F INDUSTRY MANAGEMENT CORNELLpublications.dyson.cornell.edu/outreach/extensionpdf/1998/Cornell_A… · food stores such as paper goods, de-tergents, etc. account for 12 percent of

E.B. 98-05May 1998

Geoffrey M. GreenEdward W. McLaughlin

Kristen Park

T e a c h i n g • R e s e a r c h • E x e c u t i v e E d u c a t i o n

Department of Agricultural, Resource, and Managerial EconomicsCollege of Agriculture and Life Sciences

Cornell University, Ithaca, NY 14853

CORNELLU N I V E R S I T Y

FOOD INDUSTRYMANAGEMENT

A Presentation Guide to

The U.S. Food Industry

It is the Policy of Cornell University actively to support equality of educational

and employment opportunity. No person shall be denied admission to any

educational program or activity or be denied employment on the basis of any

legally prohibited discrimination involving, but not limited to, such factors as

race, color, creed, religion, national or ethnic origin, sex, age or handicap.

The University is committed to the maintenance of affirmative action

programs which will assure the continuation of such equality of opportunity.

Preface

Frequently individuals and organizations have need of information describing the contemporaryU.S. food system for presentation at various company meetings or industry conferences. The pur-pose of this bulletin is to provide materials and data relevant to today’s food industry in a form thatcan be readily used by others to create presentations of their own. The bulletin provides over 40figures and tables often used to describe and summarize the important trends and challenges facingthe food industry.

Part I presents brief statements to assist with the interpretation of the informationpresented in each accompanying figure/table and to help guide the presenter through the informa-tion. Part II reproduces each of the figures and tables from Part I, but enlarged on seperate papersuitable for convenient conversion into overhead transparancies.

Table of Contents

Part I: Summary Statements

Section I: Structure of the Food Industry....................................................................... 1

Section II: Consumers and Food Trends ........................................................................ 5

Section III: Food Manufacturers .................................................................................. 10

Section IV: Food Wholesalers and Retailers ................................................................ 17

Section V: Financial Performance ................................................................................23

Section VI: Directions for the Future ...........................................................................25

Part II: Overhead Visuals

SECTION 1 1

Section I

Structure of the Food Industry

■ In 1996, total U.S. retail salesamounted to $2.5 trillion.

■ Retail sales from food storesamounted to 17.2 percent of total U.S.sales.

■ When food retail sales are combinedwith the sales from eating and drink-ing establishments, they become thelargest retail segment in the U.S. with26.9 percent of total U.S. retail sales.

Divisions of U.S. Retail Sales, 1996Percent of Total Sales

Total = $2.5 Trillion

Eating &Drinking

Furniture &Appliances

Hardware& Lumber

Clothing Gasoline Automotive Drug &Proprietary

Other

0%

5%

10%

15%

20%

25%

5.5 5.4 4.66.4

3.6

23.0

Source: U.S. Department of Commerce

24.6

9.7

FoodStores

17.2

Structure of the U.S. Food Industry

2 SECTION 1

■ Disposable income for Americans hasrisen continuously since 1938.

■ At the same time, the proportion ofdisposable income spent on food hasdecreased almost without interrup-tion. In 1931, almost one quarter ofdisposable income was spent on food.In 1996, only 10.8 percent was spenton food.

■ In recent years, a growing proportionof disposable personal income is be-ing spent on food away from home.

■ The relatively low percentage of dis-posable income spent on food in theU.S. is often used as an indicator ofthe efficiency of the U.S. food andagricultural system. This same mea-sure for the majority of developedeconomies is between 18%-25%.

■ Food stores are the single largest seg-ment of the U.S. retail food system,accounting for 42% of the total foodsales.

■ Food service outlets (eating anddrinking establishments) contribute36 percent of the U.S. food and bev-erage spending.

■ Nonfood items that are sold in retailfood stores such as paper goods, de-tergents, etc. account for 12 percentof food system sales with the remain-der going to alcoholic beverages.

Away from home At home Disposable income

At home: includes food purchases from grocery stores and other retail outlets, including purchases with food stamps and food produced and consumed on farms, because the value of these foods is included in personal income. Excludes government-donated foods.

Away from home: includes purchases of meals and snacks by families and individuals, and food furnished employees because it is included in personal income. Excludes food paid for by government and business, such as food donated to schools, meals in prisons and other institutions, and expense-account meals.

Source: U.S. Department of Agriculture, Economic Research Service, Food Review, September–December 1997

1931 1951 1971 1981 1986 1991 19960 %

5 %

10 %

15 %

20 %

25 %

0

1000

2000

3000

4000

5000

6000

$ Million

20.2

3.3

17.3

3.7

9.9

3.6

8.7

4.4

7.5

4.3

7.4

4.2

6.6

4.2

Food Expenditures as a Share of Disposable Personal Income% of

spendingDisposable income

U.S. Food System Sales, 1996

Retail Food42%

Food Service36%

Nonfood12%

Packaged AlcoholicBeverages

6%

Alcoholic Drinks5%


SECTION 1 3

■ The food marketing system movesfood products from the producerthrough a myriad of marketing chan-nels to the final consumer.

■ Food system firms closer to produc-ers tend often to be “commodity ori-ented”. Firms closer to the consumertend to focus on “adding value” tocommodities.

■ Although many mergers have oc-curred in the wholesale and retailfood channels, they remain regionalcompanies, and there is no one na-tional supermarket chain.

■ Consumers spent $547 billion in1996 for food from U.S. farms.

■ Of this expenditure, almost 77 per-cent was spent on marketing func-tions including: processing, wholesal-ing, transporting and retailing. Thisproportion has increased graduallysince 1970 when it constituted only68 percent of expenditures.

■ In 1996, the farm share of consumerexpenditures was approximately 23percent ($123 billion) down from 32percent in 1970.

■ The reason for the increase in themarketing bill is the increased de-mand for convenient, value-addedproducts. The value is added throughfurther processing and packagingand by making them available to con-sumers in more convenient forms.

Major Marketing Channels for U.S. Grocery Products

Consumers

Exports

U.S. Farms and Raw Material Suppliers

Initial Assembly and Processing Plants

Grocery Manufacturing Firms

Brokers

Foodservice Wholesale Organizations

Integrated Wholesalers and Retailers

Imports

Foodservice Outlets

Chain and Independent Retail Stores

Distribution of Food Expenditures

1970

1975

1980

1985

1990

1995

1996

0

100

200

300

400

500

600

Consumer Expenditures

Marketing Bill

Farm Value

Source: United States Department of Agriculture, Economic Research Service, Food Review, September–December 1997

199677% of Total

197068% of Total

$bill

ions

4 SECTION 1

■ The farm share of retail price is thepercent that farmers receive for ev-ery dollar that consumers spend.

