Grocery Stores
SIC 5411
NAICS 445110
Retail grocers purvey a broad line of fresh, frozen, canned, and other prepackaged foods. Many of these stores also carry a variety of nonfood items such as health and beauty aids, paper goods, and cleaning supplies, but food and beverages make up the majority of their product lines and sales volumes. Excluded from this discussion are convenience stores and specialty food shops, such as butchers and produce markets.
Within the world's largest economies, the grocery retailing industry, remained fiercely competitive, slimly profitable, and dominated by a few multibillion-dollar companies in each national market. Not only were grocery stores competing with each other, they also were having to stave off restaurants and other prepared-food vendors for a share of consumers' food budgets—a battle grocery stores have been losing gradually in leading world markets. Large-scale retailers responded by offering so-called home meal replacements and other nontraditional services that differentiate them from conventional grocery stores and restaurants. Still other grocery retailers have experimented with home delivery of groceries, marketing the service to busy professionals or senior citizens, although it is not expected to replace traditional shopping. Many larger grocers have also included conveniences such as in-store pharmacies, which are perceived as a customer convenience and also garner higher profit margins than food products.
According to 2005 research from IGD, the top 10 retail grocery markets in terms of value were the United States with US$759 billion, Japan with US$ 451 billion, China with US$277 billion, India with US$194 billion, United Kingdom with US$156 billion, France with US$152 billion, Germany with US$136 billion, Italy with US$133 billion, Russia with US$129 billion, and Spain with US$64 billion. Although U.S.-based giant Wal-Mart continued to dominate the industry on a world scale, the expansion of grocery firms into the global marketplace continued to be done more by European companies, such as France's Carrefour, Ahold of the Netherlands, Germany's Metro Group, and Tesco of the United Kingdom. Carrefour was considered to be more "global' than Wal-Mart as it operated in more countries.
A potential growth trend was in online grocery services. Despite a slow U.S. start and many setbacks, including the well-publicized failure of Webvan.com, Forrester Research reported that the industry generated worldwide market revenues of US$10 billion. This was still a drop in the bucket of worldwide revenues from consumer packaged goods (CPG) that year; US$10 billion represented only 2 percent of CPG revenue worldwide in 2003. Other independent research firms, including Jupiter Research, forecast major growth of online grocery shopping. By the mid-2000s, operations such as NetGrocer in the United States and Tesco in the United Kingdom continued to grow their online businesses.
Three business set-ups describe the world's major food retailing enterprises: corporate chains, affiliated independent stores, and retailer-owned cooperatives. Corporate chains are the simplest because their retail outlets are fully owned or controlled by the corporate parent. Such chains generally show the highest degree of homogeneity across stores and regions; individual outlets may also be franchised to local or regional owners, but they usually follow a rigid formula for operations and marketing, and they procure stock through prescribed corporate channels.
Like corporate chains, independent affiliates and retailer-owned cooperatives may share a common retail identity, but ownership and control vary considerably. Independent affiliates are groups of independently owned stores that purchase at least part of their goods, which may include a common private label, through a central wholesaler. The wholesaler generally provides goods to independent stores at lower prices than small retailers would otherwise be able to obtain in their small-volume purchases. The independents choose whether to include this affiliation in their names and marketing. In the trade, the term "independent" can describe small operations of up to ten stores. Among affiliated independents, then, the corporation of prominence is often not any of the retailers; instead it's the wholesaler with which the independent stores affiliate. (See also Wholesalers.)
Retailer-owned cooperatives, also known as buying groups, go one step further than affiliated independents. These independent stores affiliate with a central buying organization and also own shares of it. As with affiliates, the voluntary retail members choose whether to market the common identity in their stores. Because they own the buying group, the retailers also share in any profits or losses the buying groups incur and, depending on their size, may have administrative clout with the buying group's management. In this sense, the buying group is a joint venture among all its members.
In practice, distinctions often blur the various types because of crossover activities. A corporate chain may distribute merchandise on the side to independent stores or affiliates; a wholesaler or buying group might open or acquire retail outlets. These models also do not take into account the simplest form—independent, unaffiliated stores. Although in many places they are numerically prevalent over any other form, few such operations could be considered major participants in the industry.
In leading countries most of the industry's sales occur in supermarkets, which in the trade are defined as having US$2 million or more in annual sales. Supermarkets also are characterized by offering a full line of food, including fresh produce, meats, frozen foods, and dry packaged and canned goods, as well as diverse nonfood items such as cosmetics, toiletries, and cleaning goods. Many also offer in-store food preparation services, especially deli counters and bakeries. Supermarkets range in size from approximately 30,000 to 70,000 square feet.
Hypermarkets are largely a European format of massive, all-in-one stores that include a full department store with a complete grocery line, and often a gas station and other service amenities. The quintessential European hypermarkets, such as those by Carrefour S.A. of France, which is credited with pioneering the concept in the 1970s, may be upwards of 300,000 square feet in size.
Supercenters in the United States, although smaller and more limited in scope, are somewhat analogous to European hypermarkets. Wal-Mart experimented with the hypermarket concept, with a 225,000-square-foot store, but it met a lackluster reception from U.S. consumers; the consensus in U.S. retailing is that the hypermarket format is unlikely to attract much following in the near future, due to already-vibrant retail trade in many of the product groupings such a large store would offer. The super center, ranging from 100,000 to 200,000 square feet, was Wal-Mart's solution. Like hypermarkets, supercenters include extensive food selection comparable to that of the largest supermarkets. These offerings are coupled with a general line of housewares, linens, discount apparel, toys, small electronics, and hardware.
Deep-discount stores, also known as limited assortment stores, offer no-frills merchandise at prices ranging from 5 percent to 25 percent less than that of name-brand merchandise available through conventional stores. Led by such chains as Germany's Aldi Einkauf GmbH, these discounters may sell only private-label and off-brand products and may not stock a full or even consistent line of groceries. The physical store tends to be austere as well. The leading European chains leave their groceries in boxes on wood pallets rather than stocking them on shelves.
General-line grocery stores are numerically predominant in most places of the world, even while in the industrial economies they make up a relatively small percentage (as little as 20 percent) of industry sales. These stores may offer only a limited line of the most common produce items, no fresh meats, and a small selection of the most commonly used canned, frozen, and prepackaged goods. On the smaller end, the distinction may begin to blur with that of convenience stores. General grocery stores are often independent or small regional chains and, in some markets, are highly vulnerable to loss of sales to—or acquisition by—supermarkets and other larger format retailers.
By product category, according to Supermarket Business, the typical U.S. supermarket obtains 26.35 percent of its sales volume from shelf-stable food items; 14.58 percent from meat, fish, and poultry; 10.89 percent from fresh produce; 9.61 percent from nonfood dry goods; 6.59 percent from deli services; 6.10 percent from dairy products; 5.37 percent from frozen foods; 4.65 percent from health and beauty items; 4.65 percent from general nonfood merchandise such as audio and video supplies, toys, periodicals, and photographic goods; 3.57 percent from in-store bakeries; 3.29 percent from other baked goods; and the remaining 4.35 percent from prescription drugs and other miscellaneous items.
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