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F INDUSTRY MANAGEMENT...
Transcript of F INDUSTRY MANAGEMENT...
E.B. 98-05May 1998
Geoffrey M. GreenEdward W. McLaughlin
Kristen Park
T e a c h i n g • R e s e a r c h • E x e c u t i v e E d u c a t i o n
Department of Agricultural, Resource, and Managerial EconomicsCollege of Agriculture and Life Sciences
Cornell University, Ithaca, NY 14853
CORNELLU N I V E R S I T Y
FOOD INDUSTRYMANAGEMENT
A Presentation Guide to
The U.S. Food Industry
It is the Policy of Cornell University actively to support equality of educational
and employment opportunity. No person shall be denied admission to any
educational program or activity or be denied employment on the basis of any
legally prohibited discrimination involving, but not limited to, such factors as
race, color, creed, religion, national or ethnic origin, sex, age or handicap.
The University is committed to the maintenance of affirmative action
programs which will assure the continuation of such equality of opportunity.
Preface
Frequently individuals and organizations have need of information describing the contemporaryU.S. food system for presentation at various company meetings or industry conferences. The pur-pose of this bulletin is to provide materials and data relevant to today’s food industry in a form thatcan be readily used by others to create presentations of their own. The bulletin provides over 40figures and tables often used to describe and summarize the important trends and challenges facingthe food industry.
Part I presents brief statements to assist with the interpretation of the informationpresented in each accompanying figure/table and to help guide the presenter through the informa-tion. Part II reproduces each of the figures and tables from Part I, but enlarged on seperate papersuitable for convenient conversion into overhead transparancies.
Table of Contents
Part I: Summary Statements
Section I: Structure of the Food Industry....................................................................... 1
Section II: Consumers and Food Trends ........................................................................ 5
Section III: Food Manufacturers .................................................................................. 10
Section IV: Food Wholesalers and Retailers ................................................................ 17
Section V: Financial Performance ................................................................................23
Section VI: Directions for the Future ...........................................................................25
Part II: Overhead Visuals
SECTION 1 1
Section I
Structure of the Food Industry
■ In 1996, total U.S. retail salesamounted to $2.5 trillion.
■ Retail sales from food storesamounted to 17.2 percent of total U.S.sales.
■ When food retail sales are combinedwith the sales from eating and drink-ing establishments, they become thelargest retail segment in the U.S. with26.9 percent of total U.S. retail sales.
Divisions of U.S. Retail Sales, 1996Percent of Total Sales
Total = $2.5 Trillion
Eating &Drinking
Furniture &Appliances
Hardware& Lumber
Clothing Gasoline Automotive Drug &Proprietary
Other
0%
5%
10%
15%
20%
25%
5.5 5.4 4.66.4
3.6
23.0
Source: U.S. Department of Commerce
24.6
9.7
FoodStores
17.2
Structure of the U.S. Food Industry
2 SECTION 1
■ Disposable income for Americans hasrisen continuously since 1938.
■ At the same time, the proportion ofdisposable income spent on food hasdecreased almost without interrup-tion. In 1931, almost one quarter ofdisposable income was spent on food.In 1996, only 10.8 percent was spenton food.
■ In recent years, a growing proportionof disposable personal income is be-ing spent on food away from home.
■ The relatively low percentage of dis-posable income spent on food in theU.S. is often used as an indicator ofthe efficiency of the U.S. food andagricultural system. This same mea-sure for the majority of developedeconomies is between 18%-25%.
■ Food stores are the single largest seg-ment of the U.S. retail food system,accounting for 42% of the total foodsales.
■ Food service outlets (eating anddrinking establishments) contribute36 percent of the U.S. food and bev-erage spending.
■ Nonfood items that are sold in retailfood stores such as paper goods, de-tergents, etc. account for 12 percentof food system sales with the remain-der going to alcoholic beverages.
Away from home At home Disposable income
At home: includes food purchases from grocery stores and other retail outlets, including purchases with food stamps and food produced and consumed on farms, because the value of these foods is included in personal income. Excludes government-donated foods.
Away from home: includes purchases of meals and snacks by families and individuals, and food furnished employees because it is included in personal income. Excludes food paid for by government and business, such as food donated to schools, meals in prisons and other institutions, and expense-account meals.
Source: U.S. Department of Agriculture, Economic Research Service, Food Review, September–December 1997
1931 1951 1971 1981 1986 1991 19960 %
5 %
10 %
15 %
20 %
25 %
0
1000
2000
3000
4000
5000
6000
$ Million
20.2
3.3
17.3
3.7
9.9
3.6
8.7
4.4
7.5
4.3
7.4
4.2
6.6
4.2
Food Expenditures as a Share of Disposable Personal Income% of
spendingDisposable income
U.S. Food System Sales, 1996
Retail Food42%
Food Service36%
Nonfood12%
Packaged AlcoholicBeverages
6%
Alcoholic Drinks5%
Source: U.S. Department of Agriculture, Economic Research Service, Food Review, September–December 1997
SECTION 1 3
■ The food marketing system movesfood products from the producerthrough a myriad of marketing chan-nels to the final consumer.
■ Food system firms closer to produc-ers tend often to be “commodity ori-ented”. Firms closer to the consumertend to focus on “adding value” tocommodities.
■ Although many mergers have oc-curred in the wholesale and retailfood channels, they remain regionalcompanies, and there is no one na-tional supermarket chain.
■ Consumers spent $547 billion in1996 for food from U.S. farms.
■ Of this expenditure, almost 77 per-cent was spent on marketing func-tions including: processing, wholesal-ing, transporting and retailing. Thisproportion has increased graduallysince 1970 when it constituted only68 percent of expenditures.
■ In 1996, the farm share of consumerexpenditures was approximately 23percent ($123 billion) down from 32percent in 1970.
■ The reason for the increase in themarketing bill is the increased de-mand for convenient, value-addedproducts. The value is added throughfurther processing and packagingand by making them available to con-sumers in more convenient forms.
Major Marketing Channels for U.S. Grocery Products
Consumers
Exports
U.S. Farms and Raw Material Suppliers
Initial Assembly and Processing Plants
Grocery Manufacturing Firms
Brokers
Foodservice Wholesale Organizations
Integrated Wholesalers and Retailers
Imports
Foodservice Outlets
Chain and Independent Retail Stores
Distribution of Food Expenditures
1970
1975
1980
1985
1990
1995
1996
0
100
200
300
400
500
600
Consumer Expenditures
Marketing Bill
Farm Value
Source: United States Department of Agriculture, Economic Research Service, Food Review, September–December 1997
199677% of Total
197068% of Total
$bill
ions
4 SECTION 1
■ The farm share of retail price is thepercent that farmers receive for ev-ery dollar that consumers spend.
■ The products for which farmers re-ceive the greatest share tend to beanimal products. Reasons for this in-clude minimal further processing andshortened marketing channel.
■ Food products requiring more pro-cessing, transportation or wholesal-ing activities such as bread and ricereturn a smaller share to the farmlevel.
■ Twenty-three percent of every dollarspent for food was returned to thefarm in 1996. The remaining 77 per-cent of food expenditures was spenton marketing activities.
■ By far the largest expense in the foodsystem is labor which accounted for38 percent of the total food bill in1996.
What a Dollar Spent for Food Paid for in 1997
Source: United States Department of Agriculture, Economic Research Service, Food Review, September–December 1997
Farm Value Marketing Bill
21.4¢ 38.4¢ 8.7¢ 4.3¢ 3.6¢ 3.7¢ 3.6¢ 3.3¢ 3.7¢
3.6¢
1.5¢
2.3¢
Note: Includes food eaten at home and away from home. Other costs include property tax and insurance, accounting and professional services, promotion, bad debts, and many miscellaneous items.
