Grocery Retailing in the US 2006

Sales in the U.S. grocery market grew from $463.33 billion in 2001 to an estimated $543.44 billion in 2006, increasing by an average of almost 3.4%. The major factors influencing the structure of the market are intensive price competition, aggressive expansion, increased fragmentation of retail formats and market consolidation.

Since ODS produced its last report on U.S. grocery retailing in 2000, competition in the industry has become even fiercer as the likes of Kroger, SuperValu and Safeway (as well as many smaller, regional players) attempt to defend their incumbent positions from the threat of encroachment from low-cost rival Wal-Mart. This has prompted one major consolidation (the purchase of most of Albertson’s stores by SuperValu), and more may follow.

The battle is proving to be a fascinating one, with Wal-Mart’s main rivals attempting to, at least partially, emulate its low labour cost model, and some commentators even speaking of the “Wal-Martisation” of the American economy. This has helped to make Wal-Mart one of the most divisive entities in American corporate history: The subject of several books, most of them critical, and even a censorious cinematically released documentary, it has become a pariah of rapacity and exploitation to many on its left-wing critics, but an icon of market democracy to their right-wing counterparts.

Until recently, there were few signs that its army of critics were having any impact on the fortunes of Wal-Mart, but the enmity generated by the giant retailer has now reached such a pitch that it may actually be having an impact on its financial performance, offering a tantalising glimpse of weakness to its rivals. However, others argue that Wal-Mart’s real problem is its lack of appeal to more affluent consumers.

Some of its competitors, most notably Safeway, are attempting to brand themselves as “anti-Wal-Marts” in terms of their perceived economic and environmental impact, particularly at local level. However, the mass-market appeal of such a strategy remains unproven.

The advance of Wal-Mart, now the second-largest company in the world, and strategies designed to counter that growth through both emulative and antithetical strategies are the main themes of this report, which assesses both the current state of the market and its evolution through to 2010.