SIC 5411
GROCERY STORES



This category includes supermarkets, food stores, and grocery stores, primarily engaged in the retail sale of all sorts of canned goods and dry goods (such as tea, coffee, spices, sugar, and flour), fresh fruits and vegetables, and fresh and prepared meats, fish, and poultry.

NAICS Code(s)

447110 (Gasoline Stations with Convenience Stores)

445110 (Supermarkets and Other Grocery (except Convenience) Stores)

452910 (Warehouse Clubs and Superstores)

445120 (Convenience)

Industry Snapshot

Some 243,800 establishments comprised the U.S. retail food industry in 2000, according to the U.S. Census Bureau's Statistical Abstract of the United States. The entire retail food industry combined for total sales of $483.7 billion in 2000, up from $368.3 billion in 1990. Grocery stores totaled 163,000, including 24,600 super-markets (defined as having at least $2.5 million in annual sales). These supermarkets reported total annual sales in 2000 of $453.8 billion. Although supermarkets accounted for only 67 percent of the industry stores, they took in 95 percent of the industry's revenues. Supermarkets are further categorized as conventional (9,900 stores), superstores (7,900 stores), warehouse (2,400 stores), combination food and drug (3,700 stores), superwarehouse (500 stores), and hypermart (200 stores), a small subcategory that sells the broadest range of consumer goods along with food items.

Also included in the food industry are convenience stores, superettes (grocery stores that produce under $2.5 million in annual sales), and specialty food stores (stores that specialize in a single category such as meat, seafood, or baked goods). Convenience stores totaled 81,900 and generated $48.5 billion in sales in 2000; superettes numbered 56,700 and had sales of $72.5 billion; and specialty food stores totaled 80,600 with annual sales of $25.4 billion.

After undergoing extensive consolidation during the 1990s in response to flat sales and increased competition, in the early the 2000s mergers and acquisitions abated. The primary focus of the grocery industry is to shift market share away from the conventional supermarkets to favor superstore discounters, namely, Wal-Mart Superstores. Clearly the discounter grocers are here to stay. During the remainder of the 2000s, the industry will continue to adjust to Wal-Mart's ever-increasing domination of the market. The question will be how traditional grocers will adjust to the new competitive environment to continue to survive and prosper.

Organization and Structure

Like all retail industries, the grocery industry at its most basic, functioned by obtaining goods from distributors and manufacturers, marking up the price to cover costs and to allow for profit, and reselling the merchandise to the general public. Larger grocery chains typically manufactured or prepared a limited line of goods for exclusive sale in their stores. These goods included those prepackaged under a private label or store brand and those offered ready-to-eat through in-house bakeries and delicatessens.

The choice of which goods appeared on grocery shelves and how many of each was often carefully calculated by both manufacturer and grocer alike. Shelf space, considered a commodity, was purchased by manufacturers and distributors based on the amount of shelf space they wished to reserve for their products. According to Sales & Marketing Management of March 1996, the cost of shelf space, called a "slotting fee," might range from $5,000 to $25,000 per product. On the retail side, grocery stores tracked their inventories—frequently using a computer system integrated with their cash registers—to determine the frequency and volume of sales for each product and ordered from their suppliers based on this data. In this arrangement, both manufacturers and retailers sought to maximize the volume of sales by giving ample shelf space to high-volume items while leaving room for lower volume and niche products. Also competing for space were the thousands of new products introduced every year. According to the Food Marketing Industry Speaks 1999, median number of supermarket items was 40,333.

The grocery industry was dominated by supermarkets, that is, grocery stores with more than $2.5 million in annual sales. In 2000, there were 24,600 such units, with a total of $337.3 billion in sales and a 70 percent share of the market, down from 77 percent in 1998. This group was subdivided into affiliated independents and corporate chain supermarkets. Their differences lay in their respective financial and organizational structures.