Labo
r
Pack
aging
Trans
porta
tion
Deprec
iation
Advert
ising
Fuel
Profit
Rent
Intere
st
Repa
irs
Busin
ess T
axes
Other C
osts
1.9¢
Farm Value Share for Selected Foods
1996 Farm Share Food Product of Retail Price
Animal Products:Eggs, Grade A Large, 1 dz. 62Beef, Choice, 1 lb. 48Chicken, Broiler, 1 lb. 57Milk, 1/2 Gallon 43Cheese, Natural Cheddar, 1 lb. 40
Fruit and Vegetables:Fresh
Apples, Red Delicious, 1 lb. 23Grapefruit, 1lb. 18Lettuce, 1 lb. 18
FrozenOrange Juice Conc., 12 oz. 37
Crop ProductsSugar, 1 lb. 34Flour, Wheat, 5 lb. 33Rice, Long Grain, 1 lb. 24
Prepared FoodsPeanut Butter, 1 lb. 27Bread, 1 lb. 8
Source: United States Department of Agriculture, Economic Research Service, Food Review, September–December 1997
percent
SECTION 2 5
Section II
Consumers and Food Trends
■ The U.S. population growth rate isnow about 1% per year. This is amongthe lowest growth rates from devel-oped countries. However, while thegrowth rate is low, the diversity withinthe U.S. population is growing.
■ The proportion of White Americansis projected to continue to decline.By the year 2025, they will consti-tute about 62 percent of the popula-tion.
■ The U.S. Census Bureau projects thatby 2025, Hispanics will constitute thelargest minority group.
■ Asians have recently been, and willfor at least 25 years continue to be,the fastest growing group.
Consumers and Food Trends
Percent of Total Populationby Race and Hispanic Origin
1990, 2000, and 2025
Race 1990 2000 2025
White, Not Hispanic 75.7 71.6 62.0
Black 12.3 12.8 14.2
Hispanic Origin (of any race) 9.0 11.3 16.8
Asian and Pacific Islander 3.0 4.4 7.5
American Indian, Eskimo, and Aleut 0.8 0.9 1.0
U.S. Total Population (1000s) 249,440 274,634 335,050
Source: United States Bureau of the Census, Population Estimates
6 SECTION 2
■ The percentage of the population un-der 16 will peak at the turn of thecentury and then decline.
■ The effect of the baby boomers willcontinue as those aged 65 and overwill increase from 13% of the popu-lation today to over 18% by 2025.
■ The percentage of those over age 85will nearly double in the next 25years.
■ Only 41% of women were in the la-bor force in 1970, compared to 60%in 1997.
■ For women ages 35-44, the workforceparticipation rate today is 77%. Thiscompares to 93% for men of that age.
■ This trend is the driving force behindmuch of the rising consumer demandfor convenience.
Percent of U.S. Population by Age 1990, 2000, and 2025
Age 1990 2000 2025
Under 16 23.0 29.7 21.4
65 and over 12.5 12.6 18.5
85 and over 1.2 1.6 2.1
Source: United States Bureau of the Census, Population Estimates
Workforce Participation Rates, 1950–1997Percent in Workforce
Source: United States Department of Labor, Bureau of Labor Statistics, Current Population Survey
1950 1960 1970 1980 1990 19970%
10%
20%
30%
40%
50%
60%
70%
80%
90%82
30
80
36
77
41
75
50
74
57
75
60Male
Female
SECTION 2 7
■ Nearly half of consumer expendituresin the average supermarket are forperishable items.
■ Expenditures for meat and seafoodproducts represent the largest cat-egory of supermarket expenditures at15.9 percent.
■ Nonfood items, which include generalmerchandise and health and beautycare items, represent almost 21% ofconsumer expenditures at supermar-kets.
■ When meals are eaten at home, butnot prepared at home, they are mostoften purchased from a fast-food res-taurant.
■ Supermarkets have increasingly be-come a source of take-out food, ac-counting for 22 percent of the totaltake-out expenditures in 1997, doublethat of 1988.
How $100 is Spent, 1996Consumer Expenditures by Major Catagory
Product Category $ Amount
Perishables 49.18Bakery Foods 2.94Dairy Products 8.15Deli 3.16Florals 0.18Frozen Foods 5.34Ice Cream 1.52In-store Bakery 1.89Meat & Seafood 15.90Produce 10.10
Non-perishables 50.82Non-edible Grocery 9.81Miscellaneous Grocery 9.24Beverages 9.59Snack Foods 5.65Main Courses and Entrees 5.33General Merchandise 3.96Health & Beauty Care 4.07Unclassified 3.17
Source: Progressive Grocer, April 1997
Sources of Take-out Food, 1988-1997Percent of Total
1988 1991 1994 1997
Fast-food Restaurant 41 51 46 41
Restaurant 38 23 25 21
Supermarket 11 14 15 22
Deli/Pizza Parlor na na na 5
Convenience Store na 2 2 1
Other 3 6 8 7
None 7 4 4 3
Source: Food Marketing Institute, Trends in the United States 1997
8 SECTION 2
■ The growth in consumer food expen-ditures from 1995 to 2005 is pro-jected to be $100 billion.
■ In 1995, grocery stores and otherretail food outlets accounted for ap-proximately 56% of consumer foodexpenditures. However, by 2005, theretail food sector is expected to ac-count for only 51 percent of foodexpenditures.
■ Continued expansion of foodserviceofferings, including prepared food/meals from supermarkets is expected.
■ Eighty billion dollars of the $100 bil-lion growth in food expenditures ispredicted to come from foodservice.However, supermarket preparedfood/meals are expected to grow by$19 billion.
■ Although sales through traditionalgrocery stores will increase by $11billion, these are anticipated to beoffset by a decline in sales of $11 bil-lion through the other retail foodoutlets.
■ Therefore, aggregate growth in foodretail stores will come from growthin the prepared food/meals.
Growth in Consumer Food Expenditures, 1995–2005
Source: McKinsey & Co.
Total Growth= $100 billion
CommercialFoodservice
SupermarketPrepared Food/
Meals
Grocery Stores Non-commercialFoodservice
Other Retail FoodOutlets
-20
-10
0
10
20
30
40
50
60
70
80 80
1911
1
-11
$ bi
llion
s
RetailFoodservice
Consumer Food Expenditures, 1995, 2005
Source: McKinsey & Co.
100% = $685 billion $785 billion
1995 2005
9%
35%
15%
40%
8%
41%
3%12%
36%
Non-commercial Foodservice
Commercial Foodservice
Supermarket Prepared Foods/Meals
Other Retail Food Outlets
Grocery Stores
RetailFoodservice
1% $100 billion growth
SECTION 2 9
■ Estimates of home meal replacement(HMR) expenditures differ widely,but one conclusion is clear: HMR willgrow to have a major impact on theU.S. food system.
■ Estimates of HMR expenditures dif-fer due to the various ways that it isdefined: ready-to-eat, ready-to-heat,take-out, chilled etc..
How Big Was Home Meal Replacement in 1996?
Source
$ billions
FIND/SVP1 82.4
NPD2 38.0
Datamonitor3
Meal solutions 107.9
HMR 42.3
Technomic4
Convenient meals 135.0
HMR 44.0
1 National Petroleum News, January 19982 Refrigerated and Frozen Foods, January 19983 Packaging Digest, January 19984 Progressive Grocer, September 1997
10 SECTION 3
Section III
Food Manufacturers
■ Philip Morris, parent company ofKraft General Foods and the MillerBrewing Company, was the largestU.S. food manufacturer in 1996.
■ Philip Morris’ food sales were morethan 50 percent larger than the sec-ond largest food and beverage manu-facturer—PepsiCo.
■ Coca-Cola, the leader in soft drinksales, was third.
Food Manufacturers
Leading Food and Beverage Manufacturers
1996 Food 1996& Beverage Consolidated
Sales Sales
$ millions Philip Morris 32,277 69,204Pepsico 20,204 31,645Coca-Cola 18,546 18,546ConAgra 18,249 23,899IBP 12,539 12,539Anheuser Busch 10,144 12,621Sara Lee 9,426 18,624H.J. Heinz 9,112 9,112Nabisco 8,889 17,063CPC International 8,477 9,844Campbell Soup 7,678 7,678Seagram 6,694 9,747Kellog 6,677 6,677Tyson Food 6,454 6,454General Mills 5,416 5,416Quaker Oats 5,199 5,199Procter & Gamble 4,066 35,284Hershey Foods 3,989 3,989Dole Food 3,840 3,840Hormel Foods 3,099 3,099
Source: Prepared Foods, July 1997
SECTION 3 11
■ Over 19,000 new grocery productswere introduced by manufacturers toretailers in 1997; 12,000 of thosewere food products.
