Grocery Stores & Supermarkets
Description
Companies in this industry primarily retail a general line of food such as canned and frozen foods, fresh fruits and vegetables, as well as prepared meats, fish, and poultry. Major companies in the industry include Costco, Kroger, Target, and Walmart (all based in the US), as well as foreign companies such as Aeon (Japan); Aldi, Kaufland, and Lidl (all based in Germany); Carrefour (France); and Tesco (the UK).
The global food & grocery retail market is projected to reach about $17 trillion by 2034, at a compound annual growth rate (CAGR) of 3.3%, according to Future Market Insights. North America and Europe are some of the other leading players in the global grocery retail market.
The US grocery stores & supermarkets industry includes about 65,000 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $625 billion.
Companies in this industry operate retail stores that offer a general selection of food products. Discount stores and warehouse clubs, which are leading sellers of groceries, are covered in separate industry profiles.
COMPETITIVE LANDSCAPE
Consumer migration online has grocers racing to increase their online presence, while online players -- including Amazon and China's Alibaba -- are trying out brick-and-mortar retail. Fierce competition, particularly at the high and low ends of the market, and cost advantages enjoyed by online retailers have sparked supermarket price wars, which benefit consumers but threaten to erase the grocery industry's razor-thin profit margins. In the US, the grocery stores and supermarkets segments are concentrated; the 50 largest companies generate about 75% of industry revenue.
The global grocery delivery market is expected to reach more than $1.3 trillion by 2029, with the US, China, India, Japan, and the UK, as the leading markets, according to Statista.
By 2028, total online grocery sales is expected to account for about 12.7% in the US, according to Supermarket News. However, the health crisis has accelerated the shift to online shopping to the extent that we may have now reached the projected percentage of the population using online commerce by 2025, according to Food Logistics citing a study by Mercatus. Improvements made to e-commerce operations by major food retailers to meet the surge in demand should also help make online shopping more reliable and popular in years to come.
Amazon is proving to be a formidable competitor in the grocery sector since buying Whole Foods Market in 2017. In addition to trimming prices at the high-end chain, the company is winning customers with the offer of free two-hour delivery of Whole Foods groceries to members of its Prime program in some 30 metro areas in the US. The combination of Amazon's e-commerce, data, and distribution expertise combined with Whole Foods' stores and distribution centers puts immense pressure on Kroger and Walmart -- the largest sellers of groceries in the US -- and other brick-and-mortar grocers to up their digital games and redefine the role of the store in the Digital Age. Incumbents have responded by reducing prices, launching online delivery and in-store pick up services, and streamlining their supply chains, among other measures.
Facing mature markets at home, European chains continue to look abroad for growth. After upending European grocery shopping, German deep-discount chains Aldi and Lidl have been expanding aggressively in the US. Both chains offer limited selections of mostly private-label goods and rock-bottom prices. After focusing on low-income consumers, the chains are working to improve their stores' appearance to broaden their customer base.
Competitive Advantages:
Low Prices - eep discount grocery chains are flourishing in markets worldwide, including Germany, the UK, and Australia, aided by economic pressures and evolving consumer perceptions of value.
Omni-Channel Business Model - As the number of households buying food online continues to grow, grocery retailers that successfully merge their in-store and digital operations to offer quick home delivery and in-store pickup will come out ahead, especially among younger, tech-savvy consumers.
Focus on Fresh & Prepared Foods - Because many consumers decide where to shop based on the quality of the produce, traditional grocery stores' best defense against online grocery players is high-quality fruits and vegetables.
Private-Label Brands - Exclusive store brands typically are less expensive than national brands, more profitable for retailers, and increase customer loyalty. Kroger's private label products account for about 20% of sales. Whole Foods Market's 365 Everyday Value brand is the #2 best-selling private-label brand on Amazon.com.
Company Spotlight:
Aldi is a deep-discount grocery chain based in Germany that operated more than 2,400 locations and is set to open 120 new stores. Aldi is also targeting the UK and Australia.
Amazon, the world's largest online retailer, has dramatically increased its grocery footprint with Whole Foods Market. After a modest start with online delivery service AmazonFresh and a tech-infused store prototype called Amazon Go. The Amazon-Whole Foods deal will be felt throughout the grocery supply chain.
Kroger is the world's largest traditional grocery chain by sales. To defend its position, Kroger is investing in e-commerce and in-store pickup for groceries ordered online, stocking more organic foods, and reducing prices. Kroger is scaling back new store openings amid a glut of US retail grocery space. In 2018, Kroger entered the vast Chinese market, offering its Simple Truth brand of natural and organic products on Alibaba's Tmall virtual storefront.
Lidl operates roughly 12,000 stores and more than 200 goods distribution and logistics centers in 31 countries. From a small base in the southeastern US, deep-discounter Lidl has grown its US store count to more than 100 locations with a strong presence along the East Coast.
Walmart, the world's largest retailer with operations in 20 countries, operating about 10,500 stores. The company is investing heavily in e-commerce to grow online sales, play catch up with Amazon.com, and defend its top US ranking. In China, the US giant is partnering with JD.com, the #2 online player.
