Industry Anlysis Of Retail Grocery Industry

Industry Analysis

In order to analyze an industry, it is important to determine where it is in the industry lifecycle. During the 1970's and 1980's the retail grocery industry was expanding at a phenomenal rate. Throughout this boom period, the number of large grocery stores was rising and forcing the existing" Mom and Pop" grocery stores out of the industry.

In the early 1990's, the retail grocery industry began leaving the growth stage and entered the maturity stage in the industry lifecycle. This was caused by increased market saturation and slowing growth rates. Between 1995 and 1996 the growth rates were the lowest they had been in the past twenty years. The main reason for this was the vast number of grocery stores that had been built in growth stage and the emergence of new grocery retail formats such as warehouse clubs and dollar stores. This increased competition forced firms to compete with each other for the same customers by lowering prices.

Enter WalMart. Walmart was not even in the grocery industry in the early 1990's but through excellent supply chain management and extremely low everyday prices have forced their way as one of the dominant players in the retail grocery industry. Industry surveys indicate that the five largest chains (WalMart, Kroger, Costco, Albertsons, and Safeway) accounted for approximately 37.5% of total sales in 2002.

The 1990's were an important time because of the arrival of new technologies that would change the retail grocery industry. Scanners, Elcetronic Data Interchanges, and the internet have all sped up and lowered the costs of business operations. WalMart was one of the early adopters of this technology and had a competitive advantage over its competitors. New technologies being pioneered now include self-serve checkouts, RFID's, and kiosks, they will all eventually change how we shop at grocery stores today.

Walmart's arrival as the largest grocer in North America has caused quite a stir in the retail grocery industry. Walmart's low prices have caused an industry-wide obsession with consolidation. Many firms are cutting costs any chance they can, forcing some firms to move upmarket. "The traditional supermarket concept no longer has a profitable future in most major markets", a US expert on retailing, Christian Haub. Haub, who is chairman of the US food retailer A&P, which has 627 stores across North America, said that" in the future food retailers will have to follow the discount route or be driven out of business by low-cost operators such as WalMart. Other grocers have decided to taken an alternative route to the low pricing strategy. They have decided to introduce customer loyalty programs to attract and retain customers such as advantage cards. They also use these programs to gain valuable information about their consumers. They then use this information in their marketing and operating strategies.

Porter's five forces of competition framework can be a valuable tool in analyzing an industry. Porter's five forces of competition include: competition from substitutes, entrants, rivals, supplier power, and buyer power. We will now analyze the retail grocery industry according to Porter's five forces. (this is straight out of the Barnes and Noble report I wasn't sure if we should cite this or not)

Substitutes

The main substitute to buying your food from a grocer is going out to eat. A 2002 Gallop poll shows that Americans eating more meals outside of the home than ever before. When examining today's changing supermarket consumer in Progressive Grocer, Buck Jones made this observation: "To get the total picture we need to look outside the supermarket arena at how customers are using other retail outlets to satisfy the needs that we could be addressing." The success of such establishments as planet Hollywood and Hard Rock Cafй provide examples of the public's desire to be entertained. To make it more difficult most parents bring their children along when they do their grocery shopping. It is widely known that the longer a customer spends shopping tends to directly increase the size of his or her purchases. It is also true the duration of a shopping trip is largely governed by how compliant their child is. So the challenge of the modern grocer is to devise ways to attract and entertain both child and parent alike, for the duration of the shopping experience.

Entry

The retail grocery industry has very high barriers to entry. The capital requirements necessary to establish a store and set up a chain of distribution is virtually impossible for a newcomer. The large chains, such as WalMart and Costco, are situated in prime locations providing them an advantage. Internet only grocers would have less capital costs, but at this point established firms, such as Grocer.net, have the first mover advantage. High product awareness and large marketing budgets make