■ The number of new product intro-ductions has increased significantlyover the last 10 years, nearly dou-bling from 10,182 in 1987. The an-nual average for the 1970’s was about1,000.
■ The leading category in number ofnew product introductions in 1997was condiments with salad dressingsbeing a major contributor.
■ Since 1992, The number of new foodproducts has leveled off, while non-food categories has increased rapidly.
■ Only about one-third of new productsactually make it to supermarketshelves.
■ In 1997, the top 20 manufacturersintroduced 12 percent of all new foodproducts, down from 13 percent in1992 and 16 percent in 1987.
■ More than a quarter of the compa-nies on 1997’s list have never beforebeen on the annual Top 20 ranking.
New Grocery Product Totals by Category
1997 1992 1987
FOOD CATEGORIES Baby Foods 53 53 10Bakery Products 1,200 1,508 931Baking Ingredients 422 346 157Beverages 1,606 1,538 832Breakfast Cereals 83 122 92Candy/Gum/Snacks 2,505 2,068 1,367Condiments 2,631 2,555 1,145Dairy 862 1,320 1,132Desserts 109 93 56Entrees 629 698 691Fruits & Vegetables 405 276 185Pet Food 251 179 82Processed Meat 672 785 581Side Dishes 678 560 435Soups 292 211 170
TOTAL FOOD 12,398 12,312 7,866
NONFOOD CATEGORIES Health & Beauty Aids 6,226 3,690 2,039Household Supplies 311 474 161Paper Products 60 153 47Tobacco Products 127 45 51Pet Products 202 116 18
TOTAL NONFOOD 6,926 4,478 2,316
GRAND TOTAL 19,324 16,790 10,182
Source: New Product News, January 1998
New Food Product IntroductionsLeading Companies
Rank Company 1997 1992
1 Philip Morris 165 2562 ConAgra 143 1513 Grand Metropolitan 129 744 Nestle 115 1145 Sara Lee 103 606 CPC International 74 537 H.J. Heinz 72 998 Unilever 72 539 Hain Food Group 71 –
10 General Mills 55 6111 Quaker Oats 54 3112 Hormel Foods 50 5013 Campbell Soup 49 12114 Frieda’s Finest 45 –15 World Variety Produce 43 –16 Dean Foods 42 –17 Nabisco Brands 42 6718 Tyson Foods 42 –19 Perugina 32 –20 Dreyer’s Grand Ice Cream 32 –
Total, Top 20 Firms 1,430 1,566Total, All Firms 12,398 12,312
Source: New Product News, January 1998
12 SECTION 3
■ Grocery Manufacturers cite a varietyof reasons to explain their motiva-tions to introduce new products intothe U.S. grocery distribution system:
• New products can respond tochanging consumer demands,
•They help keep client interest in themanufacturer,
• New products can take advantageof new technologies being devel-oped,
• New products can counter or blocknew product efforts of competitors,
• Products can be transformed fromcommodities to new, value-addedproducts.
■ Research results indicate supermar-ket buyers rely on certain new prod-uct characteristics more than others.Important considerations include:
• A gross margin (GM) whichmatches the retailer’s GM target,
• A product already adopted by otherretailers is more readily accepted,
• Truly unique items have the high-est probability of acceptance,
• Items introduced into categorieswith high growth are more oftenaccepted,
• Certain excessive terms of trade in-ducements may actually signal in-ferior quality.
Important New Product Criteria
Key decision criteria used by buyers
✓ Gross Margin
✓ Competition
✓ Quality/Uniqueness
✓ Category Growth
✓ Terms of Trade
Manufacturer Motivations
✓ Respond to changing consumers
✓ Maintain interest of intermediaries
✓ Take advantage of new technologies
✓ Counter competitive thrusts
✓ Transform commodity to value-added
SECTION 3 13
■ In times of limited budgets, food mar-keters need to allocate scarce mar-keting funds where they will producethe largest marginal returns.
■ Some of the most important reasonsto support continued research and de-velopment budgets are:
• New products stimulate interestfrom buyers, the immediate cus-tomer, and the end consumer,
• Certain terms of trade inducementsmay actually signal inferior quality,
• Category growth is key to salesgrowth and new products help growthe category,
• Buyers are favorably influenced byfundamentally new items, not look-alikes.
■ Two of the top three leading nationaladvertisers – as determined by ma-jor media advertising expenditures –are Proctor & Gamble and PhilipMorris, both of whom have significantpresence in the grocery industry.
■ Proctor & Gamble’s advertisingalone, which does not include pro-motions, was $2.6 billion in 1996.
■ Grand Metropolitan, a U.K. basedfood manufacturer, and PepsiCo alsofinished in the top 10.
New Product ResearchManagerial Implications
New products stimulate buyers (customers & consumers)
“Channel development funds” may not be needed, perhaps even negative
Category growth is key. Thus, marketing research needs to be continuous
Quality (and uniqueness) matter, not “me-too” items
Thus, allocate funds to:
R & D
Test Marketing
Market Research
Expenditures of Top 10 National Advertisers, 1996
Procter & Gamble
General Motors
Philip Morris
Chrysler
Time-Warner
Sears
Walt Disney
PepsiCo
Grand Metropolitan
Ford Motor
0 500 1000 1500 2000 2500 3000
$2,623
$2,373
$2,279
$1,420
$1,410
$1,317
$1,289
$1,269
$1,257
$1,179
Source: Advertising Age, September 25, 1997
$ millions
14 SECTION 3
■ Media spending generally refers tomass media—newspapers, magazines,radio, television, and billboards.
■ Consumer promotions are offered di-rectly to the consumer and includecouponing, new product sampling,cash refunds, sweepstakes, etc.
■ Trade promotions include cash allow-ances and free product based on cus-tomer performance.
■ Since 1977, the share of marketingdollars spent on consumer and tradepromotions has generally increased.
■ In 1996, three times as much moneywas spent on promotions as on ad-vertising.
■ The increase in promotional spend-ing is being allocated principally totrade promotions.
■ The proportion of spending allocatedto trade promotions has increasedfrom 35 percent in 1985 to 54 per-cent in 1996.
Shares of Total Marketing Promotional Expenditures
Source: Progressive Grocer, September 1997
1985 1989 1993 19960%
20%
40%
60%
80%
100%
35%
30%
35%
34%
27%
39%
25%
28%
47%
26%
20%
54%
Media Advertising
Consumer Promotion
Trade Promotion
Advertising vs. Promotions:Share of Marketing Spending
Source: Progressive Grocer, September 1997
1977 1982 1987 1991 19960%
20%
40%
60%
80%
100%
42%
58%
38%
62%
35%
65%
25%
75%
26%
74%
Media Advertising
Consumer & Trade Promotion
SECTION 3 15
■ Numerous reasons are put forth toexplain the shift of marketing fundsaway from media advertising to salespromotion:
• Trade promotions increase sales inthe short run,
• More products are priced on anequal level needing a means to dif-ferentiate,
• Sales force will respond to pressureby increasing promotions to in-crease sales,
• Responses to trade promotions canbe readily measured. This also en-ables more localized, targeted pro-motion planning. Responses tomass media, however, are quite dif-ficult, if not impossible, to quan-tify,
• Increases in media channels makemass consumer advertising difficultand diffuse media messages.
■ The shift in promotional spendinghas not necessarily had positive im-pacts:
• Brand loyalty, supported by mediaadvertising, has declined,
• The decline in brand loyalty has ledto a heightened price sensitivityand the view that one brand is thesame as the other,
• Cash allowances and free productencourage forward buying and thendiversion of the extra product forcash sales to other retailers.
Reasons to Shift to Sales Promotion
✓ Increase in short run management view
✓ More parity products
✓ Sales force pressure
✓ Measurement capabilities
● More localized promotional planning
✓ Increasing media diffusion
Consequences of Shift in Promotional Spending
✓ Decline in brand loyalty
✓ Heightened price sensitivity-“commoditization” of brands
✓ Encourages forward buying and diverting
16 SECTION 3
■ Price reductions generally increasesales. The increases can be especiallylarge when used in combination withother promotional activities.