■ The products for which farmers re-ceive the greatest share tend to beanimal products. Reasons for this in-clude minimal further processing andshortened marketing channel.

■ Food products requiring more pro-cessing, transportation or wholesal-ing activities such as bread and ricereturn a smaller share to the farmlevel.

■ Twenty-three percent of every dollarspent for food was returned to thefarm in 1996. The remaining 77 per-cent of food expenditures was spenton marketing activities.

■ By far the largest expense in the foodsystem is labor which accounted for38 percent of the total food bill in1996.

What a Dollar Spent for Food Paid for in 1997


Farm Value Marketing Bill

21.4¢ 38.4¢ 8.7¢ 4.3¢ 3.6¢ 3.7¢ 3.6¢ 3.3¢ 3.7¢

3.6¢

1.5¢

2.3¢

Note: Includes food eaten at home and away from home. Other costs include property tax and insurance, accounting and professional services, promotion, bad debts, and many miscellaneous items.

Labo

r

Pack

aging

Trans

porta

tion

Deprec

iation

Advert

ising

Fuel

Profit

Rent

Intere

st

Repa

irs

Busin

ess T

axes

Other C

osts

1.9¢

Farm Value Share for Selected Foods

1996 Farm Share Food Product of Retail Price

Animal Products:Eggs, Grade A Large, 1 dz. 62Beef, Choice, 1 lb. 48Chicken, Broiler, 1 lb. 57Milk, 1/2 Gallon 43Cheese, Natural Cheddar, 1 lb. 40

Fruit and Vegetables:Fresh

Apples, Red Delicious, 1 lb. 23Grapefruit, 1lb. 18Lettuce, 1 lb. 18

FrozenOrange Juice Conc., 12 oz. 37

Crop ProductsSugar, 1 lb. 34Flour, Wheat, 5 lb. 33Rice, Long Grain, 1 lb. 24

Prepared FoodsPeanut Butter, 1 lb. 27Bread, 1 lb. 8


percent

SECTION 2 5

Section II

Consumers and Food Trends

■ The U.S. population growth rate isnow about 1% per year. This is amongthe lowest growth rates from devel-oped countries. However, while thegrowth rate is low, the diversity withinthe U.S. population is growing.

■ The proportion of White Americansis projected to continue to decline.By the year 2025, they will consti-tute about 62 percent of the popula-tion.

■ The U.S. Census Bureau projects thatby 2025, Hispanics will constitute thelargest minority group.

■ Asians have recently been, and willfor at least 25 years continue to be,the fastest growing group.


Percent of Total Populationby Race and Hispanic Origin

1990, 2000, and 2025

Race 1990 2000 2025

White, Not Hispanic 75.7 71.6 62.0

Black 12.3 12.8 14.2

Hispanic Origin (of any race) 9.0 11.3 16.8

Asian and Pacific Islander 3.0 4.4 7.5

American Indian, Eskimo, and Aleut 0.8 0.9 1.0

U.S. Total Population (1000s) 249,440 274,634 335,050

Source: United States Bureau of the Census, Population Estimates

6 SECTION 2

■ The percentage of the population un-der 16 will peak at the turn of thecentury and then decline.

■ The effect of the baby boomers willcontinue as those aged 65 and overwill increase from 13% of the popu-lation today to over 18% by 2025.

■ The percentage of those over age 85will nearly double in the next 25years.

■ Only 41% of women were in the la-bor force in 1970, compared to 60%in 1997.

■ For women ages 35-44, the workforceparticipation rate today is 77%. Thiscompares to 93% for men of that age.

■ This trend is the driving force behindmuch of the rising consumer demandfor convenience.

Percent of U.S. Population by Age 1990, 2000, and 2025

Age 1990 2000 2025

Under 16 23.0 29.7 21.4

65 and over 12.5 12.6 18.5

85 and over 1.2 1.6 2.1


Workforce Participation Rates, 1950–1997Percent in Workforce

Source: United States Department of Labor, Bureau of Labor Statistics, Current Population Survey

1950 1960 1970 1980 1990 19970%

10%

20%

30%

40%

50%

60%

70%

80%

90%82

30

80

36

77

41

75

50

74

57

75

60Male

Female

SECTION 2 7

■ Nearly half of consumer expendituresin the average supermarket are forperishable items.

■ Expenditures for meat and seafoodproducts represent the largest cat-egory of supermarket expenditures at15.9 percent.

■ Nonfood items, which include generalmerchandise and health and beautycare items, represent almost 21% ofconsumer expenditures at supermar-kets.

■ When meals are eaten at home, butnot prepared at home, they are mostoften purchased from a fast-food res-taurant.

■ Supermarkets have increasingly be-come a source of take-out food, ac-counting for 22 percent of the totaltake-out expenditures in 1997, doublethat of 1988.

How $100 is Spent, 1996Consumer Expenditures by Major Catagory

Product Category $ Amount

Perishables 49.18Bakery Foods 2.94Dairy Products 8.15Deli 3.16Florals 0.18Frozen Foods 5.34Ice Cream 1.52In-store Bakery 1.89Meat & Seafood 15.90Produce 10.10

Non-perishables 50.82Non-edible Grocery 9.81Miscellaneous Grocery 9.24Beverages 9.59Snack Foods 5.65Main Courses and Entrees 5.33General Merchandise 3.96Health & Beauty Care 4.07Unclassified 3.17

Source: Progressive Grocer, April 1997

Sources of Take-out Food, 1988-1997Percent of Total

1988 1991 1994 1997

Fast-food Restaurant 41 51 46 41

Restaurant 38 23 25 21

Supermarket 11 14 15 22

Deli/Pizza Parlor na na na 5

Convenience Store na 2 2 1

Other 3 6 8 7

None 7 4 4 3

Source: Food Marketing Institute, Trends in the United States 1997

8 SECTION 2

■ The growth in consumer food expen-ditures from 1995 to 2005 is pro-jected to be $100 billion.

■ In 1995, grocery stores and otherretail food outlets accounted for ap-proximately 56% of consumer foodexpenditures. However, by 2005, theretail food sector is expected to ac-count for only 51 percent of foodexpenditures.

■ Continued expansion of foodserviceofferings, including prepared food/meals from supermarkets is expected.

■ Eighty billion dollars of the $100 bil-lion growth in food expenditures ispredicted to come from foodservice.However, supermarket preparedfood/meals are expected to grow by$19 billion.