Affiliated independents were characterized by a wholesaler-retailer interdependence. Under the terms of an agreement between the wholesaler and retailer, the retailer took advantage of the wholesaler's purchasing power and had the right to use the wholesaler's name. In return, the wholesaler maintained the retailer's business for products purchased and also for services provided by the wholesaler. The independent retailers in the United States controlled a 15.9 percent share of the total market volume in 1998, a decrease of 5.9 percent from 1988. These stores reported $71.6 billion in combined sales in 1998.

Affiliated independents were further divided into voluntary wholesaler groups and retailer-owned cooperatives. The former were companies who bought the franchises of independently owned wholesalers. These, in turn, sponsored voluntary groups of independent retailers in their respective communities. Included in this category were supermarkets such as Supervalu and Scot Lad Foods. The retailer-owned cooperative was an association of retailers who organized for the purposes of achieving greater purchasing power and other services. Among these were the Associated Group and United Grocers.

The chain supermarkets continued to control a strong segment of the market. Their combined sales in 1998 amounted to $274.5 billion, or 61.1 percent of total industry sales. Corporate chain retail stores were company operated and included such well-known outlets as Safe-way, Kroger, A&P, Winn-Dixie, Jewel, Publix, and Acme Markets. Because of their size, these firms typically bypassed third-party wholesalers and purchased in bulk directly from manufacturers. No single chain, however, dominated the national market, and none had operations in all 50 states.

Convenience stores made up the majority of units in the industry. They were defined by Food Retailing Review in 1993 as "small, high margin, easy-access stores with a limited line of high convenience items, including staple groceries, nonfoods, and ready-to-heat and ready-to-eat foods." There were, in turn, two kinds of convenience stores: stand-alone units and gasoline station units. In the early and mid-1990s, the gas station stores, known as "G stores," held significant advantage over their stand-alone counterparts. Many of the grocery stores were newer and equipped to sell a wider array of foods—including such nontraditional convenience offerings as fresh fruit in some cases—than conventional convenience marts, and all of them shared the advantage of having gasoline customers they could lure into convenience sales. In general, the G stores outperformed stand-alones, leading some stand-alones to pursue niche markets to maintain their customer base. The National Association of Convenience Stores reported that convenience outlets in the United States totaled 95,700 in 1997, up 1.6 percent from 1996. According to the association, "the strong shift towards urban store development continued in 1997. More than three out of every four new stores built is located in an area with a population of 50,000 or greater. While urban store development costs dropped 6.2 percent in 1997 to $1.2 million, rural store development broke the million-dollar mark. New rural stores averaged $1,027,300 with land costs averaging $272,400, building costs averaging $341,000, equipment costs averaging $347,800, and inventory costs averaging $66,100."

The industry held relatively few foreign interests outside North America in the late 1990s; however, several corporate chains were held by foreign parents. One major player was Delhaize Fréres & Cie., "Le Lion" of Belgium, and its new holding company—Delhaize America—which held a controlling interest in the Food Lion chain in 1999. Dutch retailer Ahold NV had a sizable U.S. presence through its acquisitions of First National, Bi-Lo, Giant Foods, Pathmark, and Tops stores. Also as of 1999, a 55 percent majority of The Great Atlantic and Pacific Tea Co. (A&P) was held by Tengel-mann Warenhandelgesellschaft of Germany. U.S. holdings in other countries included Safeway's Canadian operations, as well as its interest in the Mexican chain Casa Ley S.A. de C.V, which operated 80 stores in 1999. A&P also had operations in Canada. In a September 1999 press release, A&P CEO Christian Haub reported that company "market share is also increasing in Ontario, both through internal and acquired growth. Comparable store sales in our operated Canadian stores continue to be among the strongest in the Company. The mostly franchised Food Basics format continues to do very well, including the 10 additional stores converted so far this year. Finally, we have concluded two agreements to acquire a total of 11 stores in Ontario, strengthening our positions in several markets, particularly the Hamilton/Niagara Falls area. While making these acquisitions, we improved our balance sheet during the quarter with a successful offering of 40 year bonds."

