Grocery Retail Market Analysis Essay Example for Free

Grocery Retail Market Analysis Essay Grocery retailing in the US is a very mature, saturated market. Consumers will, however always need to buy food. The industry is generally a high volume/low margin market, which is made up of over 65,000 supermarkets, hypermarkets, and grocery stores combining for annual revenues of about $938 billion. The necessity of effective supply chain management, keeping costs low, has resulted in an extreme concentration of the market, where the top 20 competitors generate over 67% of the industry annual revenue. Wal-Mart, which is considered to be a hypermarket, leads in grocery retailing with 225. 12 billion sales resulting in 24% value share during 2010. The second and third leading grocery retailers in the US are Kroger and Supervalu with 76.7 billion (7%) and 40.8 billion (4%) 2010 sales (value shares), respectively. (GMID Global Market Information Database) The industry is made up of four types of channels, consisting of supermarkets, hypermarkets, discounters, and convenience stores. Supermarkets are the largest channel and continue to appeal to shoppers because of the proximity to their homes and workplaces. Hypermarkets, which include Wal-Mart, are predicted to be the fastest growing channel and although are often less convenient for consumers than other grocery outlets, many believe it is worth the trip to save some money and are willing to drive a bit further to visit hypermarkets. Discounters offer a low-cost option for consumers by streamlining many operations. Finally, Convenience stores are known for quick shopping trips, but consumers typically do not think of convenience stores as a place to stock up on groceries. Grocery retailing as a whole grew by 2% in 2010, however the discounters experienced the strongest growth of 6%. Retailers in the discounters channel generally hold smaller inventories and tend to carry only a single brand of each item to keep costs low. The uncharacteristically strong growth in 2010 was due in large part to the expansion of Aldi throughout the US. After seeing considerable success in 2009, Aldi decided to expand its presence in the US and reported 68 billion in 2010 sales (Hoovers). Along with the growth in 2010, the number of grocery outlets declined by 1% in the US. During this year the consumer purchasing habits changed, resulting in shoppers making more trips to the grocery store each week and spending slightly more. Shoppers are spending 1.5 percent more weekly on groceries, bring the average to $99.90, but are spending less at their primary grocery store. At these stores the share of total grocery dollars spent fell to 75.4 percent in 2010 from 76.6 percent in 2009 according to the 2010 US Grocery Shopper Trends report by the Food Marketing Institute. The busy and fully scheduled American lifestyle leaves consumers constantly seeking convenient shopping solutions, and grocery retailing is no exception. However, with the recession in 2009, consumers focused more on value and price than on convenience. Consumers have become more willing to go out of their way to drive to and find venues that offer lower prices. This has resulted in intense price-based competition from mass merchandisers and warehouse clubs. In 2010, competition intensified across channels within the grocery retailing sector. As hypermarkets and discounters took share away from supermarkets in 2009, many supermarkets reacted by opening new formats or lowering prices in 2010 to win back consumers. Several national supermarket chains discounted prices and expanded their private label offerings. Coupon use also grew significantly in 2009 and 2010, as consumers became more comfortable looking for and using coupons (GMID Global Market Information Database). Additionally, the channel shifting caused by the economic downturn caused many new trends to help lure customers back and retain loyal customers. Many supermarkets are offering greater incentives through loyalty cards, while others are expanding product selections and focusing on the growing Hispanic population in the US. Primarily supermarkets have begun employing dieticians to be on-site in stores focusing on health and wellness. Consumers can ask dieticians questions about specific conditions and help find the right products. Another factor that will greatly affect this channel is the growth of grocery delivery in the US. Peapod currently operates in several markets, as does Safeway. Sears and Meijer both announced plans to test grocery delivery in certain cities, while Publix is testing curb-side pick-up.