■ Although sales through traditionalgrocery stores will increase by $11billion, these are anticipated to beoffset by a decline in sales of $11 bil-lion through the other retail foodoutlets.

■ Therefore, aggregate growth in foodretail stores will come from growthin the prepared food/meals.

Growth in Consumer Food Expenditures, 1995–2005

Source: McKinsey & Co.

Total Growth= $100 billion

CommercialFoodservice

SupermarketPrepared Food/

Meals

Grocery Stores Non-commercialFoodservice

Other Retail FoodOutlets

-20

-10

0

10

20

30

40

50

60

70

80 80

1911

1

-11

$ bi

llion

s

RetailFoodservice

Consumer Food Expenditures, 1995, 2005


100% = $685 billion $785 billion

1995 2005

9%

35%

15%

40%

8%

41%

3%12%

36%

Non-commercial Foodservice

Commercial Foodservice

Supermarket Prepared Foods/Meals

Other Retail Food Outlets

Grocery Stores

RetailFoodservice

1% $100 billion growth

SECTION 2 9

■ Estimates of home meal replacement(HMR) expenditures differ widely,but one conclusion is clear: HMR willgrow to have a major impact on theU.S. food system.

■ Estimates of HMR expenditures dif-fer due to the various ways that it isdefined: ready-to-eat, ready-to-heat,take-out, chilled etc..

How Big Was Home Meal Replacement in 1996?

Source

$ billions

FIND/SVP1 82.4

NPD2 38.0

Datamonitor3

Meal solutions 107.9

HMR 42.3

Technomic4

Convenient meals 135.0

HMR 44.0

1 National Petroleum News, January 19982 Refrigerated and Frozen Foods, January 19983 Packaging Digest, January 19984 Progressive Grocer, September 1997

10 SECTION 3

Section III

Food Manufacturers

■ Philip Morris, parent company ofKraft General Foods and the MillerBrewing Company, was the largestU.S. food manufacturer in 1996.

■ Philip Morris’ food sales were morethan 50 percent larger than the sec-ond largest food and beverage manu-facturer—PepsiCo.

■ Coca-Cola, the leader in soft drinksales, was third.

Food Manufacturers

Leading Food and Beverage Manufacturers

1996 Food 1996& Beverage Consolidated

Sales Sales

$ millions Philip Morris 32,277 69,204Pepsico 20,204 31,645Coca-Cola 18,546 18,546ConAgra 18,249 23,899IBP 12,539 12,539Anheuser Busch 10,144 12,621Sara Lee 9,426 18,624H.J. Heinz 9,112 9,112Nabisco 8,889 17,063CPC International 8,477 9,844Campbell Soup 7,678 7,678Seagram 6,694 9,747Kellog 6,677 6,677Tyson Food 6,454 6,454General Mills 5,416 5,416Quaker Oats 5,199 5,199Procter & Gamble 4,066 35,284Hershey Foods 3,989 3,989Dole Food 3,840 3,840Hormel Foods 3,099 3,099

Source: Prepared Foods, July 1997

SECTION 3 11

■ Over 19,000 new grocery productswere introduced by manufacturers toretailers in 1997; 12,000 of thosewere food products.

■ The number of new product intro-ductions has increased significantlyover the last 10 years, nearly dou-bling from 10,182 in 1987. The an-nual average for the 1970’s was about1,000.

■ The leading category in number ofnew product introductions in 1997was condiments with salad dressingsbeing a major contributor.

■ Since 1992, The number of new foodproducts has leveled off, while non-food categories has increased rapidly.

■ Only about one-third of new productsactually make it to supermarketshelves.

■ In 1997, the top 20 manufacturersintroduced 12 percent of all new foodproducts, down from 13 percent in1992 and 16 percent in 1987.

■ More than a quarter of the compa-nies on 1997’s list have never beforebeen on the annual Top 20 ranking.

New Grocery Product Totals by Category

1997 1992 1987

FOOD CATEGORIES Baby Foods 53 53 10Bakery Products 1,200 1,508 931Baking Ingredients 422 346 157Beverages 1,606 1,538 832Breakfast Cereals 83 122 92Candy/Gum/Snacks 2,505 2,068 1,367Condiments 2,631 2,555 1,145Dairy 862 1,320 1,132Desserts 109 93 56Entrees 629 698 691Fruits & Vegetables 405 276 185Pet Food 251 179 82Processed Meat 672 785 581Side Dishes 678 560 435Soups 292 211 170

TOTAL FOOD 12,398 12,312 7,866

NONFOOD CATEGORIES Health & Beauty Aids 6,226 3,690 2,039Household Supplies 311 474 161Paper Products 60 153 47Tobacco Products 127 45 51Pet Products 202 116 18

TOTAL NONFOOD 6,926 4,478 2,316

GRAND TOTAL 19,324 16,790 10,182

Source: New Product News, January 1998

New Food Product IntroductionsLeading Companies

Rank Company 1997 1992

1 Philip Morris 165 2562 ConAgra 143 1513 Grand Metropolitan 129 744 Nestle 115 1145 Sara Lee 103 606 CPC International 74 537 H.J. Heinz 72 998 Unilever 72 539 Hain Food Group 71 –

10 General Mills 55 6111 Quaker Oats 54 3112 Hormel Foods 50 5013 Campbell Soup 49 12114 Frieda’s Finest 45 –15 World Variety Produce 43 –16 Dean Foods 42 –17 Nabisco Brands 42 6718 Tyson Foods 42 –19 Perugina 32 –20 Dreyer’s Grand Ice Cream 32 –

Total, Top 20 Firms 1,430 1,566Total, All Firms 12,398 12,312

Source: New Product News, January 1998

12 SECTION 3

■ Grocery Manufacturers cite a varietyof reasons to explain their motiva-tions to introduce new products intothe U.S. grocery distribution system:

• New products can respond tochanging consumer demands,

•They help keep client interest in themanufacturer,

• New products can take advantageof new technologies being devel-oped,

• New products can counter or blocknew product efforts of competitors,

• Products can be transformed fromcommodities to new, value-addedproducts.

■ Research results indicate supermar-ket buyers rely on certain new prod-uct characteristics more than others.Important considerations include:

• A gross margin (GM) whichmatches the retailer’s GM target,

• A product already adopted by otherretailers is more readily accepted,

• Truly unique items have the high-est probability of acceptance,

• Items introduced into categorieswith high growth are more oftenaccepted,

• Certain excessive terms of trade in-ducements may actually signal in-ferior quality.