Background and Development

"The food supermarket was perhaps the single most important innovation in retail distributive institutions in the entire period from 1850 to the present," according to Malcolm McNair and Eleanor May in The Evolution of Food Institutions in the United States. Supermarkets, particularly chains, were able to achieve greater economies of scale than smaller outfits and were thus able to charge the consumer less while still earning a greater profit margin.

Characterized by carrying a large variety of different food stuffs, dry goods, and health and beauty products under one roof, supermarkets developed in the early 1930s. The expansion of their stock beyond essential food items was encouraged by rising operating costs, particularly rent and wages, influenced by government regulation and union bargaining. Prior to this, food was sold through local "mom and pop" grocery stores and chain "economy stores." Faced with competition from supermarkets that undercut them by as much as a third or a half, the old style grocery store chains either converted to supermarkets, were bought out, or went out of business.

Supermarkets provided consumers with lower-priced goods during the Great Depression. Concentrating less on personalized service and more on bare bones cash and carry, supermarkets emphasized the utilitarian aspects of the business and let the customer do the work of selecting and handling goods. With their emphasis on high stock turnover, supermarkets benefited from the new tendency toward bulk buying, supported by the growing use of refrigeration and the proliferation of cars. The growth of automobile traffic also influenced store location, with placement for traffic convenience becoming a primary concern.

From 1930 to 1950, the industry witnessed radical and far-reaching changes in methods of food distribution. Noticeable changes included increased self-service, the wide expansion of lines, and the great increase in the number and size of stores. Consequently, consumers benefited from greater choice and convenience. Through creative marketing techniques and low competitive prices, supermarket chains, both independently affiliated and corporate, had established themselves as the leading outlet for retail food distribution by World War II.

After 1950, increased competition fostered further developments in the retail food business. The large profit margins that stores had been able to realize were undercut as supermarkets found it necessary to increase print and television advertising and initiate such promotional efforts as trading stamps, games, and contests to win business. These efforts succeeded only in pushing up super-markets' overhead faster than they could increase gross margins. These percentages narrowed consistently throughout the 1950s and 1960s. By 1954, the United States had 288,000 grocery stores, almost 100,000 fewer than in 1948.

By 1965, supermarkets had won a 71 percent share of all retail food sales, with superettes (stores having annual sales between $150,000 and $500,000 a year) accounting for 13 percent and small stores (sales less than $150,000 annually) 16 percent. It had become evident by the 1960s that an integrated chain of self-service super-markets could offer consumers a better deal due to their economies of scale. It was also clear, however, that cutthroat competition, which forced chains to keep their price margins low, was wiping out some of these economies.

Supermarkets sought ways to cut their costs even further and found inspiration in the new soft goods discount stores that were starting to appear. These businesses applied the same techniques pioneered by super-markets to create low-price department stores. Supermarket managers subsequently decided to employ the discount idea in their own businesses. Doing so necessitated abandoning their previous promotional schemes and focusing on price cutting. For consumers, the appeal was immediate, and discount pricing spread throughout the industry.

While the industry was undergoing these transformations, many supermarkets simultaneously endeavored to raise their profit margins by expanding their stock to include more general merchandise. Others bought out existing discount department stores and opened the two kinds of stores side by side or under one roof in strategically located shopping centers. Another development was the trend for supermarkets to ally themselves with discount drug stores.

The net effect of these changes was a gradual decline in the number of general food stores—although the food retailing market saw some increase in the number of specialty stores. The 1972 census recorded 194,000 supermarkets with sales per establishment more than seven times greater than in 1948. By 1996, the number of grocery stores had fallen to 130,000, but sales had grown upwards of $400 billion.

The industry enjoyed moderate sales growth during the late 1980s, although it was not shared uniformly across the industry. According to the U.S. Bureau of Census, pre-inflation growth between 1987 and 1992 for the industry as a whole was 23.5 percent, which included a 50 percent sales boost in the convenience segment. Supermarkets reported a 22 percent net gain in the same period, while other segments of the industry languished around 10 percent. Different firms in the industry also fared differently in this period: while some chains experienced growth in sales, others such as A&P suffered millions in losses.

