Supermarkets in the United States US
Headlines
·
Supermarket sales reach US$330
billion in 2008, up 3% in current value terms from the previous year
·
Although economic conditions
force consumers to spend less, supermarkets are able to benefit as groceries
remain a necessity
·
Competition continues to grow
with hypermarkets and begins to grow greater with discounters
·
Retail sales through
supermarkets are predicted to grow by 8% in constant value terms over the
forecast period, to reach US$357 billion in 2013
Overview
·
Supermarkets were among several
channels within the grocery retail market that experienced growth in value
sales despite the harsh economic climate in the US. While the lack of
discretionary spending hampered sales among many retail channels, groceries are
among the basic necessities needed for survival. Supermarkets were also
well-positioned in capturing consumer spending due to their investments in
developing the quality and variety of their respective private label lines. Due
to tightening budgets and the rising prices of grocery items, some consumers,
for the first time ever, purchased private label food and non-food items.
Therefore, the increased sales of these private label products helped to push
profit margins upwards for the supermarket retailers. However, even greater
growth in 2008 was tempered by competition from hypermarkets and discounters.
·
The number of supermarkets
declined in 2008, with a net decrease of 93 stores. Increasing competition from
within the channel as well as with hypermarkets and discounters is largely
attributable to the fall. In addition, the current economic environment
discouraged many retailers from continuing with expansion plans as capital
savings are deemed a necessity given the uncertainty of the economic future.
·
In 2008 about 83% of value
sales in supermarkets were from grocery items, up from 81% in 2007. Many
consumers scaled back on the purchase of peripheral items, thus limiting
purchases to essential grocery products.
·
While Kroger continued to be
the leading supermarkets player, Safeway made some relatively significant
strides in 2008. Safeway held onto its second place, as it sought to revamp
some of its stores in order to improve its customer experience. Shopping
environments that catered to more upscale consumers were created in select
geographic markets by remodelling store designs and layouts, adding a wider
variety of natural food products, some of which are among its own private label
lines such as its O Organics line, and offering more premium wines, as well as
artisan cheeses and breads in comparison to typical supermarkets.
·
Whole Foods Market experienced
a slight drop in value share after a series of strong year-on-year gains. Many
grocery retailers have increased their organic and natural food offerings,
including Wal-Mart, which made a large organic push in 2006 but has since
scaled back on its initial aggressive organic campaigns. However, the decline
of Whole Foods is mostly attributable to the current economic environment, as
household budget constraints forced some consumers to revert back to
non-organic products, and thus taking their grocery shopping elsewhere. Whole
Foods recently assigned “value gurus” in its stores to help customers search
for bargains. The company will likely recover over the forecast period, as
consumers continue to grow more health conscious.
·
In late 2007, UK-based Tesco
entered the US market under the Fresh & Easy fascia. Its first stores
opened in California, Arizona and Nevada. While it arrived with much fanfare
due to its numerous prepared meals and smaller store format, there was some
disconnect between the UK-based company and US consumers. Among the challenges
was labelling of “best by” or “enjoy by” dates for many of its fresh and
prepared foods. While Fresh & Easy wanted to emphasise the freshness of the
product, US consumers were turned off as those dates were interpreted as
expiration dates, and therefore portraying the opposite of what the company
wanted to communicate. Competition from established retailers, namely Trader
Joe’s, also provided another challenge for Fresh & Easy. In March 2008,
after building 59 stores since its initial opening, Tesco announced a temporary
halt to building new stores. While the company said it was an intentional move,
many analysts speculated about the struggles of Fresh & Easy causing the
need to scale down its initial aggressive forecasts of nearly 150 stores by the
year end. However, Tesco maintains that its US sales are strong and is
continuing to make adjustments to cater to its customers.
·
To counter Tesco’s Fresh &
Easy stores, Wal-Mart debuted its Marketside store in October 2008. The company
is ambitious in that it hopes to have over 1,000 stores generating over US$10
billion in sales annually. This smaller format (approximately 900 sq m of
selling space) remains in the concept stage for now, and its further
development depends on consumer receptivity. The Marketside stores will have a
smaller assortment of goods with an emphasis on premium foods. Wal-Mart hopes
to capture those consumers who are looking to make a quick trip to purchase
perishables, as well as move into geographic areas previously untapped due to
the large formats that its hypermarkets require.
·
In a short-term perspective,
discounters pose a threat to the growth of the supermarkets channel. Budget
constraints are steering consumers to discounters, who are focused solely on
pricing as prices are deeply discounted without being forced to purchase in
bulk. However, growth of the discounters is expected to slow over the forecast
period, as economic recovery will likely draw consumers away from discounters.
Therefore, in a long-term perspective, hypermarkets pose a greater threat to
supermarkets.
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