First Research US Industry Profile

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Grocery Stores & Supermarkets
SIC Codes: 5411
NAICS Codes: 44511
Last Quarterly Update: 12/9/2019
Changes in the way consumers eat and shop for food are roiling the crowded global grocery market. Disruptors include online competitors, the rise of discounters, and changing consumer perceptions of value. Traditional grocery chains now compete for market share with a slew of domestic and foreign competitors, including warehouse clubs and discounters, convenience, drug, and dollar stores, internet retailers, and meal-kit delivery companies. Cross-border forays by grocery retailers looking for growth beyond mature home markets continue to reshape the grocery sector.
Global food retail sales exceed $4 trillion annually, according to the US Department of Agriculture. Industry sales are expected to grow 6.1% annually through 2020, driven by population growth and rising incomes in countries such as China and India, according to Persistence Market Research. The global landscape is dominated by US and European firms, although Australia also boasts major chains. Unlike other industries, grocery retail is still largely led by local players in most countries. The top 15 retailers account for more than 30% of world supermarket sales. In the US, sales by the 20 largest food retailers accounted for two-thirds of grocery store sales in 2016, according to the USDA.
Companies in this industry operate retail stores that offer a general selection of food products. Discount stores and warehouse clubs, which are leading sellers of groceries, are covered in separate industry profiles.
Competitive Landscape
Consumer migration online has grocers racing to increase their online presence, while online players -- including Amazon and China's Alibaba -- are trying out brick-and-mortar retail. Fierce competition, particularly at the high and low ends of the market, and cost advantages enjoyed by online retailers have sparked supermarket price wars, which benefit consumers but threaten to erase the grocery industry's razor-thin profit margins.
Online grocery sales are rising, particularly in the world's most advanced e-commerce markets such as South Korea, China, and the UK. In South Korea, the percentage of online grocery sales to total retail grocery sales is nearly 20%, followed by the UK (7.3%), and China (5.7%), according to Kantar Worldpanel's E-commerce Index. In the US, online grocery sales are less than 6% of total retail grocery sales, but that's changing rapidly. Online sales are expected to exceed 20% of the US grocery market by 2025, growing to more than $100 billion, according to the Food Marketing Institute (FMI) and Nielsen.
Amazon is proving to be a formidable competitor in the grocery sector since buying Whole Foods Market in 2017. In addition to trimming prices at the high-end chain, the company is winning customers with the offer of free two-hour delivery of Whole Foods groceries to members of its Prime program in some 30 metro areas in the US. The combination of Amazon's e-commerce, data, and distribution expertise combined with Whole Foods' stores and distribution centers puts immense pressure on Kroger and Walmart -- the largest sellers of groceries in the US -- and other brick-and-mortar grocers to up their digital games and redefine the role of the store in the Digital Age. Incumbents have responded by reducing prices, launching online delivery and in-store pick up services, and streamlining their supply chains, among other measures.
Facing mature markets at home, European chains continue to look abroad for growth. After upending European grocery shopping, German deep-discount chains Aldi and Lidl have ambitious expansion plans in the US. Both chains offer limited selections of mostly private-label goods and rock-bottom prices. After focusing on low-income consumers, the chains are working to improve their stores' appearance to broaden their customer base.
Competitive Advantages:
Low Prices - Deep discount grocery chains are flourishing in markets worldwide, including Germany, the UK, and Australia, aided by economic pressures and evolving consumer perceptions of value. In the US, deep discount chains are expected to grow by up to 10% a year by 2020, five times the rate of traditional grocers, according to consulting firm Bain & Co.
Omni-Channel Business Model - As the number of households buying food online continues to grow, grocery retailers that successfully merge their in-store and digital operations to offer quick home delivery and in-store pickup will come out ahead, especially among younger, tech-savvy consumers.
Focus on Fresh & Prepared Foods - Because many consumers decide where to shop based on the quality of the produce, traditional grocery stores' best defense against online grocery players is high-quality fruits and vegetables.
Private-Label Brands - Exclusive store brands typically are less expensive than national brands, more profitable for retailers, and increase customer loyalty. Kroger's 14,000 private label products account for more than 25% of sales, while about 90% of the goods carried by Aldi and Lidl are private label. Whole Foods Market's 365 Everyday Value brand is the #2 best-selling private-label brand on Amazon.com.
Company Spotlight:
Aldi is a deep-discount grocery chain based in Germany that plans to invest $5 billion to build nearly 900 stores and remodel hundreds more in the US, propelling it into third place (by store count) behind Walmart and Kroger. Aldi is also targeting the UK and Australia.
Amazon, the world's largest online retailer, has dramatically increased its grocery footprint with Whole Foods Market. After a modest start with online delivery service AmazonFresh and a tech-infused store prototype called Amazon Go, the company has bet $13.7 billion on the merits of physical stores. The Amazon-Whole Foods deal will be felt throughout the grocery supply chain.
Kroger is the world's largest traditional grocery chain by sales. To defend its position, Kroger is investing in e-commerce and in-store pickup for groceries ordered online, stocking more organic foods, and reducing prices. Kroger is scaling back new store openings amid a glut of US retail grocery space. In 2018, Kroger entered the vast Chinese market, offering its Simple Truth brand of natural and organic products on Alibaba's Tmall virtual storefront.
Lidl operates 10,000 stores across 27 countries in Europe where, with compatriot Aldi, it has upended the grocery industry. From a small base in the southeastern US, deep-discounter Lidl plans to add as many as 100 stores along the East Coast.
Walmart, the world's largest retailer with operations in 27 countries, is the #1 seller of groceries in the US and Mexico and a leading seller of food in Canada, Central and South America, Japan, and the UK. The company is investing heavily in e-commerce to grow online sales, play catch up with Amazon.com, and defend its top US ranking. In China, the US giant is partnering with JD.com, the #2 online player.
Products, Operations & Technology
Grocery stores and supermarkets stock a wide variety of food, beverages, and household items. Generally, stores sell a mix of fresh and frozen foods, packaged ... plus:
Sales & Marketing
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Finance & Regulation
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Regional & International Issues
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Human Resources
Also includes the following chapters:
Quarterly Industry Update
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Industry Indicators
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Business Challenges
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Trends and Opportunities
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Call Preparation Questions
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Financial Information
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Industry Forecast
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Industry Websites
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Glossary of Acronyms

Historical Profiles (PDF format)

03/18/2019
12/10/2018
09/10/2018
06/11/2018
03/12/2018
12/04/2017
09/04/2017
05/15/2017
02/13/2017
11/07/2016
08/08/2016
05/09/2016
02/08/2016
11/02/2015
08/03/2015
05/04/2015
02/02/2015
11/03/2014
08/11/2014
05/19/2014
02/24/2014
11/18/2013
09/02/2013
06/03/2013
03/11/2013
12/03/2012
08/20/2012
05/28/2012
03/05/2012
11/14/2011
08/08/2011
04/25/2011
01/24/2011
10/18/2010
07/26/2010
04/19/2010
01/25/2010