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Food Retailing

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

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  1. Food Retailing AG BM 102

  2. 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

  3. Percentage of disposable income spent on food2010 Source: USDA

  4. Some PA Markets • Philadelphia • Pittsburgh • Central PA - Harrisburg

  5. 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

  6. Supercenters • 20.7% of grocery sales in 2010 (est) • 28% of sales in WalMart supercenters are groceries & tobacco in 2005

  7. Convenience Stores • 4.5% of business • High gross margins • Access obviously key – Uni Marts, Sheetz

  8. Sam’s Club & Costco • 1,600 items rather than 25,000 for regular store • Large sizes, one choice, high turnover • Membership fees.

  9. 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.

  10. 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

  11. 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

  12. Supermarket Chains Sources different – numbers may not be strictly comparable

  13. 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

  14. 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

  15. 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

  16. Supermarket market shareCentral Florida 2012 Source Tampa Bay Times, July 15, 2012

  17. The number of fresh produce items carried byfood retailers 350 173 Source: Supermarket Business, Progressive Grocer

  18. 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

  19. Chain Economies • Buying!!! • Advertising • Dis-economies - management

  20. Pricing • Mark-up pricing – e.g., cost times 1.33 • Coupons • Image • competition

  21. Margins

  22. 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.

  23. Industry Trends • In-store banking • In-store pharmacies • More private labels • More customer service • Home delivery • Home meal replacement

  24. Concluding Comments • An Industry in transition • Mergers and increased concentration affecting access • Competition on selling side local

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