■ Example: a sales increase of 18% isproduced by dropping the price from100% to 95% of the original price.However, sales growth can be moreimpressive when price reductions arecombined with ads and displays.
■ Often the same increase can be gen-erated by applying different market-ing tools. Example, a 20 percent re-duction (price index=80) produces atwofold sales increase (sales in-dex=209). However, the same effectis produced with an in-store displaywith no price reduction (sales in-dex=213).
Sales Impact of Various Promotional Conditions
PromotionPrice Index1
Condition 100 95 90 85 80 75 70
sales index
Non-promoted 100 118 142 171 209 258 324
Ad Only 198 234 281 338 414 511 641
Display Only 213 251 302 364 445 550 690
Display & Ad 395 466 561 675 825 1,019 1,280
Source: A. C. Nielsen
1 100=undiscounted, everyday normal price
SECTION 4 17
Section IV
Food Wholesalers and Retailers
■ Although the top 20 grocery distribu-tors produce annual sales revenueswell over a billion dollars, their namesgenerally are not as well known astheir manufacturer counterpartspartly because grocery retailers re-main largely regional companies.
Sales of Top 20 Grocery Companies, 19961
Rank Company Sales
$ millions1 Kroger Co. 25,2002 Safeway Inc. 22,7003 Wal-Mart 17,5004 Albertson’s Inc. 13,6505 American Stores Co. 13,3016 Winn-Dixie Stores Inc. 12,9557 Ahold USA 11,2008 Publix Super Markets Inc. 10,4009 A&P 10,100
10 Food Lion Inc. 9,75011 Meijer Inc. 5,60012 Ralphs Grocery 5,36213 H.E. Butt Grocery Co. 5,20014 Super Kmart 5,00015 Supervalu, Inc. 4,50016 Giant Food Inc. 4,00017 Pathmark Stores Inc. 3,90718 Fleming Companies Inc. 3,60019 Fred Meyer, Inc. 3,54920 Penn-Traffic Co. 3,309
Source: Private Label, March/April 1997
1 U.S. grocery sales only
Food Wholesalers and Retailers
18 SECTION 4
■ The sales concentration of the top 4and top 8 chains in the grocery in-dustry has remained remarkablystable since 1929.
■ However, grocery chains are gradu-ally replacing independent supermar-ket companies. Chains accounted foronly 31.5% of grocery sales in 1929,but accounted for the majority ofgrocery industry sales in 1996.
■ On a regional level, the top four su-permarket companies often accountfor over two-thirds of grocery storesales in their market area.
■ Chain supermarkets tend to be morenumerous and larger than indepen-dents. In 1996, chain stores num-bered 18,920 or 14.9% of the totalnumber of grocery stores, but gener-ated nearly 60 percent of grocery in-dustry sales.
■ Independent supermarkets num-bered 10,980 or 8.6% of all grocerystores in 1996, but generated 16.7%of grocery industry sales.
■ Smaller store formats, conveniencestores and other small stores domi-nate total grocery store numbers withnearly 100,000 outlets.
U.S. Grocery Chains Market Shares, 1929-1996
Year Top 4 Chains Top 8 Chains Total All Chains
percent
1929 23.1 26.7 31.5
1948 21.7 25.5 38.6
1963 18.7 25.0 41.1
1975 17.0 25.0 46.6
1980 17.5 26.3 46.7
1984 19.4 26.8 49.3
1993 17.2 26.1 54.5
1996 18.6 29.8 59.3
1996 Grocery Sales By Volume and Format
Number % of Sales1 % ofof Stores Total ($ billions) Total
All Grocery Stores 127,000 100.0 425.7 100.0
Supermarkets$2 million + 29,900 23.5 323.2 75.9
Chain Supermarkets$ millions 18,920 14.9 252.3 59.32–3.9 1,375 1.1 4.0 0.94–7.9 4,090 3.2 24.6 5.88–11.9 4,065 3.2 39.0 9.212–19.9 5,285 4.2 78.5 18.420–29.9 3,075 2.4 70.9 16.730 + 1,030 0.8 35.3 8.3
Independent Supermarkets$ millions 10,980 8.6 70.9 16.72–3.9 4,535 3.6 13.1 3.14–7.9 4,020 3.2 22.4 5.38–11.9 1,140 0.9 10.9 2.612–19.9 785 0.6 11.2 2.620–29.9 330 0.3 7.5 1.830 + 170 0.1 5.8 1.4
Convenience Stores 55,100 43.4 26.8 6.3
Wholesale Club Stores 705 0.6 19.6 4.6
Other Stores 41,295 32.5 56.1 13.2
By Supermarket FormatConventional 18,200 60.9 142.5 44.1Extended2 8,200 27.4 140.0 43.3Economy3 3,500 11.7 40.7 12.6
Total Supermarkets 29,900 100.0 323.2 100.0
Source: Progressive Grocer, April 1997
1 supermarket items only.
2 includes combination (1,500) and superstore (6,700).
3 includes limited
assortment (850), warehouse (1600), super warehouse (450), and hypermarket/supercenter (600).
SECTION 4 19
■ Grocery store formats are evolvingaway from conventional formats.
■ Newer supermarket development canbe explained by examining how newstores are positioned with respect toprice/service and assortment dimen-sions.
■ The number of conventional or tra-ditional supermarkets has declinedboth in number and in sales share.
■ Growth in the larger and economyformats such as warehouse and lim-ited assortment stores appears tohave stabilized in recent years.
Store Format Growth Trends, 1980-1998
1980 1993 19981
Traditional % of ACV % of ACV % of ACVGrocery Channel Stores Share Stores Share Stores Share
Conventional 30,250 55.2 15,370 26.1 13,500 20.6Superstore 3,150 11.6 6,270 22.4 7,200 23.1Food/Drug Combo 475 2.2 2,190 10.2 3,500 14.5Warehouse Store 920 2.5 2,400 6.5 1,950 4.7Super Warehouse 7 na 500 3.4 675 4.1Limited Assortment 750 0.6 730 0.6 930 0.6Convenience Store (trad.) 35,800 5.4 49,800 6.6 48,500 5.7Convenience Store (petro.) na na 34,200 3.6 36,000 3.4Other 96,000 22.5 51,650 11.8 39,000 8.0
Subtotal 91.2 84.7
Source: Willard Bishop Consulting
1 projections
FULL ASSORTMENT
LIMITED ASSORTMENT
Supercenter/Hypermarket
Combination Store
Superstore
ConventionalSupermarket
LOW PRICE & SERVICE HIGH PRICE & SERVICE
Wholesale ClubWarehouse Store
Limited AssortmentStore
Mom-N-Pop Store
Convenience Store
Specialty Food Store
Retail Food Store Format Positioning
20 SECTION 4
■ Superstores and combination food/drug stores are relatively new formatsthat have captured a greater propor-tion of grocery industry sales since1980. These large stores often sellgeneral merchandise and health andbeauty care items as well as a fullarray of supermarket foods.
■ Wal-mart and K Mart have both imple-mented a form of hypermarket, calleda supercenter, which combines thetraditional mass merchandise of Wal-mart and K Mart with the traditionalsupermarket. Strong expansionwithin this format will increase salesin this channel.
■ The sales shares of the major depart-ments in the supermarket continueto evolve with changing consumer de-mand.
■ The meat department has experi-enced a steady decrease in sales as aproportion of total store sales sinceat least 1967.
■ Along with general merchandise,health and beauty care, andnonfoods, it is primarily the freshfoods departments (e.g. produce,deli, bakery, seafood) that are expe-riencing the greatest growth.
Store Format Growth Trends, 1980-1998 (cont.)