Important New Product Criteria

Key decision criteria used by buyers

✓ Gross Margin

✓ Competition

✓ Quality/Uniqueness

✓ Category Growth

✓ Terms of Trade

Manufacturer Motivations

✓ Respond to changing consumers

✓ Maintain interest of intermediaries

✓ Take advantage of new technologies

✓ Counter competitive thrusts

✓ Transform commodity to value-added

SECTION 3 13

■ In times of limited budgets, food mar-keters need to allocate scarce mar-keting funds where they will producethe largest marginal returns.

■ Some of the most important reasonsto support continued research and de-velopment budgets are:

• New products stimulate interestfrom buyers, the immediate cus-tomer, and the end consumer,

• Certain terms of trade inducementsmay actually signal inferior quality,

• Category growth is key to salesgrowth and new products help growthe category,

• Buyers are favorably influenced byfundamentally new items, not look-alikes.

■ Two of the top three leading nationaladvertisers – as determined by ma-jor media advertising expenditures –are Proctor & Gamble and PhilipMorris, both of whom have significantpresence in the grocery industry.

■ Proctor & Gamble’s advertisingalone, which does not include pro-motions, was $2.6 billion in 1996.

■ Grand Metropolitan, a U.K. basedfood manufacturer, and PepsiCo alsofinished in the top 10.

New Product ResearchManagerial Implications

New products stimulate buyers (customers & consumers)

“Channel development funds” may not be needed, perhaps even negative

Category growth is key. Thus, marketing research needs to be continuous

Quality (and uniqueness) matter, not “me-too” items

Thus, allocate funds to:

R & D

Test Marketing

Market Research

Expenditures of Top 10 National Advertisers, 1996

Procter & Gamble

General Motors

Philip Morris

Chrysler

Time-Warner

Sears

Walt Disney

PepsiCo

Grand Metropolitan

Ford Motor

0 500 1000 1500 2000 2500 3000

$2,623

$2,373

$2,279

$1,420

$1,410

$1,317

$1,289

$1,269

$1,257

$1,179

Source: Advertising Age, September 25, 1997

$ millions

14 SECTION 3

■ Media spending generally refers tomass media—newspapers, magazines,radio, television, and billboards.

■ Consumer promotions are offered di-rectly to the consumer and includecouponing, new product sampling,cash refunds, sweepstakes, etc.

■ Trade promotions include cash allow-ances and free product based on cus-tomer performance.

■ Since 1977, the share of marketingdollars spent on consumer and tradepromotions has generally increased.

■ In 1996, three times as much moneywas spent on promotions as on ad-vertising.

■ The increase in promotional spend-ing is being allocated principally totrade promotions.

■ The proportion of spending allocatedto trade promotions has increasedfrom 35 percent in 1985 to 54 per-cent in 1996.

Shares of Total Marketing Promotional Expenditures

Source: Progressive Grocer, September 1997

1985 1989 1993 19960%

20%

40%

60%

80%

100%

35%

30%

35%

34%

27%

39%

25%

28%

47%

26%

20%

54%

Media Advertising

Consumer Promotion

Trade Promotion

Advertising vs. Promotions:Share of Marketing Spending


1977 1982 1987 1991 19960%

20%

40%

60%

80%

100%

42%

58%

38%

62%

35%

65%

25%

75%

26%

74%

Media Advertising

Consumer & Trade Promotion

SECTION 3 15

■ Numerous reasons are put forth toexplain the shift of marketing fundsaway from media advertising to salespromotion:

• Trade promotions increase sales inthe short run,

• More products are priced on anequal level needing a means to dif-ferentiate,

• Sales force will respond to pressureby increasing promotions to in-crease sales,

• Responses to trade promotions canbe readily measured. This also en-ables more localized, targeted pro-motion planning. Responses tomass media, however, are quite dif-ficult, if not impossible, to quan-tify,

• Increases in media channels makemass consumer advertising difficultand diffuse media messages.

■ The shift in promotional spendinghas not necessarily had positive im-pacts:

• Brand loyalty, supported by mediaadvertising, has declined,

• The decline in brand loyalty has ledto a heightened price sensitivityand the view that one brand is thesame as the other,

• Cash allowances and free productencourage forward buying and thendiversion of the extra product forcash sales to other retailers.

Reasons to Shift to Sales Promotion

✓ Increase in short run management view

✓ More parity products

✓ Sales force pressure

✓ Measurement capabilities

● More localized promotional planning

✓ Increasing media diffusion

Consequences of Shift in Promotional Spending

✓ Decline in brand loyalty

✓ Heightened price sensitivity-“commoditization” of brands

✓ Encourages forward buying and diverting

16 SECTION 3

■ Price reductions generally increasesales. The increases can be especiallylarge when used in combination withother promotional activities.

■ Example: a sales increase of 18% isproduced by dropping the price from100% to 95% of the original price.However, sales growth can be moreimpressive when price reductions arecombined with ads and displays.

■ Often the same increase can be gen-erated by applying different market-ing tools. Example, a 20 percent re-duction (price index=80) produces atwofold sales increase (sales in-dex=209). However, the same effectis produced with an in-store displaywith no price reduction (sales in-dex=213).

Sales Impact of Various Promotional Conditions

PromotionPrice Index1

Condition 100 95 90 85 80 75 70

sales index

Non-promoted 100 118 142 171 209 258 324

Ad Only 198 234 281 338 414 511 641

Display Only 213 251 302 364 445 550 690

Display & Ad 395 466 561 675 825 1,019 1,280

Source: A. C. Nielsen

1 100=undiscounted, everyday normal price

SECTION 4 17

Section IV

Food Wholesalers and Retailers

■ Although the top 20 grocery distribu-tors produce annual sales revenueswell over a billion dollars, their namesgenerally are not as well known astheir manufacturer counterpartspartly because grocery retailers re-main largely regional companies.

Sales of Top 20 Grocery Companies, 19961

Rank Company Sales

$ millions1 Kroger Co. 25,2002 Safeway Inc. 22,7003 Wal-Mart 17,5004 Albertson’s Inc. 13,6505 American Stores Co. 13,3016 Winn-Dixie Stores Inc. 12,9557 Ahold USA 11,2008 Publix Super Markets Inc. 10,4009 A&P 10,100

10 Food Lion Inc. 9,75011 Meijer Inc. 5,60012 Ralphs Grocery 5,36213 H.E. Butt Grocery Co. 5,20014 Super Kmart 5,00015 Supervalu, Inc. 4,50016 Giant Food Inc. 4,00017 Pathmark Stores Inc. 3,90718 Fleming Companies Inc. 3,60019 Fred Meyer, Inc. 3,54920 Penn-Traffic Co. 3,309

Source: Private Label, March/April 1997

1 U.S. grocery sales only


18 SECTION 4

■ The sales concentration of the top 4and top 8 chains in the grocery in-dustry has remained remarkablystable since 1929.

