The Supermarket And Grocery Store Industry | Analysis

Market Size and Growth – The market size for the Supermarket and Grocery Industry is very large. It accounts for 75of the $680 billion food retail market. There is a huge saturation of supermarkets which compete by providing convenience to local customers by providing food and household products. This means that the industry is in its mature phase, indicating slow growth. Within the last 5 years the industry’s average growth was 0.6%.

Competition – Since the competition in this industry sells directly to the consumers, nearly half of the industries total establishments are located in the Southeast and Mid-Atlantic as these states are the more populated regions. The top 3 regions of establishment are the Southeast, Mid-Atlantic, and West ranking respectively. The major players in the industry include Kroger Co, Safeway Inc, SuperValu Inc.

Kroger Co trades under the brand names: Dillon Food Stores, Food 4 Less, Kroger, Payless Super Markets, Ralph’s, and Smith’s Food & Drug Centers. As of 2010, Kroger Co holds 15.8of the market share generated from its 2,400 stores nationwide, which makes it the largest market shareholder in this industry.

Safeway Inc. trades under the brand names Safeway, The Von Companies, Dominick’s Finer Foods, Carr-Gottstein Foods, Genuardi’s Family Markets, and Randall’s Food Markets. Safeway Inc’s market share is 8.2%. Safeway Inc has over 1,700 stores that operate across the West, Southeast and Mid-Atlantic. These stores generate $40 billion in grocery sales in combined total.

Supervalu Inc trades under the brand names Albertson’s, Bristol Farms, Farm Fresh, Lucky, Shop’N Save, and Shoppers. Supervalu Inc operates over 2,400 stores and holds 6.6of the industry market share.

Entry/exit barriers – The entry barriers in this industry are medium. Even though the top competitors in the industry account for 40of the market share, the evermore expansion of residential areas allow for new grocery supermarkets emerge where the top players have not established their stores yet. Exit barriers are low. Since the inventories carried in this industry are very liquid, selling off assets is very quick.

Nature and pace of technological change – The change in technology for this industry is medium. Some technological advances in this industry recently are scanning cash registers, automated warehouse equipment, self checkout systems, smart carts, and the internet.

Scale economies and experience curve effects – The effect of scales of economies does not have a significant effect on the industry. The majority of the products offered by the supermarkets are similar and come from similar suppliers. Therefore a change in scale of economies in the suppliers industry will have some indirect effect on prices the supermarkets can offer the customers. Since it is a change in price based of the other industry’s change, all other supermarkets will have similar prices. The level of competition will still remain the same within the Supermarket and Grocery industry.

Capacity utilization and resource requirements – The utilization of capacity in this industry is high. Supermarkets aim to provide the consumer with all their needs without having to look elsewhere. Therefore utilization of shelf space allows for more wide range of products to be purchasable. However in the organics food market capacity utilization is not as important.

Industry profitability – The profitability is low in this industry. With the highly saturated competition and similar products, supermarkets must compete with very low profit margins. Most products sold are marked up only by a bit of the cost to purchase them. While special retail markets such as organic foods, the premium prices are also declining due to major players penetrating the organic foods market.

External Forces

Socio-Cultural – in the past two decades there has been a shifting trend to a healthier lifestyle. Consumer consumption of organic foods has grown the rate of sales by approximately 20per year from $1 billion in 1990 to $17 billion in 2006. (Zepeda, Deal, 2009) This is favorable for organic foods market.

The Move to Organic Food Trend – Companies like Kroger Co and Supervalu Inc are offering their own organic products to tap into the organic foods market. In 2007, Kroger started to offer organic foods distributed through its existing retail supermarkets under the product name Nature’s Market. Soon to follow, Supervalu Inc offered its organic line New Wild Harvest to its stores nationwide in 2008.

Economic – In the current economic recession, consumers have less money to spend. This is favorable for the Supermarket and Grocery Industry as consumers tend to avoid eating out. In 2007 and 2008, the revenue growth in the industry was 1.7and 2.7respectively (IBISWorld 2010). As consumers start to recover from the recession, it is estimated that supermarket sales will drop by 1%, due to more spending power of the consumers.

Legal-political-regulatory – The Supermarket and Grocery Industry is subjected to regulation by the Food and Drug Administration, the U.S. Department of Agriculture, the Occupational Health and Safety Administration, the Environmental Protection Agency, and many other federal state and local agencies. As these regulations are the rules to play the game, these external forces do not have a unique impact on any single competitor in this industry.

Technological –