1980 1993 19981
Non-traditional % of ACV % of ACV % of ACVGrocery Channel Stores Share Stores Share Stores Share
Hypermarket na na 18 0.2 19 0.2Wholesale Club na na 603 5.6 800 6.6Mini Club na na 148 0.3 175 0.3Supercenter na na 250 1.5 1,020 7.0Deep Discounter na na 690 1.2 750 1.2
Subtotal na na 8.8 15.3
Traditional Grocery ChannelSubtotal 91.2 84.7
TOTAL 100.0 100.0
Source: Willard Bishop Consulting
1 projections
Supermarket Sales DistributionPast, Present and Future
1967 1989 1993 1996 2000
Meat 24.1 15.5 14.0 14.4 12.3
Dairy 11.1 6.2 6.0 6.1 6.1
Produce 7.6 9.1 10.4 10.9 12.7
Deli na 4.3 6.0 6.6 7.8
Bakery na 2.6 3.3 3.3 4.0
Seafood na 1.1 1.1 1.1 1.6
Frozen Foods 4.3 5.4 5.2 5.4 5.5
Grocery, Food 34.5 27.0 26.6 26.4 24.7
GM/HBC/Other 18.9 28.8 27.4 26.8 25.2
Total 100.0 100.0 100.0 100.0 100.0
Chain Store Age, 1968. Supermarket Business, September 1990, 1994, 1997.Cornell Food Executive Programprojections, 1997
1 2 2 2 3
1 23
SECTION 4 21
■ Supermarket gross margin is themarkup between the cost and sellingprice divided by the selling price ofthe product.
■ The average gross margin for the to-tal store is 25.6% or about one-quar-ter of the average price to shoppers.
■ Gross margin is intended to cover allretail costs incurred by the supermar-ket. Frozen foods, produce, deli andbakery departments have higherequipment and labor costs as well ashigher loss and shrinkage rates.Therefore, they have higher grossmargins to cover the additional costs.
■ The proportion of private label orstore brands in the supermarket hasincreased in recent years. In 1991,supermarket sales’ shares of privatelabel products was 13.6%. By 1996,this had increased to 15.8%.
■ Private label volume or unit share hasalso increased from 18.1% in 1991 to20.2% in 1996.
■ Private label sales share is lower thanits share of volume due to the gener-ally lower pricing on private labelgoods.
Supermarket Gross Margins
Source: Supermarket Business, September 1997
GroceryFood
Dairy FrozenFoods
Meat Produce Deli Bakery Seafood GM/HBC/Other
StoreAverage
0%
10%
20%
30%
40%
50%
60%
25.9
29.7
35.3
25.0
44.1 42.7
52.3
21.5
30.5
25.6
Private Label Market Share TrendsU.S. Supermarket Industry
Year Dollar Share Unit Share
percent of total sales
1991 13.6 18.1
1992 14.6 19.4
1993 14.9 19.7
1994 14.9 19.6
1995 14.9 19.5
1996 15.8 20.2
Source: Private Label Manufacturers Association, 1997
22 SECTION 4
■ Sales share of private label varies bysupermarket department from a lowof 9.7% in health and beauty care to38.5% in the dairy case.
■ The high sales share in the dairy de-partment is primarily due to privatelabel milk sales. Many supermarketscarry their own store brand of milk.
■ In some European countries privatelabel has a much greater presencethan in the U.S..
■ Switzerland and the United Kingdomhave the greatest private label unitshares.
Private Label Share by Department, 1996U.S. Supermarket Industry
Dollar Share Unit Share
percent of total sales
Edible groceries 10.6 15.3
Non-edible groceries 10.5 13.9
Frozen 15.3 19.9
Dairy 38.5 39.0
Bakery 26.2 35.5
Deli 12.2 15.2
HBC 9.7 13.2
General merchandise 10.1 16.2
Total 15.8 20.2
Source: Private Label Manufacturers Association, 1997
Global Private Label Penetration, 1997
Country Private Label Dollar Share
Country
percent
Switzerland 45United Kingdom 40Austria 30Denmark 30Canada 25France 23Belgium 22Gremany 21Netherlands 21United States 16Ireland 12Italy 11Portugal 10Spain 10Finland 8Norway 8Sweden 8Greece 7
Source: Datamonitor
SECTION 5 23
Section V
Financial Performance
■ Measured as a percentage of sales, theprofits of U.S. food and tobacco manu-facturers have been lower than theaverage of all manufacturers in theU.S. economy in recent years.
Financial Performance
24 SECTION 5
■ Net profits have increased for all threefood related industries since 1993.
■ In general, food manufacturers haveexperienced higher net profit marginsand higher returns on assets than foodretailers and wholesalers.
■ Net profits of retailers have grownconsiderably faster since 1993 thanthose of manufacturers.
■ While returns on equity have grownfor manufacturers and wholesalerssince 1993, they have declined for re-tailers.
■ The largest growth has occurred inthe wholesale sector, where returnshave increased by 30 percent.
Net Profit Margin for Food Manufacturers, Wholesalers, and Retailers
Net Profit as a Percent of Sales
Source: Value Line Investment Survey, November 14, 1997
Manufacturer Wholesaler Retailer
1993 4.4 0.9 1.5
1994 4.5 0.9 1.8
1995 4.8 1.1 1.9
1996 4.6 1.1 2.0
19971
4.7 1.1 2.1
19981
5.2 1.2 2.2
1 estimates
Return on Equity for Food Manufacturers, Wholesalers, and Retailers
Net Profit as a Percent of Total Equity
Source: Value Line Investment Survey, November 14, 1997
Manufacturer Wholesaler Retailer
1993 16.1 9.6 23.7
1994 16.2 11.0 24.4
1995 16.6 12.2 22.8
1996 16.6 12.3 21.7
19971
17.0 12.5 22.0
19981
17.5 12.5 21.0
1 estimates
SECTION 6 25
Section VI
Directions for the Future
■ To remain competitive in the future,the food industry has concentratedefforts in two main directions: 1) toadd more customer value and 2) toeliminate unnecessary costs.
■ Adding value is important becausethe consumer continues to demandgenuine benefit for money spent.
■ Eliminating unnecessary costs willhelp to further increase the value orbenefit/cost ratio by reducing costs.
Directions for the Future
Food Industry Directions Toward the Year 2000
THE YEAR2000
Adding more value
Eliminating unnecessarycosts
√
√
26 SECTION 6
■ One method of adding value to thebusiness is to continue to improveproduct variety by offering excitingand differentiated products that con-sumers perceive as unique and ofvalue.
■ New hybrid store formats can posi-tion supermarkets and target specificconsumer market segments.
■ Private label is projected to continueto grow as consumers recognize thehigher quality and increased value ofstore brands.
■ Service, freshness and increased con-sumer orientation should help makethe shopping experience more funand exciting.
■ Various electronic technologies willassist the food industry to eliminateunnecessary costs in product man-agement, data exchange and logistics.
■ Targeted spending on advertising andpromotion will result in a further re-duction in advertising and an in-crease in promotional spending.
■ Strategic alliances with preferred sup-pliers will streamline the marketingchannel logistics and trim costs. Theywill also create an environment whichwill enable firms to more quickly re-spond to the consumers’ changingdemands.
Eliminating Costs
✓ Electronic imperatives—ECR, EDI, logistics optimization
✓ Reduce advertising—but increase promotion
✓ Develop strategic alliances with preferred suppliers
Adding Value
✓ Differentiation—product variety
✓ Positioning—new hybrid formats
✓ Growth of private label
✓ Service and freshness
✓ Consumer orientation
Structure of the U.S. Food Industry
Divisions of U.S. Retail Sales, 1996Percent of Total Sales
Total = $2.5 Trillion
Eating &
Drinking
Furniture &
Appliances
Hardware
& Lumber
Clothing Gasoline Automotive Drug &
Proprietary
Other
0%
5%
10%
15%
20%
25%
5.5 5.44.6
6.4
3.6
23.0
Source: U.S. Department of Commerce
24.6
9.7
Food
Stores
17.2
Away from home At home Disposable income
At home: includes food purchases from grocery stores and other retail outlets, including purchases with food stamps and food produced and consumed on
farms, because the value of these foods is included in personal income. Excludes government-donated foods.
Away from home: includes purchases of meals and snacks by families and individuals, and food furnished employees because it is included in personal income.
Excludes food paid for by government and business, such as food donated to schools, meals in prisons and other institutions, and expense-account meals.