■ However, grocery chains are gradu-ally replacing independent supermar-ket companies. Chains accounted foronly 31.5% of grocery sales in 1929,but accounted for the majority ofgrocery industry sales in 1996.

■ On a regional level, the top four su-permarket companies often accountfor over two-thirds of grocery storesales in their market area.

■ Chain supermarkets tend to be morenumerous and larger than indepen-dents. In 1996, chain stores num-bered 18,920 or 14.9% of the totalnumber of grocery stores, but gener-ated nearly 60 percent of grocery in-dustry sales.

■ Independent supermarkets num-bered 10,980 or 8.6% of all grocerystores in 1996, but generated 16.7%of grocery industry sales.

■ Smaller store formats, conveniencestores and other small stores domi-nate total grocery store numbers withnearly 100,000 outlets.

U.S. Grocery Chains Market Shares, 1929-1996

Year Top 4 Chains Top 8 Chains Total All Chains

percent

1929 23.1 26.7 31.5

1948 21.7 25.5 38.6

1963 18.7 25.0 41.1

1975 17.0 25.0 46.6

1980 17.5 26.3 46.7

1984 19.4 26.8 49.3

1993 17.2 26.1 54.5

1996 18.6 29.8 59.3

1996 Grocery Sales By Volume and Format

Number % of Sales1 % ofof Stores Total ($ billions) Total

All Grocery Stores 127,000 100.0 425.7 100.0

Supermarkets$2 million + 29,900 23.5 323.2 75.9

Chain Supermarkets$ millions 18,920 14.9 252.3 59.32–3.9 1,375 1.1 4.0 0.94–7.9 4,090 3.2 24.6 5.88–11.9 4,065 3.2 39.0 9.212–19.9 5,285 4.2 78.5 18.420–29.9 3,075 2.4 70.9 16.730 + 1,030 0.8 35.3 8.3

Independent Supermarkets$ millions 10,980 8.6 70.9 16.72–3.9 4,535 3.6 13.1 3.14–7.9 4,020 3.2 22.4 5.38–11.9 1,140 0.9 10.9 2.612–19.9 785 0.6 11.2 2.620–29.9 330 0.3 7.5 1.830 + 170 0.1 5.8 1.4

Convenience Stores 55,100 43.4 26.8 6.3

Wholesale Club Stores 705 0.6 19.6 4.6

Other Stores 41,295 32.5 56.1 13.2

By Supermarket FormatConventional 18,200 60.9 142.5 44.1Extended2 8,200 27.4 140.0 43.3Economy3 3,500 11.7 40.7 12.6

Total Supermarkets 29,900 100.0 323.2 100.0

Source: Progressive Grocer, April 1997

1 supermarket items only.

2 includes combination (1,500) and superstore (6,700).

3 includes limited

assortment (850), warehouse (1600), super warehouse (450), and hypermarket/supercenter (600).

SECTION 4 19

■ Grocery store formats are evolvingaway from conventional formats.

■ Newer supermarket development canbe explained by examining how newstores are positioned with respect toprice/service and assortment dimen-sions.

■ The number of conventional or tra-ditional supermarkets has declinedboth in number and in sales share.

■ Growth in the larger and economyformats such as warehouse and lim-ited assortment stores appears tohave stabilized in recent years.

Store Format Growth Trends, 1980-1998

1980 1993 19981

Traditional % of ACV % of ACV % of ACVGrocery Channel Stores Share Stores Share Stores Share

Conventional 30,250 55.2 15,370 26.1 13,500 20.6Superstore 3,150 11.6 6,270 22.4 7,200 23.1Food/Drug Combo 475 2.2 2,190 10.2 3,500 14.5Warehouse Store 920 2.5 2,400 6.5 1,950 4.7Super Warehouse 7 na 500 3.4 675 4.1Limited Assortment 750 0.6 730 0.6 930 0.6Convenience Store (trad.) 35,800 5.4 49,800 6.6 48,500 5.7Convenience Store (petro.) na na 34,200 3.6 36,000 3.4Other 96,000 22.5 51,650 11.8 39,000 8.0

Subtotal 91.2 84.7

Source: Willard Bishop Consulting

1 projections

FULL ASSORTMENT

LIMITED ASSORTMENT

Supercenter/Hypermarket

Combination Store

Superstore

ConventionalSupermarket

LOW PRICE & SERVICE HIGH PRICE & SERVICE

Wholesale ClubWarehouse Store

Limited AssortmentStore

Mom-N-Pop Store

Convenience Store

Specialty Food Store

Retail Food Store Format Positioning

20 SECTION 4

■ Superstores and combination food/drug stores are relatively new formatsthat have captured a greater propor-tion of grocery industry sales since1980. These large stores often sellgeneral merchandise and health andbeauty care items as well as a fullarray of supermarket foods.

■ Wal-mart and K Mart have both imple-mented a form of hypermarket, calleda supercenter, which combines thetraditional mass merchandise of Wal-mart and K Mart with the traditionalsupermarket. Strong expansionwithin this format will increase salesin this channel.

■ The sales shares of the major depart-ments in the supermarket continueto evolve with changing consumer de-mand.

■ The meat department has experi-enced a steady decrease in sales as aproportion of total store sales sinceat least 1967.

■ Along with general merchandise,health and beauty care, andnonfoods, it is primarily the freshfoods departments (e.g. produce,deli, bakery, seafood) that are expe-riencing the greatest growth.

Store Format Growth Trends, 1980-1998 (cont.)

1980 1993 19981

Non-traditional % of ACV % of ACV % of ACVGrocery Channel Stores Share Stores Share Stores Share

Hypermarket na na 18 0.2 19 0.2Wholesale Club na na 603 5.6 800 6.6Mini Club na na 148 0.3 175 0.3Supercenter na na 250 1.5 1,020 7.0Deep Discounter na na 690 1.2 750 1.2

Subtotal na na 8.8 15.3

Traditional Grocery ChannelSubtotal 91.2 84.7

TOTAL 100.0 100.0


1 projections

Supermarket Sales DistributionPast, Present and Future

1967 1989 1993 1996 2000

Meat 24.1 15.5 14.0 14.4 12.3

Dairy 11.1 6.2 6.0 6.1 6.1

Produce 7.6 9.1 10.4 10.9 12.7

Deli na 4.3 6.0 6.6 7.8

Bakery na 2.6 3.3 3.3 4.0

Seafood na 1.1 1.1 1.1 1.6

Frozen Foods 4.3 5.4 5.2 5.4 5.5

Grocery, Food 34.5 27.0 26.6 26.4 24.7

GM/HBC/Other 18.9 28.8 27.4 26.8 25.2

Total 100.0 100.0 100.0 100.0 100.0

Chain Store Age, 1968. Supermarket Business, September 1990, 1994, 1997.Cornell Food Executive Programprojections, 1997

1 2 2 2 3

1 23

SECTION 4 21

■ Supermarket gross margin is themarkup between the cost and sellingprice divided by the selling price ofthe product.