Growth in that period was dampened by the recession in the early 1990s, which hit retail grocers especially hard. Already operating under low profit margins due to fierce competition, numerous chains took severe financial beatings because of the austere consumer-spending climate. Fiscal weakness helped set the stage for several smaller chains to be acquired by their aggressive large-chain rivals. This consolidation trend continued into the mid-1990s. In 1993, the industry began a slow recovery from its heavy recession losses—so slow that growth was at its lowest point in the past 40 years. From an annual high of 7.2 percent sales gains in 1989, growth plummeted during the recession and then leveled to between 2 and 4 percent through the mid-1990s.

By the mid-1990s the grocery industry had at least shown signs of solid recovery thanks to its ability to remain competitive. Aided by a more robust economy, the industry posted modest gains because of corporate cost savings, horizontal and vertical integration, private label expansion, and innovative marketing. Industry gains in current dollars, however, were often neutralized by inflation, according to the Food Marketing Institute (FMI), which estimated that the industry's modest 4 percent sales growth in 1995 amounted to only 0.7 percent after inflation. Despite this, the FMI noted that some measures of industry productivity had increased in 1995 following three consecutive years of decline. Average sales per labor hour in the industry, according to the FMI, were at $111.40 for 1995 compared to $106.50 in the previous year.

To remain competitive with such formidable competitors as Wal-Mart, supermarkets pursued new avenues of growth, including the expansion of private label brands, the introduction of larger stores, and the development of specialty services like delicatessens. Private labels—brands offered exclusively by a particular chain—were seen as opportunities to boost sales growth by providing lower-cost alternatives for shoppers while retaining a greater share of the profit, since private label goods were often manufactured by the supermarkets themselves or under contract by third-party purveyors. According to the Private Label Manufacturers Association, "Store brands now account for one of every five items sold every day in U.S. supermarkets, drug chains and mass merchandisers. They represent a $43.3 billion segment of the retailing business that is achieving new levels of growth every year." The 1998 $43.3 billion figure was up from $41 billion in 1997.

The association also reported that consumer sentiment for private label items was high in 1998. "For American consumers, store brands are brands like any other brands. In a recent Gallup study, 75 percent of consumers defined store brands as "brands" and ascribed to them the same degree of positive product qualities and characteristics—such as guarantee of satisfaction, packaging, value, taste and performance—that they attribute to national brands. Moreover, according to Gallup, more than 90 percent of all consumers polled were familiar with store brands, and 83 percent said that they purchase these products on a regular basis."

A&P, for example, continued a heavy push in the late 1990s for its mid-priced America's Choice label, which was offered in addition to its low-cost Savings Plus store brand. Private Label reported that the firm intended to offer an in-house brand to reach three separate consumer buying segments through differential branding of its private labels. Owning the manufacturing plants for private labels, however, was not always key to realizing higher profits, as Safeway reported in 1995 when it closed several of its plants due to poor performance.

New store formats were another major component of the supermarkets' late-decade growth plan. With such competitors as warehouse clubs and the new Wal-Mart and Kmart superstores, having more physical retail space was seen as an advantage. Most of the new store introductions by the supermarket chains boasted greater retail square footage than was typical of existing units in the industry. In 1998, the median average store size was 40,483 square feet, up from 38,600 in 1996. Many of the new stores were much larger than the median, with some reaching upwards of 60,000 square feet. A typical new store in 1998 was just over 57,000 square feet, up from about 52,400 square feet in 1997.

In addition to broader nonfood selections, fresh produce and ready-to-eat dishes were often a focal point of the new stores. Enticing consumers with a wider selection of produce and high-quality, in-house delicatessens, these stores were designed to win back market share from both restaurants and discount superstores that were drawing away traditional grocery business. In the late 1990s, deli revenues were one of the fastest growing segments of total supermarket sales, with 5.79 percent of total store sales.