Source: U.S. Department of Agriculture, Economic Research Service, Food Review, September–December 1997
1931 1951 1971 1981 1986 1991 19960 %
5 %
10 %
15 %
20 %
25 %
0
1000
2000
3000
4000
5000
6000
$ Million
20.2
3.3
17.3
3.7
9.9
3.6
8.7
4.4
7.5
4.3
7.4
4.2
6.6
4.2
Food Expenditures as a Share of Disposable Personal Income% of
spendingDisposable income
U.S. Food System Sales, 1996
Retail Food42%
Food Service36%
Nonfood12%
Packaged AlcoholicBeverages
6%
Alcoholic Drinks5%
Source: U.S. Department of Agriculture, Economic Research Service, Food Review, September–December 1997
Maj
or M
arke
ting
Cha
nnel
s fo
r U
.S. G
roce
ry P
rodu
cts
Consu
mers
Exp
ort
s
U.S
. Fa
rms
and
Raw
Mate
rial Supplie
rs
Initia
l A
ssem
bly
and
Pro
cess
ing P
lants
Gro
cery
M
anufa
cturing F
irm
s
Bro
kers
Foodse
rvic
e W
hole
sale
O
rganiz
ations
Inte
gra
ted W
hole
sale
rs
and R
eta
ilers
Import
s
Foodse
rvic
e
Outlets
Chain
and Independent
Reta
il Sto
res
Distribution of Food Expenditures
1970
1975
1980
1985
1990
1995
1996
0
100
200
300
400
500
600
Consumer Expenditures
Marketing Bill
Farm Value
Source: United States Department of Agriculture, Economic Research Service, Food Review, September–December 1997
199677% of Total
197068% of Total
$bill
ions
Farm
Val
ue S
hare
for
Se
lect
ed F
oods
1996
Far
m S
hare
Fo
od P
rodu
ctof
Ret
ail P
rice
Ani
mal
Pro
duct
s:Eggs,
Gra
de A
Larg
e, 1 d
z.62
Beef, C
hoic
e, 1 lb.
48
Chic
ken, Bro
iler, 1
lb.
57
Milk
, 1/2 G
allo
n43
Cheese
, N
atu
ral C
heddar, 1
lb.
40
Frui
t an
d V
eget
able
s:Fre
sh
Apple
s, R
ed D
elic
ious,
1 lb.
23
Gra
pefr
uit, 1lb
.18
Lett
uce
, 1 lb.
18
Fro
zen
Ora
nge J
uic
e C
onc.
, 12 o
z.37
Cro
p Pr
oduc
tsSugar, 1
lb.
34
Flo
ur, W
heat, 5
lb.
33
Ric
e, Long G
rain
, 1 lb.
24
Prep
ared
Foo
dsPeanut
Butt
er, 1
lb.
27
Bre
ad, 1 lb.
8
Sourc
e: U
nited S
tate
s D
epart
ment
of
Agricu
lture
, Eco
nom
ic R
ese
arc
h S
erv
ice, Fo
od R
evie
w,
Septe
mber–
Dece
mber
1997
perc
ent
What a Dollar Spent for Food Paid for in 1997
Source: United States Department of Agriculture, Economic Research Service, Food Review, September–December 1997
Farm Value Marketing Bill
21.4¢ 38.4¢ 8.7¢ 4.3¢ 3.6¢ 3.7¢ 3.6¢ 3.3¢ 3.7¢
3.6¢
1.5¢
2.3¢
Note: Includes food eaten at home and away from home. Other costs include property tax and insurance, accounting and professional services, promotion, bad debts, and many miscellaneous items.
Labo
r
Pack
aging
Trans
porta
tion
Deprec
iation
Advert
ising
Fuel
Profit
Rent
Intere
st
Repa
irs
Busin
ess T
axes
Other C
osts
1.9¢
Consumers and Food Trends
Percent of Total Populationby Race and Hispanic Origin
1990, 2000, and 2025
Race 1990 2000 2025
White, Not Hispanic 75.7 71.6 62.0
Black 12.3 12.8 14.2
Hispanic Origin (of any race) 9.0 11.3 16.8
Asian and Pacific Islander 3.0 4.4 7.5
American Indian, Eskimo, and Aleut 0.8 0.9 1.0
U.S. Total Population (1000s) 249,440 274,634 335,050
Source: United States Bureau of the Census, Population Estimates
Percent of U.S. Population by Age 1990, 2000, and 2025
Age 1990 2000 2025
Under 16 23.0 29.7 21.4
65 and over 12.5 12.6 18.5
85 and over 1.2 1.6 2.1
Source: United States Bureau of the Census, Population Estimates
Workforce Participation Rates, 1950–1997Percent in Workforce
Source: United States Department of Labor, Bureau of Labor Statistics, Current Population Survey
1950 1960 1970 1980 1990 19970%
10%
20%
30%
40%
50%
60%
70%
80%
90%
82
30
80
36
77
41
75
50
74
57
75
60Male
Female
How
$10
0 is
Spe
nt, 19
96C
onsu
mer
Exp
endi
ture
s by
Maj
or C
atag
ory
Prod
uct
Cat
egor
y$
Am
ount
Perish
able
s49
.18
Bakery
Foods
2.9
4
Dairy P
roduct
s8.1
5
Deli
3.1
6
Flo
rals
0.1
8
Fro
zen F
oods
5.3
4
Ice C
ream
1.5
2
In-sto
re B
akery
1.8
9
Meat
& S
eafo
od
15.9
0
Pro
duce
10.1
0
Non
-per
isha
bles
50.8
2N
on-e
dib
le G
roce
ry9.8
1
Mis
cella
neous
Gro
cery
9.2
4
Bevera
ges
9.5
9
Snack
Foods
5.6
5
Main
Cours
es
and E
ntr
ees
5.3
3
Genera
l M
erc
handis
e3.9
6
Health &
Beauty
Care
4.0
7
Uncl
ass
ifie
d3.1
7
Sourc
e: Pr
ogre
ssiv
e G
roce
r, A
pril 1997
Sources of Take-out Food, 1988-1997Percent of Total
1988 1991 1994 1997
Fast-food Restaurant 41 51 46 41
Restaurant 38 23 25 21
Supermarket 11 14 15 22
Deli/Pizza Parlor na na na 5
Convenience Store na 2 2 1
Other 3 6 8 7
None 7 4 4 3
Source: Food Marketing Institute, Trends in the United States 1997
Consumer Food Expenditures, 1995, 2005
Source: McKinsey & Co.
100% = $685 billion $785 billion
1995 2005
9%
35%
15%
40%
8%
41%
3%
12%
36%
Non-commercial Foodservice
Commercial Foodservice
Supermarket Prepared Foods/Meals
Other Retail Food Outlets
Grocery Stores
Retail
Foodservice
1% $100 billion growth
Growth in Consumer Food Expenditures, 1995–2005
Source: McKinsey & Co.
Total Growth= $100 billion
CommercialFoodservice
SupermarketPrepared Food/
Meals
Grocery Stores Non-commercialFoodservice
Other Retail FoodOutlets
-20
-10
0
10
20
30
40
50
60
70
8080
19
11
1
-11
$ b
illio
ns
Retail
Foodservice
How
Big
Was
H
ome
Mea
l Rep
lace
men
t in
199
6?