PRODUCTS, OPERATIONS & TECHNOLOGY
Grocery stores and supermarkets stock a wide variety of food, beverages, and household items. Generally, stores sell a mix of fresh and frozen foods, packaged and canned goods, produce, meats, dairy products, nonfood items, and household goods. Selection may vary depending on format, retail strategy, and location. In the US, about 20% of products sold by grocery stores are food dry goods, followed by fresh fruit and vegetables (12%), fresh meat and poultry (11%), perishable prepared foods (10%), and eggs and dairy (10%).
In most countries, the industry includes national and regional chains and independent retailers. The degree of market concentration may vary by country, with India's market dominated by small, independent retailers, while developed markets typically are more concentrated. Large companies may operate multiple chains under different banners. Because grocery stores typically serve customers within a one- to two-mile radius, companies carefully consider demographics when selecting store locations.
Grocery stores typically group similar merchandise into aisles to aid shoppers. Stores may have bakeries, delis, pharmacies, and floral departments. Prepared foods sections serve consumers looking for ready-to-eat items. Companies may have sections dedicated to specialty categories, such as organic or ethnic products. Through third parties, companies may have in-store restaurants, banks, coffee shops, or gas stations. Most grocery stores have multiple checkout lanes to process orders and bag merchandise. Some retailers offer self-checkout lanes.
Because grocery retailing is generally a high volume/low margin business, effective supply chain management is key to keeping costs low. Large companies buy directly from manufacturers, while small chains and independent retailers rely on wholesalers. Depending on product mix, companies may buy from many distributors and use food brokers. Volume discounts allow big chains to keep prices low. Manufacturers typically offer additional trade funds, which allow grocery stores to discount or promote certain products without sacrificing margins.
Most chains have distribution centers that receive and redistribute merchandise among individual stores. Companies may own or lease truck fleets to transport goods. To reduce transportation and distribution costs, large chains may arrange for direct shipment from manufacturers to stores for certain large orders. Because storage space is limited, individual stores may receive shipments frequently, particularly for perishable items.
Grocery stores must track a staggering number of individual products in various flavors, sizes, and packaging formats. Proper category management maximizes the use of valuable shelf space and helps minimize inventory shrink due to spoilage. Buyers and merchandising staff decide which items to stock, discontinue, or promote. Retailers typically feature and discount different products weekly. Many retailers charge manufacturers slotting fees to stock new products. Companies typically offer a mix of brand name and private-label products, and may customize merchandise selection based on the demographics of the surrounding market area.
The global food & grocery retail market is projected to reach about $17 trillion by 2034, at a compound annual growth rate (CAGR) of 3.3%, according to Future Market Insights. North America and Europe are some of the other leading players in the global grocery retail market.
The US grocery stores & supermarkets industry includes about 65,000 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $625 billion.
Companies in this industry operate retail stores that offer a general selection of food products. Discount stores and warehouse clubs, which are leading sellers of groceries, are covered in separate industry profiles.
COMPETITIVE LANDSCAPE
Consumer migration online has grocers racing to increase their online presence, while online players -- including Amazon and China's Alibaba -- are trying out brick-and-mortar retail. Fierce competition, particularly at the high and low ends of the market, and cost advantages enjoyed by online retailers have sparked supermarket price wars, which benefit consumers but threaten to erase the grocery industry's razor-thin profit margins. In the US, the grocery stores and supermarkets segments are concentrated; the 50 largest companies generate about 75% of industry revenue.
The global grocery delivery market is expected to reach more than $1.3 trillion by 2029, with the US, China, India, Japan, and the UK, as the leading markets, according to Statista.
By 2028, total online grocery sales is expected to account for about 12.7% in the US, according to Supermarket News. However, the health crisis has accelerated the shift to online shopping to the extent that we may have now reached the projected percentage of the population using online commerce by 2025, according to Food Logistics citing a study by Mercatus. Improvements made to e-commerce operations by major food retailers to meet the surge in demand should also help make online shopping more reliable and popular in years to come.
Amazon is proving to be a formidable competitor in the grocery sector since buying Whole Foods Market in 2017. In addition to trimming prices at the high-end chain, the company is winning customers with the offer of free two-hour delivery of Whole Foods groceries to members of its Prime program in some 30 metro areas in the US. The combination of Amazon's e-commerce, data, and distribution expertise combined with Whole Foods' stores and distribution centers puts immense pressure on Kroger and Walmart -- the largest sellers of groceries in the US -- and other brick-and-mortar grocers to up their digital games and redefine the role of the store in the Digital Age. Incumbents have responded by reducing prices, launching online delivery and in-store pick up services, and streamlining their supply chains, among other measures.
Facing mature markets at home, European chains continue to look abroad for growth. After upending European grocery shopping, German deep-discount chains Aldi and Lidl have been expanding aggressively in the US. Both chains offer limited selections of mostly private-label goods and rock-bottom prices. After focusing on low-income consumers, the chains are working to improve their stores' appearance to broaden their customer base.