The larger format supermarkets maximized profits in both food and nonfood offerings. The impetus towards these combination stores was the large profit margins—in the region of 35 to 40 percent—to be made on many of the items they sold, including health and beauty items, deli food, pharmaceuticals, and bakery goods. In contrast, the markup on food and dry goods was only 15 to 20 percent, and stores devoted exclusively to grocery items were purely functional and provided less in the way of "shopping as entertainment."

Marketing was also key to maintaining growth in the late 1990s. This did not mean, however, that chains were spending more on advertising. Several chains actually reported decreases in total advertising expenditures as part of broader cost saving initiatives. Several marketing innovations responded to consumer concerns and environmental issues. In 1995, for instance, Safeway launched an "animal welfare charter" on the meats it sold to reassure customers that the livestock had been treated humanely. On a similar note, more stores began to implement sections that contain foods that are natural or organically grown, an attempt to win consumers who are attracted to the growing natural food specialty store segment. Another tool to increase revenues was to dedicate more space to high-volume goods and focus on core product categories that earned the most money. Market research and advertising also supported major private label expansions, such as those of A&P and Kroger.

Large chains have also implemented savings cards to lure more customers. For example, Kroger began offering a "Kroger Plus Savings Card" that allows 'members' to receive special discounts on promotional items without having to clip coupons. Farmer Jack also offers a savings card and teamed up with Northwest Airlines in Michigan in 1999. Consumers now receive points towards airline travel every time they use their card.

The key to maintaining profits into the 2010s will be to optimize cost awareness and attract new and existing customers. This industry has had modest growth and is predicted to have only slight growth in the future. Many larger chains have sought growth through acquisition including Albertson's, who purchased American Stores in 1999, and Kroger, who had plans to purchase 74 Winn-Dixie stores in late 1999, and bought Jay C Stores of Indiana in August 1999.

Current Conditions

With overall spending slow during the early 2000s due to a sluggish economy, the retail grocery sector worked hard to keep costs down and revenues up. Although the industry was slightly more immune to changes in the economy because food is a basic, necessary expenditure, changes in shopping and spending habits were reflected in grocers' bottom lines. According to a survey of consumer attitudes conducted by the Food Marketing Institute in 2002, price was considered a major factor in food purchase for 84 percent of respondents, up from 77 percent the previous year.

With price becoming increasing important to consumers, conventional grocers were facing stiff competition from the price-slashing methods of mega-retailer Wal-Mart. In 2003 Elliot Zwiebach noted in Supermarket News, "Alternate channels of distribution are continuing to flex their muscles and grab food sales away from traditional supermarkets, forcing supermarket operators to adapt and change—or continue to lose market share." Wal-Mart continued to increase its market share, which stood at 12 percent in 2002. The giant discounter planned to expand square footage devoted to food by 8 to 10 percent in its supercenters, and Sam's Club planned food square footage increases of 5 to 6 percent.

Moreover, supermarkets are not just facing off against Wal-Mart. Discounters Costco and Target are also increasing their presence in the grocery industry. In 2002 Costco's same-store food sales increased from 10 to 15 percent, and Target Supercenters ranked twenty-second in the industry, jumping from thirty-third the year before. According to research conducted by AGNielsen, annual trips to the grocery store declined from an estimated 86 in 1998 to 75 in 2001, whereas annual trips to supercenters increased from 14 to 18 during the same time interval.

In order for traditional grocers to survive the onslaught of discounters, they will need to find ways to convince customers to shop their aisles. Richard George, chair and professor of food marketing, at St. Joseph's University, Philadelphia, told Progressive Grocer, "There are things the small independent operator should always do better than big chains like Wal-Mart. No one should out-fresh them and no one should out-service them.… [Wal-Mart] stores aren't that appealing and the service is not that great. There is a lot of opportunity there, so supermarkets have to consider how they can improve the whole shopping experience. They've got to focus on the customer. People have Palm Pilots and computers, but supermarkets are the same. They still have 25 checkouts and only six open." According to FMI's report, Trends in the United States: Consumer Attitudes & the Supermarket, 2002, consumers are looking for clean, neat stores with a good selection of high-quality fruit and vegetables and high-quality meats. These are the primary areas where traditional grocers can create a profitable and sustainable niche in the retail grocery industry.