■ The average gross margin for the to-tal store is 25.6% or about one-quar-ter of the average price to shoppers.

■ Gross margin is intended to cover allretail costs incurred by the supermar-ket. Frozen foods, produce, deli andbakery departments have higherequipment and labor costs as well ashigher loss and shrinkage rates.Therefore, they have higher grossmargins to cover the additional costs.

■ The proportion of private label orstore brands in the supermarket hasincreased in recent years. In 1991,supermarket sales’ shares of privatelabel products was 13.6%. By 1996,this had increased to 15.8%.

■ Private label volume or unit share hasalso increased from 18.1% in 1991 to20.2% in 1996.

■ Private label sales share is lower thanits share of volume due to the gener-ally lower pricing on private labelgoods.

Supermarket Gross Margins

Source: Supermarket Business, September 1997

GroceryFood

Dairy FrozenFoods

Meat Produce Deli Bakery Seafood GM/HBC/Other

StoreAverage

0%

10%

20%

30%

40%

50%

60%

25.9

29.7

35.3

25.0

44.1 42.7

52.3

21.5

30.5

25.6

Private Label Market Share TrendsU.S. Supermarket Industry

Year Dollar Share Unit Share

percent of total sales

1991 13.6 18.1

1992 14.6 19.4

1993 14.9 19.7

1994 14.9 19.6

1995 14.9 19.5

1996 15.8 20.2

Source: Private Label Manufacturers Association, 1997

22 SECTION 4

■ Sales share of private label varies bysupermarket department from a lowof 9.7% in health and beauty care to38.5% in the dairy case.

■ The high sales share in the dairy de-partment is primarily due to privatelabel milk sales. Many supermarketscarry their own store brand of milk.

■ In some European countries privatelabel has a much greater presencethan in the U.S..

■ Switzerland and the United Kingdomhave the greatest private label unitshares.

Private Label Share by Department, 1996U.S. Supermarket Industry

Dollar Share Unit Share


Edible groceries 10.6 15.3

Non-edible groceries 10.5 13.9

Frozen 15.3 19.9

Dairy 38.5 39.0

Bakery 26.2 35.5

Deli 12.2 15.2

HBC 9.7 13.2

General merchandise 10.1 16.2

Total 15.8 20.2


Global Private Label Penetration, 1997

Country Private Label Dollar Share

Country

percent

Switzerland 45United Kingdom 40Austria 30Denmark 30Canada 25France 23Belgium 22Gremany 21Netherlands 21United States 16Ireland 12Italy 11Portugal 10Spain 10Finland 8Norway 8Sweden 8Greece 7

Source: Datamonitor

SECTION 5 23

Section V

Financial Performance

■ Measured as a percentage of sales, theprofits of U.S. food and tobacco manu-facturers have been lower than theaverage of all manufacturers in theU.S. economy in recent years.


24 SECTION 5

■ Net profits have increased for all threefood related industries since 1993.

■ In general, food manufacturers haveexperienced higher net profit marginsand higher returns on assets than foodretailers and wholesalers.

■ Net profits of retailers have grownconsiderably faster since 1993 thanthose of manufacturers.

■ While returns on equity have grownfor manufacturers and wholesalerssince 1993, they have declined for re-tailers.

■ The largest growth has occurred inthe wholesale sector, where returnshave increased by 30 percent.

Net Profit Margin for Food Manufacturers, Wholesalers, and Retailers

Net Profit as a Percent of Sales

Source: Value Line Investment Survey, November 14, 1997

Manufacturer Wholesaler Retailer

1993 4.4 0.9 1.5

1994 4.5 0.9 1.8

1995 4.8 1.1 1.9

1996 4.6 1.1 2.0

19971

4.7 1.1 2.1

19981

5.2 1.2 2.2

1 estimates

Return on Equity for Food Manufacturers, Wholesalers, and Retailers

Net Profit as a Percent of Total Equity



1993 16.1 9.6 23.7

1994 16.2 11.0 24.4

1995 16.6 12.2 22.8

1996 16.6 12.3 21.7

19971

17.0 12.5 22.0

19981

17.5 12.5 21.0

1 estimates

SECTION 6 25

Section VI

Directions for the Future

■ To remain competitive in the future,the food industry has concentratedefforts in two main directions: 1) toadd more customer value and 2) toeliminate unnecessary costs.

■ Adding value is important becausethe consumer continues to demandgenuine benefit for money spent.

■ Eliminating unnecessary costs willhelp to further increase the value orbenefit/cost ratio by reducing costs.


Food Industry Directions Toward the Year 2000

THE YEAR2000

Adding more value

Eliminating unnecessarycosts

√

√

26 SECTION 6

■ One method of adding value to thebusiness is to continue to improveproduct variety by offering excitingand differentiated products that con-sumers perceive as unique and ofvalue.

■ New hybrid store formats can posi-tion supermarkets and target specificconsumer market segments.

■ Private label is projected to continueto grow as consumers recognize thehigher quality and increased value ofstore brands.

■ Service, freshness and increased con-sumer orientation should help makethe shopping experience more funand exciting.

■ Various electronic technologies willassist the food industry to eliminateunnecessary costs in product man-agement, data exchange and logistics.

■ Targeted spending on advertising andpromotion will result in a further re-duction in advertising and an in-crease in promotional spending.

■ Strategic alliances with preferred sup-pliers will streamline the marketingchannel logistics and trim costs. Theywill also create an environment whichwill enable firms to more quickly re-spond to the consumers’ changingdemands.

Eliminating Costs

✓ Electronic imperatives—ECR, EDI, logistics optimization

✓ Reduce advertising—but increase promotion

✓ Develop strategic alliances with preferred suppliers

Adding Value

✓ Differentiation—product variety

✓ Positioning—new hybrid formats

✓ Growth of private label

✓ Service and freshness

✓ Consumer orientation

Structure of the U.S. Food Industry

Divisions of U.S. Retail Sales, 1996Percent of Total Sales

Total = $2.5 Trillion

Eating &

Drinking

Furniture &

Appliances

Hardware

& Lumber

Clothing Gasoline Automotive Drug &

Proprietary

Other

0%

5%

10%

15%

20%

25%

5.5 5.44.6

6.4

3.6

23.0

Source: U.S. Department of Commerce

24.6

9.7

Food

Stores

17.2

Away from home At home Disposable income

At home: includes food purchases from grocery stores and other retail outlets, including purchases with food stamps and food produced and consumed on

farms, because the value of these foods is included in personal income. Excludes government-donated foods.

