First Research US Industry Profile

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Grocery Stores & Supermarkets
SIC Codes: 5411
NAICS Codes: 44511
Last Quarterly Update: 6/27/2022
Companies in this industry primarily retail a general line of food such as canned and frozen foods, fresh fruits and vegetables, as well as prepared meats, fish, and poultry. Major companies in the industry include Costco, Kroger, Target, and Walmart (all based in the US), as well as foreign companies such as Aeon (Japan); Aldi, Kaufland, and Lidl (all based in Germany); Carrefour (France); and Tesco (the UK).
The global grocery retail market is projected to increase 24% between 2019 and 2024, from $6.7 trillion to $8.3 trillion, according to research firm IDG. 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. Asia is projected to account for nearly 50% of all new global grocery retail sales generated between 2019 and 2024.
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. Grocery retailers' net profit after taxes declined from 1.5% in 2012 to just 1.0% in 2019, according to FMI.
Online grocery sales are rising, particularly in the world's most advanced e-commerce markets such as South Korea, Japan, and the UK. In South Korea, the share of online grocery penetration is nearly 20%, followed by Japan (over 7%), and the UK (about 7%), according to Statista.
Before stay-at-home orders to slow the spread of COVID-19, online grocery sales in the US were 4.3% of the US grocery market in 2020, and expected to rise to 5.4% in 2021 and 13.5% in 2025, according to Supermarket News. However, the health crisis has accelerated the shift to online shopping to the extent that we may have now reached the projected percentage of the population using online commerce by 2025, according to Food Logistics citing a study by Mercatus. Improvements made to e-commerce operations by major food retailers to meet the surge in demand should also help make online shopping more reliable and popular in years to come.
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 been expanding aggressively 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 16,000-plus private label products account for about 30% 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
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 more than 10,500 stores across 29 countries in Europe where, with compatriot Aldi, it has upended the grocery industry. From a small base in the southeastern US, deep-discounter Lidl has grown its US store count to more than 100 locations with a strong presence along the East Coast.
Walmart, the world's largest retailer with operations in 29 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, and defend its top US ranking. In China, the US giant is partnering with, 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
Finance & Regulation
Regional & International Issues
Human Resources
Also includes the following chapters:
Quarterly Industry Update
Industry Indicators
Business Challenges
Trends and Opportunities
Call Preparation Questions
Financial Information
Industry Forecast
Industry Websites
Glossary of Acronyms

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