Industry Leaders

In the early 2000s, Wal-Mart passed traditional grocery chains to become the nation's leading grocer, with a 12 percent market share in 2002. The grocery business was dominated by the multi-unit and regional supermarket chains Kroger, Albertson's, and Safeway. Other companies with a significant portion of the market share included Albertson's, A&P, Winn-Dixie, Super-valu, Publix, and Food Lion.

Kroger Co. Ohio-based Kroger operates approximately 3,600 stores across the nation, including 2,400 supermarkets. Doing business under approximately 25 banners, only 15 percent of sales are attributed to Kroger stores themselves. Among others, the company owns Dillon Food Stores, Fry's Food Stores, City Market, King Soopers, and Gerbes Supermarkets. It also operates approximately 800 convenience stores under the names Kwik Shop, Loaf 'N Jug, Mini-Mart, Quik Stop Market, Tom Thumb Food Stores, and Turkey Hill Minit Market. Sales in 2002 totaled $50.1 billion, resulting in a net income of $1.04 billion.

Founded by Bernard Kroger in 1883, the company began as the Great Western Tea Company in Cincinnati, Ohio. It immediately set itself apart from its competitors by being the first grocery store to use print media advertising and to introduce an in-house bakery. By 1902, the company's name had been changed to Kroger Grocery and Baking Company, and the operation had expanded to include 40 stores in two states. Its growth continued unabated ever after. Since the 1960s, Kroger maintained a presence in the drug store market and, in the 1980s and 1990s, concentrated on operating combination grocery and drug stores, emphasizing one-stop shopping. The average size of these stores was 48,745 square feet.

One of Kroger's strengths was its decentralized structure, which enabled it to respond to localized buying habits. This arrangement allowed it to build customer loyalty. Its decentralized structure also allowed for flexibility in its pricing structure. Both "Every Day Low Pricing" and "High-Low" structures were used. Competition for the company's local market shares increased steadily in the early 1990s, especially from Meijer, Food Lion, and Publix. Kroger sold off its more than 100 Time Savers convenience stores in 1994, but as of 1995, the company reported that its convenience store sales per square foot slightly exceeded that of its supermarkets. Nonetheless, convenience sales accounted for just less than 10 percent of Kroger's total sales in 1995. The company relocated, expanded, or opened 116 stores in 1996, increasing overall store square footage by 6.7 percent. The company continued an aggressive growth strategy with plans for acquiring Winn Dixie stores in Texas and Oklahoma in late 1999, and J. C. Stores in Indiana. Kroger also began its foray into jewelry with its purchase of Fred Meyer Inc. in 1999. In July 1999, Kroger also announced plans with U.S. Bancorp to offer a co-branded credit card to Kroger customers.

Albertson's. The nation's second largest grocery retailer in 1999 was Albertson's. Its purchase of American Stores Company in June 1999 launched it into one of the top spots in the grocery industry. The company had $35.6 billion in sales for fiscal 2002, with a net income of $485 million. In 2003, the company ran 2,300 outlets in 31 western, mid-western, and southern states including Jewel Osco, Acme Markets, Sav-on, Seessel's, and Super One Foods. Many of its operations are combination food and drug stores, a strategy that Albertson's pioneered.

Albertson's was founded in 1939 in Boise, Idaho. An innovator in the grocery industry, Joe Albertson introduced such services as scratch bakery, magazine racks, homemade ice cream, and automated machines that held donuts. The first store was also the largest of its time—10,000 square feet—eight times larger than typical stores.

Alberston's continued to post profits into the 1980s. The company continued building larger stores, implemented electronic scanning, and offered personalized customer service. In 1988, it opened its first mechanized distribution center in Portland, Oregon, covering more than 500,000 square feet.

In the late 1990s, Albertson's became one of the leading names in the industry. With more than $567 million in net income, it had plans for growth into 2004 included building 1,850 new stores and remodeling 730 existing stores.