Away from home: includes purchases of meals and snacks by families and individuals, and food furnished employees because it is included in personal income.

Excludes food paid for by government and business, such as food donated to schools, meals in prisons and other institutions, and expense-account meals.


1931 1951 1971 1981 1986 1991 19960 %

5 %

10 %

15 %

20 %

25 %

0

1000

2000

3000

4000

5000

6000

$ Million

20.2

3.3

17.3

3.7

9.9

3.6

8.7

4.4

7.5

4.3

7.4

4.2

6.6

4.2

Food Expenditures as a Share of Disposable Personal Income% of

spendingDisposable income

U.S. Food System Sales, 1996

Retail Food42%

Food Service36%

Nonfood12%

Packaged AlcoholicBeverages

6%

Alcoholic Drinks5%


Maj

or M

arke

ting

Cha

nnel

s fo

r U

.S. G

roce

ry P

rodu

cts

Consu

mers

Exp

ort

s

U.S

. Fa

rms

and

Raw

Mate

rial Supplie

rs

Initia

l A

ssem

bly

and

Pro

cess

ing P

lants

Gro

cery

M

anufa

cturing F

irm

s

Bro

kers

Foodse

rvic

e W

hole

sale

O

rganiz

ations

Inte

gra

ted W

hole

sale

rs

and R

eta

ilers

Import

s

Foodse

rvic

e

Outlets

Chain

and Independent

Reta

il Sto

res

Distribution of Food Expenditures

1970

1975

1980

1985

1990

1995

1996

0

100

200

300

400

500

600

Consumer Expenditures

Marketing Bill

Farm Value


199677% of Total

197068% of Total

$bill

ions

Farm

Val

ue S

hare

for

Se

lect

ed F

oods

1996

Far

m S

hare

Fo

od P

rodu

ctof

Ret

ail P

rice

Ani

mal

Pro

duct

s:Eggs,

Gra

de A

Larg

e, 1 d

z.62

Beef, C

hoic

e, 1 lb.

48

Chic

ken, Bro

iler, 1

lb.

57

Milk

, 1/2 G

allo

n43

Cheese

, N

atu

ral C

heddar, 1

lb.

40

Frui

t an

d V

eget

able

s:Fre

sh

Apple

s, R

ed D

elic

ious,

1 lb.

23

Gra

pefr

uit, 1lb

.18

Lett

uce

, 1 lb.

18

Fro

zen

Ora

nge J

uic

e C

onc.

, 12 o

z.37

Cro

p Pr

oduc

tsSugar, 1

lb.

34

Flo

ur, W

heat, 5

lb.

33

Ric

e, Long G

rain

, 1 lb.

24

Prep

ared

Foo

dsPeanut

Butt

er, 1

lb.

27

Bre

ad, 1 lb.

8

Sourc

e: U

nited S

tate

s D

epart

ment

of

Agricu

lture

, Eco

nom

ic R

ese

arc

h S

erv

ice, Fo

od R

evie

w,

Septe

mber–

Dece

mber

1997

perc

ent

What a Dollar Spent for Food Paid for in 1997


Farm Value Marketing Bill

21.4¢ 38.4¢ 8.7¢ 4.3¢ 3.6¢ 3.7¢ 3.6¢ 3.3¢ 3.7¢

3.6¢

1.5¢

2.3¢

Note: Includes food eaten at home and away from home. Other costs include property tax and insurance, accounting and professional services, promotion, bad debts, and many miscellaneous items.

Labo

r

Pack

aging

Trans

porta

tion

Deprec

iation

Advert

ising

Fuel

Profit

Rent

Intere

st

Repa

irs

Busin

ess T

axes

Other C

osts

1.9¢


Percent of Total Populationby Race and Hispanic Origin

1990, 2000, and 2025

Race 1990 2000 2025

White, Not Hispanic 75.7 71.6 62.0

Black 12.3 12.8 14.2

Hispanic Origin (of any race) 9.0 11.3 16.8

Asian and Pacific Islander 3.0 4.4 7.5

American Indian, Eskimo, and Aleut 0.8 0.9 1.0

U.S. Total Population (1000s) 249,440 274,634 335,050


Percent of U.S. Population by Age 1990, 2000, and 2025

Age 1990 2000 2025

Under 16 23.0 29.7 21.4

65 and over 12.5 12.6 18.5

85 and over 1.2 1.6 2.1


Workforce Participation Rates, 1950–1997Percent in Workforce

Source: United States Department of Labor, Bureau of Labor Statistics, Current Population Survey

1950 1960 1970 1980 1990 19970%

10%

20%

30%

40%

50%

60%

70%

80%

90%

82

30

80

36

77

41

75

50

74

57

75

60Male

Female

How

$10

0 is

Spe

nt, 19

96C

onsu

mer

Exp

endi

ture

s by

Maj

or C

atag

ory

Prod

uct

Cat

egor

y$

Am

ount

Perish

able

s49

.18

Bakery

Foods

2.9

4

Dairy P

roduct

s8.1

5

Deli

3.1

6

Flo

rals

0.1

8

Fro

zen F

oods

5.3

4

Ice C

ream

1.5

2

In-sto

re B

akery

1.8

9

Meat

& S

eafo

od

15.9

0

Pro

duce

10.1

0

Non

-per

isha

bles

50.8

2N

on-e

dib

le G

roce

ry9.8

1

Mis

cella

neous

Gro

cery

9.2

4

Bevera

ges

9.5

9

Snack

Foods

5.6

5

Main

Cours

es

and E

ntr

ees

5.3

3

Genera

l M

erc

handis

e3.9

6

Health &

Beauty

Care

4.0

7

Uncl

ass

ifie

d3.1

7

Sourc

e: Pr

ogre

ssiv

e G

roce

r, A

pril 1997

Sources of Take-out Food, 1988-1997Percent of Total

1988 1991 1994 1997

Fast-food Restaurant 41 51 46 41

Restaurant 38 23 25 21

Supermarket 11 14 15 22

Deli/Pizza Parlor na na na 5

Convenience Store na 2 2 1

Other 3 6 8 7

None 7 4 4 3

Source: Food Marketing Institute, Trends in the United States 1997

Consumer Food Expenditures, 1995, 2005


100% = $685 billion $785 billion

1995 2005

9%

35%

15%

40%

8%

41%

3%

12%

36%

Non-commercial Foodservice

Commercial Foodservice

Supermarket Prepared Foods/Meals

Other Retail Food Outlets

Grocery Stores

Retail

Foodservice

1% $100 billion growth

Growth in Consumer Food Expenditures, 1995–2005


Total Growth= $100 billion

CommercialFoodservice

SupermarketPrepared Food/

Meals

Grocery Stores Non-commercialFoodservice

Other Retail FoodOutlets

-20

-10

0

10

20

30

40

50

60

70

8080

19

11

1

-11

$ b

illio

ns

Retail

Foodservice

How

Big

Was

H

ome

Mea

l Rep

lace

men

t in

199

6?

