2010 (est)
• 28% of sales in WalMart supercenters are groceries & tobacco in 2005
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Convenience Stores
• 4.5% of business
• High gross margins
• Access obviously key – Uni Marts, Sheetz
• Cigarettes, lottery tickets, snack food, etc.
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Sam’s Club & Costco
• 1,600 items rather than 25,000 for regular store
• Large sizes, one choice, high turnover
• Membership fees.
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1970 1975 1980 1985 1990 1995 2000 2005 20100
5
10
15
20
25
30
35
40
45
50%
Food Away From HomeShare of Food Expenditures
Source: USDA
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Supermarkets
Supercenters
Convenience storesSpecialty food stores
Farmers, etc.
Other stores
Home deliveries, etc.
Share of Food at Home Sales, 2012
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Supermarkets
SupercentersConvenience stores
Specialty food stores
Share of Food at Home Traditional Food Stores
Sales, 2012
Source: USDA
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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.
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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 – largest retailer on East Coast
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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
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Supermarket ChainsChain Share 1993 Share 2001
WalMart 6% 9.6%
(19% now?)
Kroeger 0% 7.3%
Albertsons 3% 5.6%
Safeway 4% 5.0%
Ahold 2% 3.4%
Sources different – numbers may not be strictly comparable
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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
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By 2004 - Top 8 food chains will account for By 2004 - Top 8 food chains will account for 65%65% of total of total U.S. retail food salesU.S. retail food sales
Cornell Horticultural Business Management and Marketing Program
Sales of Top 8 Chains as a % of Total Grocery Sales
26.5 26.3 26 2529
53.5
0
30
60
'29 '48 '63 '75 '94 '99
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Supermarket market shareMinneapolis-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 1.9Source: IRI InfoScan, published by Nielsen Co.'s Trade Dimensions
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Supermarket market shareCentral Florida 2012Firm 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
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1987 20010
100
200
300
400
The number of fresh produce items carried by
food retailers
173
350
Source: Supermarket Business, Progressive Grocer
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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
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Chain Economies
• Buying!!!
• Advertising
• Dis-economies - management
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Pricing
• Mark-up pricing – e.g., cost times 1.33
• Coupons
• Image
• competition
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Margins
Item Margin Item Margin
Canned goods
16% Frozen foods 25%
Dairy 19% Housewares 33%
Meat 20% Produce 31%
Non-foods >25%
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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.
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Industry Trends
• In-store banking
• In-store pharmacies
• More private labels
• More customer service
• Home delivery
• Home meal replacement
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Concluding Comments
• An Industry in transition
• Mergers and increased concentration affecting access
• Competition on selling side local