Safeway Inc. As the third largest supermarket chain in the United States, Safeway had 2002 sales of $32.4 billion but a net loss of $828 million. Since going public in 1990, California-based Safeway has pursued a course of vigorous expansion that included its 1997 acquisition of the 320-unit California chain The Vons Companies, Inc. In 2003, Safeway operated approximately 1,800 stores, primarily in the West, Southwest, and mid-Atlantic regions. Safeway also had substantial holdings in Canada and Mexico. Like its competitors, Safeway continued to close nonperforming stores and to seek other ways to reduce costs. The company struggled to remain viable during the first years of the 2000s, sustaining significant losses during 2002.

Workforce

According to the U.S. Department of Labor, Bureau of Labor Statistics, there were three million workers employed by retail grocers in 2001, down from 3.5 million in 1998. Sales-related occupations accounted for nearly 44 percent of workforce, which included over one million cashiers with a mean annual salary of $16,940.

By sheer employee count, the workforce was concentrated regionally in the Southeast, Mid-Atlantic, Great Lakes, and West Coast states, according to the Bureau of Economic Analysis. More than a quarter of the industry's labor was located in the Southeast alone. New England, the Plains states, and the Rocky Mountain states employed proportionately fewer workers in the grocery industry; combined, these regions accounted for just 16.2 percent of the total industry work force. Labor recruitment and retention remained an issue in the early 2000s. A survey by the Food Marketing Group found that labor costs, including warehouse, supervision, and staff, represented an average of 69 percent of a food distributor's total cost of operation and that 38 percent of survey respondents reported an turnover rate greater than 20 percent.

The labor pool is expected to decrease for grocery executives as well, due to increased jobs with Internet and other companies. According to the Progressive Grocer, "a myriad of executive recruitment firms, colleges and universities, other retail channels, manufacturers, homegrown executive training programs and oldfashioned networking will become increasingly important in an industry where the shortfall in talent could reach critical proportions in less than a decade."

Overall, unionization has declined somewhat in the industry. Although supermarket workers remained unionized at many chains, the entry into the market of nonunionized competitors, such as warehouse clubs and discount outlets, pressured the traditional chains to break the power of the unions. The industry experienced regional strikes in most years of the 1990s. In 1995, Safe-way, American's Lucky Stores, and Save Mart stores were targets of a 9-day work stoppage in northern California and Oregon. Profits in 1996 for two of the industry leaders, Kroger and Safeway, were dampened somewhat from a 44-day Colorado strike against both chains. In the same year, Safeway suffered a 40-day walkout at its Canadian stores in British Columbia, where replacement labor was against provincial law and its stores were forced to close until a labor agreement was reached. Safeway's Canadian holdings continued to experience disputes with organized labor into 1997.

Research and Technology

The grocery industry is now facing challenges and increased competition due to Internet shopping. For example, according to a November 1999 Progressive Grocer article, "online shoppers will be able to name the price for their favorite name-brand grocery items. Beginning this month in New York, New Jersey, and Connecticut, Priceline.com—the Internet service that offers airline tickets and other high-priced items at consumers' bids—is licensing its business method and trademark to The Priceline WebHouse Club Inc. WebHouse club members name their grocery store of choice (including A&P, King Kullen and Gristedes) and pick products from more than 140 categories of perishables, non-perishables, canned foods, and pet supplies, along with two or more of their favorite brands. Accepted requests are confirmed within 60 seconds and immediately charged to the customer's credit card. The customer then goes to the store to pick up the items." Another example of such a site is Homegrocers.com. Along with grocery stores offering shopper friendly sites, third-party companies are looking to team up with local grocers to provide services to online shoppers.

Electronic couponing and U-Pons became available in the late 1990s. Many grocery store chains offered printable electronic coupons that are available on company Web sites. In September 1999, Kroger began offering U-Pons on it Web site. This electronic form of saving allows customers to select coupons they wish to receive. The coupons are then mailed to the customers' address in three to five business days. Retailers expect that tracking coupon performance will be much easier with this process.