Competitive Advantages:
Low Prices - eep discount grocery chains are flourishing in markets worldwide, including Germany, the UK, and Australia, aided by economic pressures and evolving consumer perceptions of value.
Omni-Channel Business Model - As the number of households buying food online continues to grow, grocery retailers that successfully merge their in-store and digital operations to offer quick home delivery and in-store pickup will come out ahead, especially among younger, tech-savvy consumers.
Focus on Fresh & Prepared Foods - Because many consumers decide where to shop based on the quality of the produce, traditional grocery stores' best defense against online grocery players is high-quality fruits and vegetables.
Private-Label Brands - Exclusive store brands typically are less expensive than national brands, more profitable for retailers, and increase customer loyalty. Kroger's private label products account for about 20% of sales. Whole Foods Market's 365 Everyday Value brand is the #2 best-selling private-label brand on Amazon.com.
Company Spotlight:
Aldi is a deep-discount grocery chain based in Germany that operated more than 2,400 locations and is set to open 120 new stores. Aldi is also targeting the UK and Australia.
Amazon, the world's largest online retailer, has dramatically increased its grocery footprint with Whole Foods Market. After a modest start with online delivery service AmazonFresh and a tech-infused store prototype called Amazon Go. The Amazon-Whole Foods deal will be felt throughout the grocery supply chain.
Kroger is the world's largest traditional grocery chain by sales. To defend its position, Kroger is investing in e-commerce and in-store pickup for groceries ordered online, stocking more organic foods, and reducing prices. Kroger is scaling back new store openings amid a glut of US retail grocery space. In 2018, Kroger entered the vast Chinese market, offering its Simple Truth brand of natural and organic products on Alibaba's Tmall virtual storefront.
Lidl operates roughly 12,000 stores and more than 200 goods distribution and logistics centers in 31 countries. From a small base in the southeastern US, deep-discounter Lidl has grown its US store count to more than 100 locations with a strong presence along the East Coast.
Walmart, the world's largest retailer with operations in 20 countries, operating about 10,500 stores. The company is investing heavily in e-commerce to grow online sales, play catch up with Amazon.com, and defend its top US ranking. In China, the US giant is partnering with JD.com, the #2 online player.
PRODUCTS, OPERATIONS & TECHNOLOGY
Grocery stores and supermarkets stock a wide variety of food, beverages, and household items. Generally, stores sell a mix of fresh and frozen foods, packaged and canned goods, produce, meats, dairy products, nonfood items, and household goods. Selection may vary depending on format, retail strategy, and location. In the US, about 20% of products sold by grocery stores are food dry goods, followed by fresh fruit and vegetables (12%), fresh meat and poultry (11%), perishable prepared foods (10%), and eggs and dairy (10%).
In most countries, the industry includes national and regional chains and independent retailers. The degree of market concentration may vary by country, with India's market dominated by small, independent retailers, while developed markets typically are more concentrated. Large companies may operate multiple chains under different banners. Because grocery stores typically serve customers within a one- to two-mile radius, companies carefully consider demographics when selecting store locations.
Grocery stores typically group similar merchandise into aisles to aid shoppers. Stores may have bakeries, delis, pharmacies, and floral departments. Prepared foods sections serve consumers looking for ready-to-eat items. Companies may have sections dedicated to specialty categories, such as organic or ethnic products. Through third parties, companies may have in-store restaurants, banks, coffee shops, or gas stations. Most grocery stores have multiple checkout lanes to process orders and bag merchandise. Some retailers offer self-checkout lanes.
Because grocery retailing is generally a high volume/low margin business, effective supply chain management is key to keeping costs low. Large companies buy directly from manufacturers, while small chains and independent retailers rely on wholesalers. Depending on product mix, companies may buy from many distributors and use food brokers. Volume discounts allow big chains to keep prices low. Manufacturers typically offer additional trade funds, which allow grocery stores to discount or promote certain products without sacrificing margins.
Most chains have distribution centers that receive and redistribute merchandise among individual stores. Companies may own or lease truck fleets to transport goods. To reduce transportation and distribution costs, large chains may arrange for direct shipment from manufacturers to stores for certain large orders. Because storage space is limited, individual stores may receive shipments frequently, particularly for perishable items.
Grocery stores must track a staggering number of individual products in various flavors, sizes, and packaging formats. Proper category management maximizes the use of valuable shelf space and helps minimize inventory shrink due to spoilage. Buyers and merchandising staff decide which items to stock, discontinue, or promote. Retailers typically feature and discount different products weekly. Many retailers charge manufacturers slotting fees to stock new products. Companies typically offer a mix of brand name and private-label products, and may customize merchandise selection based on the demographics of the surrounding market area.
Table of Contents
- Industry Overview
- Quarterly Industry Update
- Business Challenges
- Business Trends
- Industry Opportunities
- Call Preparation Questions
- Financial Information
- Industry Forecast
- Web Links and Acronyms
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