Industry anlysis of Retail Grocery Industry

Industry Analysis

In order to analyze an industry, it is important to determine where it is in the industry lifecycle. During the 1970’s and 1980’s the retail grocery industry was expanding at a phenomenal rate. Throughout this boom period, the number of large grocery stores was rising and forcing the existing” Mom and Pop” grocery stores out of the industry.

In the early 1990’s, the retail grocery industry began leaving the growth stage and entered the maturity stage in the industry lifecycle. This was caused by increased market saturation and slowing growth rates. Between 1995 and 1996 the growth rates were the lowest they had been in the past twenty years. The main reason for this was the vast number of grocery stores that had been built in growth stage and the emergence of new grocery retail formats such as warehouse clubs and dollar stores. This increased competition forced firms to compete with each other for the same customers by lowering prices.

Enter WalMart. Walmart was not even in the grocery industry in the early 1990’s but through excellent supply chain management and extremely low everyday prices have forced their way as one of the dominant players in the retail grocery industry. Industry surveys indicate that the five largest chains (WalMart, Kroger, Costco, Albertsons, and Safeway) accounted for approximately 37.5% of total sales in 2002.

The 1990’s were an important time because of the arrival of new technologies that would change the retail grocery industry. Scanners, Elcetronic Data Interchanges, and the internet have all sped up and lowered the costs of business operations. WalMart was one of the early adopters of this technology and had a competitive advantage over its competitors. New technologies being pioneered now include self-serve checkouts, RFID’s, and kiosks, they will all eventually change how we shop at grocery stores today.

Walmart’s arrival as the largest grocer in North America has caused quite a stir in the retail grocery industry. Walmart’s low prices have caused an industry–wide obsession with consolidation. Many firms are cutting costs any chance they can, forcing some firms to move upmarket. “The traditional supermarket concept no longer has a profitable future in most ...

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...lay a part in the consumer’s decision but in the end eggs from one store are the same as eggs from another store. The consumer can also compare prices from various stores to get the best deal on their groceries.

Supplier Power

Supplier power has been pretty high in the past because grocery stores had very few options of where they could get their goods and had even less of a say of how much to pay for these goods. Recently WalMart has started to change the balance of power away from the supplier. By being so large and having the power of making or breaking a product based solely o if WalMart carries it they can demand certain prices. Another way to combat high supplier power is to introduce private label brands. For example Giant eagle carries its own brand of peas it is not as dependable of its pea suppliers as it was before carrying their own brand. Some suppliers have decided to try and regain power by merging with other suppliers such as Gillette/Proctor & Gamble and Phillip Morris/Kraft. It appears that after a long time of high supplier power the playing field is starting to level itself off and it appears this will continue into the future.