Sour
ce
$ bi
llion
s
FIN
D/SV
P1
82.4
NPD
238.0
Data
monitor3
Meal so
lutions
107.9
HM
R42.3
Tech
nom
ic4
Convenie
nt
meals
135.0
HM
R44.0
1 N
atio
nal P
etro
leum
New
s, J
anuary
1998
2 Ref
riger
ated
and
Fro
zen
Food
s, J
anuary
1998
3 Pa
ckag
ing
Dig
est,
January
1998
4 Pr
ogre
ssiv
e G
roce
r, S
epte
mber
1997
Food Manufacturers
Lead
ing
Food
and
Bev
erag
e M
anuf
actu
rers
1996
Foo
d 19
96&
Bev
erag
e
Con
solid
ated
Sale
sSa
les
$ m
illio
ns
Phili
p M
orr
is32,2
77
69,2
04
Pepsi
co
20,2
04
31,6
45
Coca
-Cola
18,5
46
18,5
46
ConA
gra
18,2
49
23,8
99
IBP
12,5
39
12,5
39
Anheuse
r Busc
h
10,1
44
12,6
21
Sara
Lee
9,4
26
18,6
24
H.J
. H
ein
z 9,1
12
9,1
12
Nabis
co
8,8
89
17,
063
CPC
Inte
rnational
8,4
77
9,8
44
Cam
pbell
Soup
7,678
7,678
Seagra
m
6,6
94
9,7
47
Kello
g
6,6
77
6,6
77
Tyso
n F
ood
6,4
54
6,4
54
Genera
l M
ills
5,4
16
5,4
16
Quake
r O
ats
5,1
99
5,1
99
Pro
cter
& G
am
ble
4,0
66
35,2
84
Hers
hey F
oods
3,9
89
3,9
89
Dole
Food
3,8
40
3,8
40
Horm
el Foods
3,0
99
3,0
99
Sourc
e: Pr
epar
ed F
oods
, July
1997
New
Gro
cery
Pro
duct
Tot
als
by C
ateg
ory
1997
1992
1987
FOO
D C
ATEG
ORIE
S Baby F
oods
53
53
10
Bake
ry P
roduct
s1,2
00
1,5
08
931
Bakin
g Ingre
die
nts
422
346
157
Beve
rages
1,6
06
1,5
38
832
Bre
akfa
st C
ere
als
83
122
92
Candy/G
um
/Snack
s 2,5
05
2,0
68
1,3
67
Condim
ents
2,6
31
2,5
55
1,1
45
Dairy
862
1,3
20
1,1
32
Dess
ert
s 109
93
56
Entr
ees
629
698
691
Fru
its
& V
egeta
ble
s 405
276
185
Pet
Food
251
179
82
Pro
cess
ed M
eat
672
785
581
Sid
e D
ishes
678
560
435
Soups
292
211
170
TOTA
L FO
OD
12
,398
12,3
127,
866
NO
NFO
OD
CAT
EGO
RIE
S
Health &
Beauty
Aid
s 6,2
26
3,6
90
2,0
39
House
hold
Supplie
s 311
474
161
Paper
Pro
duct
s 60
153
47
Tobacc
o P
roduct
s 127
45
51
Pet
Pro
duct
s 202
116
18
TOTA
L N
ON
FOO
D
6,92
64,
478
2,31
6
GRA
ND
TO
TAL
19,3
2416
,790
10,1
82
Sourc
e: N
ew P
rodu
ct N
ews,
January
1998
New
Foo
d Pr
oduc
t In
trod
uctio
nsLe
adin
g C
ompa
nies
Ran
kC
ompa
ny19
9719
92
1Phili
p M
orr
is165
256
2C
onA
gra
143
151
3G
rand M
etr
opolit
an
129
74
4N
est
le115
114
5Sara
Lee
103
60
6C
PC
Inte
rnational
74
53
7H
.J. H
ein
z72
99
8U
nile
ver
72
53
9H
ain
Food G
roup
71
–
10
Genera
l M
ills
55
61
11
Quaker
Oats
54
31
12
Horm
el Foods
50
50
13
Cam
pbell
Soup
49
121
14
Frieda’s
Fin
est
45
–
15
World V
ariety
Pro
duce
43
–
16
Dean F
oods
42
–
17
Nabis
co B
rands
42
67
18
Tyso
n F
oods
42
–
19
Peru
gin
a32
–
20
Dre
yer’s
Gra
nd Ice
Cre
am
32
–
Tota
l, To
p 20
Firm
s1,
430
1,56
6To
tal,
All
Firm
s12
,398
12,3
12
Sourc
e: N
ew P
rodu
ct N
ews,
January
1998
Manufacturer Motivations
✓ Respond to changing consumers
✓ Maintain interest of intermediaries
✓ Take advantage of new technologies
✓ Counter competitive thrusts
✓ Transform commodity to value-added
Important New Product Criteria
Key decision criteria used by buyers
✓ Gross Margin
✓ Competition
✓ Quality/Uniqueness
✓ Category Growth
✓ Terms of Trade
New Product ResearchManagerial Implications
New products stimulate buyers (customers & consumers)
“Channel development funds” may not be needed, perhaps even negative
Category growth is key. Thus, marketing research needs to be continuous
Quality (and uniqueness) matter, not “me-too” items
Thus, allocate funds to:
R & D
Test Marketing
Market Research
Expenditures of Top 10 National Advertisers, 1996
Procter & Gamble
General Motors
Philip Morris
Chrysler
Time-Warner
Sears
Walt Disney
PepsiCo
Grand Metropolitan
Ford Motor
0 500 1000 1500 2000 2500 3000
$2,623
$2,373
$2,279
$1,420
$1,410
$1,317
$1,289
$1,269
$1,257
$1,179
Source: Advertising Age, September 25, 1997
$ millions
Advertising vs. Promotions:Share of Marketing Spending
Source: Progressive Grocer, September 1997
1977 1982 1987 1991 19960%
20%
40%
60%
80%
100%
42%
58%
38%
62%
35%
65%
25%
75%
26%
74%
Media Advertising
Consumer & Trade Promotion
Shares of Total Marketing Promotional Expenditures
Source: Progressive Grocer, September 1997
1985 1989 1993 19960%
20%
40%
60%
80%
100%
35%
30%
35%
34%
27%
39%
25%
28%
47%
26%
20%
54%
Media Advertising
Consumer Promotion
Trade Promotion
Reasons to Shift to Sales Promotion
✓ Increase in short run management view
✓ More parity products
✓ Sales force pressure
✓ Measurement capabilities
● More localized promotional planning
✓ Increasing media diffusion
Consequences of Shift in Promotional Spending
✓ Decline in brand loyalty
✓ Heightened price sensitivity-“commoditization” of brands
✓ Encourages forward buying and diverting
Sales Impact of Various Promotional Conditions
PromotionPrice Index1
Condition 100 95 90 85 80 75 70
sales index
Non-promoted 100 118 142 171 209 258 324
Ad Only 198 234 281 338 414 511 641
Display Only 213 251 302 364 445 550 690
Display & Ad 395 466 561 675 825 1,019 1,280
Source: A. C. Nielsen
1 100=undiscounted, everyday normal price
Food Wholesalers and Retailers
Sale
s of
Top
20
Gro
cery
C
ompa
nies
, 19
961
Ran
kC
ompa
nySa
les
$ m
illio
ns1
Kro
ger
Co.
25,2
00
2Safe
way Inc.
22,7
00
3W
al-M
art
17,5
00
4A
lbert
son’s
Inc.
13,6
50
5A
merica
n S
tore
s C
o.
13,3
01
6W
inn-D
ixie
Sto
res
Inc.
12,9
55
7A
hold
USA
11,2
00
8Publix
Super
Mark
ets
Inc.
10,4
00
9A
&P
10,1
00
10
Food L
ion Inc.
9,7
50
11
Meijer
Inc.
5,6
00
12
Ralp
hs
Gro
cery
5,3
62
13
H.E
. Butt
Gro
cery
Co.
5,2
00
14
Super
Km
art
5,0
00
15
Superv
alu
, In
c.4,5
00
16
Gia
nt
Food Inc.
4,0
00
17
Path
mark
Sto
res
Inc.
3,9
07
18
Fle
min
g C
om
panie
s In
c.3,6
00
19
Fre
d M
eyer, Inc.
3,5
49
20
Penn-T
raff
ic C
o.
