Food retailing
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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.

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Food retailing l.jpg

Food Retailing

AG BM 102


Introduction l.jpg
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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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


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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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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 Chains

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


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Sales of Top 8 Chains as a % of Total Grocery Sales

By 2004 - Top 8 food chains will account for 65% of total U.S. retail food sales

Cornell Horticultural Business Management and Marketing Program


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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 1.9

Source: IRI InfoScan, published by Nielsen Co.'s Trade Dimensions


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Supermarket market shareCentral Florida 2012

Source Tampa Bay Times, July 15, 2012


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The number of fresh produce items carried byfood retailers

350

173

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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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


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