04 Dec Food Retail Industry Overview
The Food Retail industry includes conventional convenience, gas station/kiosk, superette, conventional club, and military conveniences stores. Most products are divided in categories such as perishables, groceries, health and beauty care, general merchandise, and pharmaceutical. Many are further subcategorized, like perishables are subdivided into meats, fish and poultry, fresh produce, dairy, frozen foods, deli, baked goods, and floral.
Opportunities are available to label your own brand to reduce cost and sell more. Deflation on prices, due to an increase in competition, has driven sales low in the past quarters. Technology has also threaten some major players who haven’t invested, as others are ahead in the game.
The strategy, in the past 10 years, was to open new stores in new locations. But, due to the high competition of other players in the market, many are restraining from opening the number of new location for the next years.
Investor outside of United States have entered in the market to compete. LidI, a German supermarket, is expected to generate 21-27 billion in revenue in the next 5 years in the U.S, and open 1,000 more locations nationwide. Discount groceries has also threaten the major players by offering competitive prices and opening more stores every year.
Again, there are low barriers to entry and high profitability in the industry. Participants in the market operate in a highly competitive environment. The competing companies can vary in size from the big Fortune 500 companies to locally operating companies.
Mergers and Acquisitions characterizes the industry, with major players focused on strategic acquisitions and product development, eagerly buying smaller and innovative companies with specialties in growing niches.
- Economy is growing, population is growing, unemployment is stable, all these key indicators incentive people to be willing in spending on food.
- We have good M&A exit in the industry, there are strategic and financial players willing to buy companies in the industry. All the competition attached brings more value to company’s owners and shareholders.
Also, foreign investors are willing to enter into the market.
- Traditional players and discount groceries have flooded into the market in the US by opening large number of stores in the past 10 years. The sales have not increase as much as they expected, which is forcing many stores to close, slow openings in the next few years. Competition is pushing for reduced prices in order to better compete, consequently is reducing margin.
- Big Players such as Kroger are blaming deflation as a result of a decrease in sale.
- The use of mobile devices can save time to pay for groceries, instead of waiting in line for 10-15 minutes. All new technology will come in favor for the customers by saving their time and money. Players who invest in the new technology will increase the number of customers and sales. It will also reduce the costs with wages, reducing the number of employees and other costs related. With quicker shopping speeds, the time and space available could be optimized to sell more to customers.
- Private labels can save 50% in costs to customers and companies invest in their brands to attract more people willing to spend less and keep their customer who are loyal to their brand.
- E-commerce. Innovation has changing how customers buy. Amazon is responsible for 42 cents for every dollar spent online. They acquired Whole Foods, which will bust the market by changing the culture to buy groceries online and delivery directly to customers. Whole Foods gave Amazon a large number of warehouses to store and distribute products quickly to customers, consequently they will reach more people in less time. Companies like Walmart and Kroger are also investing in e-commerce.
- Discount groceries as Aldi, LidI, and Dollar are increasing in growth with their grocery store, where they are a fast pace in expansion and plan to continue growing in the next years. As discount groceries expand, they will reach more people and increase in sales by targeting people wanting to save money by doing groceries.
Justin Leo contributed to this report.