3,3
09
Sourc
e: Pr
ivat
e La
bel,
Marc
h/A
pril 1997
1 U
.S. gro
cery
sale
s only
U.S. Grocery Chains Market Shares, 1929-1996
Year Top 4 Chains Top 8 Chains Total All Chains
percent
1929 23.1 26.7 31.5
1948 21.7 25.5 38.6
1963 18.7 25.0 41.1
1975 17.0 25.0 46.6
1980 17.5 26.3 46.7
1984 19.4 26.8 49.3
1993 17.2 26.1 54.5
1996 18.6 29.8 59.3
1996
Gro
cery
Sal
es
By V
olum
e an
d Fo
rmat
Num
ber
% o
fSa
les1
% o
fof
Sto
res
Tota
l($
bill
ions
)To
tal
All
Gro
cery
Sto
res
127,0
00
100.0
425.7
100.0
Superm
ark
ets
$2 m
illio
n +
29,9
00
23.5
323.2
75.9
Chain
Superm
ark
ets
$ m
illio
ns18,9
20
14.9
252.3
59.3
2–3.9
1,3
75
1.1
4.0
0.9
4–7.9
4,0
90
3.2
24.6
5.8
8–11.9
4,0
65
3.2
39.0
9.2
12–19.9
5,2
85
4.2
78.5
18.4
20–29.9
3,0
75
2.4
70.9
16.7
30 +
1,0
30
0.8
35.3
8.3
Independent
Superm
ark
ets
$ m
illio
ns10,9
80
8.6
70.9
16.7
2–3.9
4,5
35
3.6
13.1
3.1
4–7.9
4,0
20
3.2
22.4
5.3
8–11.9
1,1
40
0.9
10.9
2.6
12–19.9
785
0.6
11.2
2.6
20–29.9
330
0.3
7.5
1.8
30 +
170
0.1
5.8
1.4
Convenie
nce
Sto
res
55,1
00
43.4
26.8
6.3
Whole
sale
Clu
b S
tore
s705
0.6
19.6
4.6
Oth
er
Sto
res
41,2
95
32.5
56.1
13.2
By S
uperm
ark
et
Form
at
Conventional
18,2
00
60.9
142.5
44.1
Ext
ended
28,2
00
27.4
140.0
43.3
Eco
nom
y3
3,5
00
11.7
40.7
12.6
Tota
l Sup
erm
arke
ts29
,900
100.
032
3.2
100.
0
Sourc
e: Pr
ogre
ssiv
e G
roce
r, A
pril 1997
1 s
uperm
ark
et
item
s only
. 2 incl
udes
com
bin
ation (
1,5
00)
and s
upers
tore
(6,7
00).
3 incl
udes
limited
ass
ort
ment
(850),
ware
house
(1600),
super
ware
house
(450),
and h
yperm
ark
et/
superc
ente
r (6
00).
FULL ASSORTMENT
LIMITED ASSORTMENT
Supercenter/Hypermarket
Combination Store
Superstore
ConventionalSupermarket
LOW PRICE & SERVICE HIGH PRICE & SERVICE
Wholesale ClubWarehouse Store
Limited AssortmentStore
Mom-N-Pop Store
Convenience Store
Specialty Food Store
Retail Food Store Format Positioning
Store Format Growth Trends, 1980-1998
1980 1993 19981
Traditional % of ACV % of ACV % of ACVGrocery Channel Stores Share Stores Share Stores Share
Conventional 30,250 55.2 15,370 26.1 13,500 20.6
Superstore 3,150 11.6 6,270 22.4 7,200 23.1
Food/Drug Combo 475 2.2 2,190 10.2 3,500 14.5
Warehouse Store 920 2.5 2,400 6.5 1,950 4.7
Super Warehouse 7 na 500 3.4 675 4.1
Limited Assortment 750 0.6 730 0.6 930 0.6
Convenience Store (trad.) 35,800 5.4 49,800 6.6 48,500 5.7
Convenience Store (petro.) na na 34,200 3.6 36,000 3.4
Other 96,000 22.5 51,650 11.8 39,000 8.0
Subtotal 91.2 84.7
Source: Willard Bishop Consulting
1 projections
Store Format Growth Trends, 1980-1998 (cont.)
1980 1993 19981
Non-traditional % of ACV % of ACV % of ACVGrocery Channel Stores Share Stores Share Stores Share
Hypermarket na na 18 0.2 19 0.2
Wholesale Club na na 603 5.6 800 6.6
Mini Club na na 148 0.3 175 0.3
Supercenter na na 250 1.5 1,020 7.0
Deep Discounter na na 690 1.2 750 1.2
Subtotal na na 8.8 15.3
Traditional Grocery ChannelSubtotal 91.2 84.7
TOTAL 100.0 100.0
Source: Willard Bishop Consulting
1 projections
Supermarket Sales DistributionPast, Present and Future
1967 1989 1993 1996 2000
Meat 24.1 15.5 14.0 14.4 12.3
Dairy 11.1 6.2 6.0 6.1 6.1
Produce 7.6 9.1 10.4 10.9 12.7
Deli na 4.3 6.0 6.6 7.8
Bakery na 2.6 3.3 3.3 4.0
Seafood na 1.1 1.1 1.1 1.6
Frozen Foods 4.3 5.4 5.2 5.4 5.5
Grocery, Food 34.5 27.0 26.6 26.4 24.7
GM/HBC/Other 18.9 28.8 27.4 26.8 25.2
Total 100.0 100.0 100.0 100.0 100.0
Chain Store Age, 1968. Supermarket Business, September 1990, 1994, 1997.Cornell Food Executive Programprojections, 1997
1 2 2 2 3
1 2
3
Supermarket Gross Margins
Source: Supermarket Business, September 1997
GroceryFood
Dairy FrozenFoods
Meat Produce Deli Bakery Seafood GM/HBC/Other
StoreAverage
0%
10%
20%
30%
40%
50%
60%
25.9
29.7
35.3
25.0
44.142.7
52.3
21.5
30.5
25.6
Private Label Market Share TrendsU.S. Supermarket Industry
Year Dollar Share Unit Share
percent of total sales
1991 13.6 18.1
1992 14.6 19.4
1993 14.9 19.7
1994 14.9 19.6
1995 14.9 19.5
1996 15.8 20.2
Source: Private Label Manufacturers Association, 1997
Private Label Share by Department, 1996U.S. Supermarket Industry
Dollar Share Unit Share
percent of total sales
Edible groceries 10.6 15.3
Non-edible groceries 10.5 13.9
Frozen 15.3 19.9
Dairy 38.5 39.0
Bakery 26.2 35.5
Deli 12.2 15.2
HBC 9.7 13.2
General merchandise 10.1 16.2
Total 15.8 20.2
Source: Private Label Manufacturers Association, 1997
Glo
bal
Priv
ate
Labe
l Pen
etra
tion,
199
7C
ount
ry P
riva
te L
abel
Dol
lar
Shar
e
Cou
ntry
percent
Sw
itze
rland
45
United K
ingdom
40
Aust
ria
30
Denm
ark
30
Canada
25
Fra
nce
23
Belg
ium
22
Ger
many
21
Neth
erlands
21
United S
tate
s16
Irela
nd
12
Italy
11
Port
ugal
10
Spain
10
Fin
land
8
Norw
ay
8
Sw
eden
8
Gre
ece
7
Sourc
e: D
ata
monitor
Financial Performance
6%
Average After Tax Profits as a Share of SalesManufacturing 1994–1996
Source: Statistical Abstract of the United States, 1997, no. 880
Food & Tobacco Nondurable Durable All Manufacturing0%
1%
2%
3%
4%
5%
7%
5.8
5.3
6.2
5.4
Net Profit Margin for Food Manufacturers, Wholesalers, and Retailers
Net Profit as a Percent of Sales
Source: Value Line Investment Survey, November 14, 1997
Manufacturer Wholesaler Retailer
1993 4.4 0.9 1.5
1994 4.5 0.9 1.8
1995 4.8 1.1 1.9
1996 4.6 1.1 2.0
19971
4.7 1.1 2.1
19981
5.2 1.2 2.2
1 estimates
Return on Equity for Food Manufacturers, Wholesalers, and Retailers
Net Profit as a Percent of Total Equity
Source: Value Line Investment Survey, November 14, 1997
Manufacturer Wholesaler Retailer
1993 16.1 9.6 23.7
1994 16.2 11.0 24.4
1995 16.6 12.2 22.8
1996 16.6 12.3 21.7
19971
17.0 12.5 22.0
19981
17.5 12.5 21.0
1 estimates
Directions for the Future
Food Industry Directions Toward the Year 2000
Adding more value
Eliminating unnecessarycosts
✓
✓
THE YEAR 2000
Adding Value
✓ Differentiation—product variety
✓ Positioning—new hybrid formats
✓ Growth of private label
✓ Service and freshness
✓ Consumer orientation
Eliminating Costs
✓ Electronic imperatives—ECR, EDI, logistics optimization
✓ Reduce advertising—but increase promotion
✓ Develop strategic alliances with preferred suppliers