Research in the grocery industry has also focused on technologies to help stores reduce costs and increase efficiencies. Retailers continue to invest in technologies that will improve their accounting, ordering, receiving, and scheduling systems, particularly to integrate these operations—otherwise done on paper in some cases—into a single computer system. In 1998, for instance, Grocer Systems Support software—marketed by GSS—offered programs for inventory control, bill-back tracking, direct buy ordering, shopper tracking and analysis, direct store delivery, cashier security analysis, and accounts receivable analysis.

One of the most revolutionary of these is Efficient Consumer Response (ECR), a scanning system. The system works as follows: a customer selects a product and takes it to the cashier for checkout; the cashier runs the item through the scanner, which records the transaction; the scanner then sends a record of the sale to a central computer system, which itself is networked to the product manufacturer's computer; the manufacturer notes the sale and automatically orders a replacement on a just-in-time basis. An automatic ordering system enables the product's manufacturer to match production with demand using this information about product movement and fore-casting techniques. The result is that product production becomes directly linked to consumer demand, obviating the need for the retailer to store large amounts of inventory. When the merchandise arrives at the store, the computer system acknowledges its receipt and issues a computer-generated payment for an electronic fund transfer payment. This system eliminates the need for paper invoices and streamlines the accounting process.

The second phase of ECR, crossdocking—moving products from a supplier's truck through the distribution center and onto a store-bound vehicle without putting them into pick or reserve slots as defined by Stores magazine—was introduced to reduce warehouse costs and increase service. However, the grocery store industry has been slow to implement this process in comparison to the department store industry. Supervalu opened one of the first crossdocking facilities in 1996, one that the grocery industry looked to as a model. According to Stores magazine, "in order for crossdocking to take root, retailers will need to become more adept at forecasting demand and more confident when making sourcing commitments. Expanded use of advanced ship notices (ASN) and 128 labeling, now in the early stages of implementation, are also crossdocking enablers." In 1998, only 15 to 20 percent of grocery items were crossdocked.

On the consumer side, several further technologies were implemented in the late 1990s. Many grocery stores installed at the point-of-sale (POS) various card-scanning devices that allowed customers to pass their credit, debit, or store-issued check cards through the scanner at the counter. Particularly for shoppers paying by check, use of store-issued magnetically encoded identification cards, or check cashing cards, represented a significant convenience over the common practice of requiring the customer to provide multiple forms of identification at the point-of-sale each visit. The results for retailers who implemented such systems were speedier checkout lines, more thorough validation of checks, and a reduction in bad checks being passed.

Stores magazine reported that in 1999 there was a "plethora of options—including credit, debit, electronic benefits transfer, smart cards and customer self-checkout—initiating changes in the mission critical front-end POS systems deployed by supermarkets. In an effort to improve customer service, enhance operations, keep pace with their competitors and, above all, lower costs, operators are exploring new payment technology and looking to update POS applications."

Further Reading

"Alternative Retailers Make Gains." MMR, 17 June 2002, 142.

"The Challenging Year Ahead." Progressive Grocer, 1 January 2003, 28-30.

"The End of E-Grocers? Not at All." Business Week Online, 16 July 2001.

"Feeling the Tremors." Progressive Grocer, 15 April 2003, S3.

Flickinger, Burt P., III. "Strategic Imperatives for Growth." Progressive Grocer, 15 April 2003, S14-S19.

Food Marketing Institute. Facts & Figures, 2003. Available from http://www.fmi.org .

Ghitelman, David. "Click-and-Mortars Dig in as Pure-Plays Vanish." Supermarket News, 24 December 2001, 17.

Hickey, Kathleen. "Forging Ahead: Some Bright Spots for Food Industry although Costs and Competition Remain Issues." Traffic World, 11 November 2002, 20.

Howell, Debbie. "Supercenter Landscape Changes—Again." DSN Retailing Today, 24 February 2003, S3.

Miller, Lynne. "Top Trends." Supermarket News, 24 December 2001, 27.

Reda, Susan. "Mission Critical: Supermarket Payments." Stores, February 1999.

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