Supermarket Basics

The industry that will be analyzed is the American supermarket business. Retail grocery stores are an integral part of each and every Americans’ life. Regardless of the proliferation of both fast food and restaurant dining, Americans shop for the majority of their goods at supermarkets. Whether those goods are edible or household staples, consumers purchase these items largely at their local supermarket. The supermarket industry is changing with new entrants and a greater demand for niche products. Supermarkets are beginning to cater to consumers’ sensitivity to retail ambiance by offering a shopping experience that offers an atmosphere and ambiance. Initially the basics will be introduced and briefly looked at. These industry basics will include a description, basic technology utilized, customer bases, suppliers, and significant stakeholders.

A supermarket by definition is a self-service store offering a wide variety of food and household merchandise, organized into departments. It is larger in size and has a wider selection than a traditional grocery store. (Food Marketing Institute) According to the Smithsonian Institution, the first supermarket in America was opened by a former Kroger employee, Michael J. Cullen, on August 4, 1937, inside a 6,000 square foot former garage in Jamaica, Queens in New York City. The store was called King Kullen, (inspired by King Kong) (Food Marketing Institute). Other established American grocery chains in the 1930s, such as Kroger and Safeway were hesitant to open their own �supermarkets’ but eventually were persuaded to build their own as the economy worsened due to the Great Depression and consumers became more price conscious and the smaller stores no longer could remain profitable.

In 2006 supermarkets totaled sales of close to $500 billion with over 34,000 stores within the US. More than three-fourths of those supermarkets, 25,890, belong to a chain. The remaining 8,162 are independent supermarkets. Grocery stores with less than $2 million in annual sales account for 13,047. The largest supermarket players are Kroger Co., Albertsons, Inc. and Safeway, Inc. Each with their own subsidiary markets with names such as Ralphs and Pavilions. Due to the large size of supermarkets there is a large economies of scale in operations and purchasing to maximize profit. Hence being a market place, profit margins are slim and operating costs need to be closely managed. The net profit margin for Kroger is a slim 1.1% after taxes over the past 5 years (Forbes)

Grocery stores sell three major categories of products; perishable items, non-perishable items such as canned goods and non-food items. The operations of supermarkets involve wholesale buying of goods and other products, coordinating the delivery to individual markets, stocking, advertising, pricing and employee management. Some small chains may purchase from wholesalers and some of the larger chains may buy directly from the manufactures. (Supermarketnews.com) A supermarket chain may buy from food distributors or from a food broker. Some of the large companies own their own distribution centers. These centers receive and then distribute to their own stores.

Technology in supermarkets has helped to reduce costs and inefficiencies. Specialized software offer programs assisting in store management, inventory control and accounts receivable. Early paper invoices have been replaced with scanning programs which is by farther easier to manage and control. Scanning systems are used to immediately record the sale of a product; sending a signal to a central system which then calculates inventory signaling if inventory needs to be replenished. This technology further helps markets understand which products are selling and in what quantity.

Card scanning devices have allowed customers