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 food 2010 food-at-home food away-from- home 5.5% 3.9 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 Cigarettes, lottery tickets, snack food, etc.

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

12. 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.

13. 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

14. 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

15. Supermarket Chains ChainShare 1993Share 2001 WalMart6%9.6% (19% now?) Kroeger0%7.3% Albertsons3%5.6% Safeway4%5.0% Ahold2%3.4% Sources different – numbers may not be strictly comparable

16. 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 Walmart has 15% share in at least 75 markets

17. By 2004 - Top 8 food chains will account for 65% of total U.S. retail food sales Cornell Horticultural Business Management and Marketing Program Sales of Top 8 Chains as a % of Total Grocery Sales

20. Supermarket market share Minneapolis-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

21. Supermarket market share Central Florida 2012 FirmShare Publix42.9% Walmart26.3% Winn-Dixie10.1% Sweetbay6.3% Super Target3.2% Save-A-Lot2.9% Source Tampa Bay Times, July 15, 2012

22. The number of fresh produce items carried by food retailers 173 350 Source: Supermarket Business, Progressive Grocer

23. 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

24. Chain Economies Buying!!! Advertising Dis-economies - management

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

26. Margins ItemMarginItemMargin Canned goods 16%Frozen foods25% Dairy19%Housewares33% Meat20%Produce31% Non-foods>25%

27. 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.

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

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