SIC 5411 Grocery Stores

SIC 5411

This category includes supermarkets, food stores, and grocery stores, primarily engaged in the retail sale of all sorts of canned goods and dry goods (such as tea, coffee, spices, sugar, and flour), fresh fruits and vegetables, and fresh and prepared meats, fish, and poultry.

NAICS CODE(S)

447110

Gasoline Stations with Convenience Stores

445110

Supermarkets and Other Grocery (except Convenience) Stores

452910

Warehouse Clubs and Superstores

445120

Convenience

INDUSTRY SNAPSHOT

There were 33,841 supermarkets in 2003, 12,959 grocery stores, and 994 wholesale club stores. Supermarkets alone had sales of $432.8 billion that year. Although supermarkets accounted for about two-thirds of the industry stores, they took in nearly all of the industry's revenues. Grocery stores took in $17.2 billion that year, and warehouse clubs earned $29.5 billion. Also included in the food industry are convenience stores which generated $102 billion in sales in 2003 in 130,659 stores. Total food sales in the country increased to $775 billion overall.

For every $100 spent in stores, more than half is spent on perishables, such as produce, bread, meat, and dairy. Beverages, including alcohol, take 10 percent of the total. Main meal items took 8 percent, and snacks and condiments together took 11 percent. The remaining amount is spent on pharmacy items, health and beauty care, and other non-food grocery items.

The grocery industry was moving forward in 2005 in order to redefine itself and grasp a different kind of market share than that commanded by discounters such as Wal-Mart. According to Progessive Grocer, 2,000 stores would close as a result of Wal-Mart's increasing grocery market share, which in 2003 was over 15 percent and growing rapidly. Grocers were expecting several trends to affect the industry in the coming years including food safety issues and price increases. Supermarket News projected that superstores would control 18.5 percent of the market by 2008, followed by food and drug combination stores with 13.1 percent, and conventional stores with 11.6 percent.

ORGANIZATION AND STRUCTURE

Like all retail industries, the grocery industry at its most basic functioned by obtaining goods from distributors and manufacturers, marking up the price to cover costs and allow for profit, and reselling the merchandise to the general public. Larger grocery chains typically manufactured or prepared a limited line of goods for exclusive sale in their stores. These goods included those prepackaged under a private label or store brand and those offered ready-to-eat through in-house bakeries and delicatessens.

The choice of which goods appeared on grocery shelves and how many of each was often carefully calculated by both manufacturer and grocer. Shelf space, considered a commodity, was purchased by manufacturers and distributors based on the amount of shelf space they wished to reserve for their products. According to Sales & Marketing Management in March 1996, the cost of shelf space, called a "slotting fee," could range from $5,000 to $25,000 per product. On the retail side, grocery stores tracked their inventories frequently using a computer system integrated with their cash registers to determine the frequency and volume of sales for each product and ordered from their suppliers based on this data. In this arrangement, both manufacturers and retailers sought to maximize the volume of sales by giving ample shelf space to high-volume items while leaving room for lower volume and niche products. Also competing for space were the thousands of new products introduced every year. According to the Food Marketing Industry Speaks 1999, the median number of supermarket items was 40,333.

The grocery industry was dominated by supermarkets, that is, grocery stores with more than $2.5 million in annual sales. In 2000, there were 24,600 supermarkets, with a total of $337.3 billion in sales and a 70 percent share of the market, down from 77 percent in 1998. This group was subdivided into affiliated independents and corporate chain supermarkets. Their differences lay in their respective financial and organizational structures.

Affiliated independents were characterized by wholesaler-retailer interdependence. Under the terms of an agreement between the wholesaler and retailer, the retailer took advantage of the wholesaler's purchasing power and had the right to use the wholesaler's name. In return, the wholesaler maintained the retailer's business for products purchased and also for services provided by the wholesaler. The independent retailers in the United States controlled a 15.9 percent share of the total market volume in 1998, a decrease of 5.9 percent from 1988. These stores reported $71.6 billion in combined sales in 1998.

Affiliated independents were further divided into voluntary wholesaler groups and retailer-owned cooperatives. The former were companies who bought the franchises of independently owned wholesalers. These, in turn, sponsored voluntary groups of independent retailers in their respective communities. Included in this category were supermarkets such as Supervalu and Scot Lad Foods. The retailer-owned cooperative was an association of retailers who organized for the purposes of achieving greater purchasing power and other services. Among these were the Associated Group and United Grocers.

Chain supermarkets continued to control a strong segment of the market. Their combined sales in 1998 amounted to $274.5 billion, or 61.1 percent of total industry sales. Corporate chain retail stores were company operated and included such well-known outlets as Safeway, Kroger, A&P, Winn-Dixie, Jewel, Publix, and Acme Markets. Because of their size, these firms typically bypassed third-party wholesalers and purchased in bulk directly from manufacturers. No single chain, however, dominated the national market, and none had operations in all 50 states.

Convenience stores made up the majority of units in the industry. They were defined by Food Retailing Review in 1993 as "small, high margin, easy-access stores with a limited line of high convenience items, including staple groceries, nonfoods, and ready-to-heat and ready-to-eat foods." There are two kinds of convenience stores: stand-alone units and gasoline station units. In the early and mid-1990s, the gas station stores, known as "G stores," held significant advantage over their stand-alone counterparts. Many of the grocery stores were newer and equipped to sell a wider array of foods, including such nontraditional convenience offerings as fresh fruit in some cases, than conventional convenience marts, and all of them shared the advantage of having gasoline customers they could lure into convenience sales. In general, the G stores outperformed stand-alones, leading some stand-alones to pursue niche markets to maintain their customer base. The National Association of Convenience Stores reported that convenience outlets in the United States totaled 95,700 in 1997, up 1.6 percent from 1996. According to the association, "the strong shift towards urban store development continued in 1997. More than three out of every four new stores built is located in an area with a population of 50,000 or greater. While urban store development costs dropped 6.2 percent in 1997 to $1.2 million, rural store development broke the million-dollar mark. New rural stores averaged $1,027,300 with land costs averaging $272,400, building costs averaging $341,000, equipment costs averaging $347,800, and inventory costs averaging $66,100."

The industry held relatively few foreign interests outside North America in the late 1990s. However, several corporate chains were held by foreign parent companies. One major player was Delhaize Fréres & Cie., "Le Lion" of Belgium, and its new holding company—Delhaize America, which held a controlling interest in the Food Lion chain in 1999. Dutch retailer Ahold NV had a sizable U.S. presence through its acquisitions of First National, Bi-Lo, Giant Foods, Pathmark, and Tops stores. Also as of 1999, a 55 percent majority of The Great Atlantic and Pacific Tea Co. (A&P) was held by Tengelmann Warenhandelgesellschaft of Germany. U.S. holdings in other countries included Safeway's Canadian operations, as well as its interest in the Mexican chain Casa Ley S.A. de C.V, which operated 80 stores in 1999. A&P also had operations in Canada. In a September 1999 press release, A&P CEO Christian Haub reported that company "market share is also increasing in Ontario, both through internal and acquired growth. Comparable store sales in our operated Canadian stores continue to be among the strongest in the Company. The...