Sour

ce

$ bi

llion

s

FIN

D/SV

P1

82.4

NPD

238.0

Data

monitor3

Meal so

lutions

107.9

HM

R42.3

Tech

nom

ic4

Convenie

nt

meals

135.0

HM

R44.0

1 N

atio

nal P

etro

leum

New

s, J

anuary

1998

2 Ref

riger

ated

and

Fro

zen

Food

s, J

anuary

1998

3 Pa

ckag

ing

Dig

est,

January

1998

4 Pr

ogre

ssiv

e G

roce

r, S

epte

mber

1997

Food Manufacturers

Lead

ing

Food

and

Bev

erag

e M

anuf

actu

rers

1996

Foo

d 19

96&

Bev

erag

e

Con

solid

ated

Sale

sSa

les

$ m

illio

ns

Phili

p M

orr

is32,2

77

69,2

04

Pepsi

co

20,2

04

31,6

45

Coca

-Cola

18,5

46

18,5

46

ConA

gra

18,2

49

23,8

99

IBP

12,5

39

12,5

39

Anheuse

r Busc

h

10,1

44

12,6

21

Sara

Lee

9,4

26

18,6

24

H.J

. H

ein

z 9,1

12

9,1

12

Nabis

co

8,8

89

17,

063

CPC

Inte

rnational

8,4

77

9,8

44

Cam

pbell

Soup

7,678

7,678

Seagra

m

6,6

94

9,7

47

Kello

g

6,6

77

6,6

77

Tyso

n F

ood

6,4

54

6,4

54

Genera

l M

ills

5,4

16

5,4

16

Quake

r O

ats

5,1

99

5,1

99

Pro

cter

& G

am

ble

4,0

66

35,2

84

Hers

hey F

oods

3,9

89

3,9

89

Dole

Food

3,8

40

3,8

40

Horm

el Foods

3,0

99

3,0

99

Sourc

e: Pr

epar

ed F

oods

, July

1997

New

Gro

cery

Pro

duct

Tot

als

by C

ateg

ory

1997

1992

1987

FOO

D C

ATEG

ORIE

S Baby F

oods

53

53

10

Bake

ry P

roduct

s1,2

00

1,5

08

931

Bakin

g Ingre

die

nts

422

346

157

Beve

rages

1,6

06

1,5

38

832

Bre

akfa

st C

ere

als

83

122

92

Candy/G

um

/Snack

s 2,5

05

2,0

68

1,3

67

Condim

ents

2,6

31

2,5

55

1,1

45

Dairy

862

1,3

20

1,1

32

Dess

ert

s 109

93

56

Entr

ees

629

698

691

Fru

its

& V

egeta

ble

s 405

276

185

Pet

Food

251

179

82

Pro

cess

ed M

eat

672

785

581

Sid

e D

ishes

678

560

435

Soups

292

211

170

TOTA

L FO

OD

12

,398

12,3

127,

866

NO

NFO

OD

CAT

EGO

RIE

S

Health &

Beauty

Aid

s 6,2

26

3,6

90

2,0

39

House

hold

Supplie

s 311

474

161

Paper

Pro

duct

s 60

153

47

Tobacc

o P

roduct

s 127

45

51

Pet

Pro

duct

s 202

116

18

TOTA

L N

ON

FOO

D

6,92

64,

478

2,31

6

GRA

ND

TO

TAL

19,3

2416

,790

10,1

82

Sourc

e: N

ew P

rodu

ct N

ews,

January

1998

New

Foo

d Pr

oduc

t In

trod

uctio

nsLe

adin

g C

ompa

nies

Ran

kC

ompa

ny19

9719

92

1Phili

p M

orr

is165

256

2C

onA

gra

143

151

3G

rand M

etr

opolit

an

129

74

4N

est

le115

114

5Sara

Lee

103

60

6C

PC

Inte

rnational

74

53

7H

.J. H

ein

z72

99

8U

nile

ver

72

53

9H

ain

Food G

roup

71

–

10

Genera

l M

ills

55

61

11

Quaker

Oats

54

31

12

Horm

el Foods

50

50

13

Cam

pbell

Soup

49

121

14

Frieda’s

Fin

est

45

–

15

World V

ariety

Pro

duce

43

–

16

Dean F

oods

42

–

17

Nabis

co B

rands

42

67

18

Tyso

n F

oods

42

–

19

Peru

gin

a32

–

20

Dre

yer’s

Gra

nd Ice

Cre

am

32

–

Tota

l, To

p 20

Firm

s1,

430

1,56

6To

tal,

All

Firm

s12

,398

12,3

12

Sourc

e: N

ew P

rodu

ct N

ews,

January

1998

Manufacturer Motivations

✓ Respond to changing consumers

✓ Maintain interest of intermediaries

✓ Take advantage of new technologies

✓ Counter competitive thrusts

✓ Transform commodity to value-added

Important New Product Criteria

Key decision criteria used by buyers

✓ Gross Margin

✓ Competition

✓ Quality/Uniqueness

✓ Category Growth

✓ Terms of Trade

New Product ResearchManagerial Implications

New products stimulate buyers (customers & consumers)

“Channel development funds” may not be needed, perhaps even negative

Category growth is key. Thus, marketing research needs to be continuous

Quality (and uniqueness) matter, not “me-too” items

Thus, allocate funds to:

R & D

Test Marketing

Market Research

Expenditures of Top 10 National Advertisers, 1996

Procter & Gamble

General Motors

Philip Morris

Chrysler

Time-Warner

Sears

Walt Disney

PepsiCo

Grand Metropolitan

Ford Motor

0 500 1000 1500 2000 2500 3000

$2,623

$2,373

$2,279

$1,420

$1,410

$1,317

$1,289

$1,269

$1,257

$1,179

Source: Advertising Age, September 25, 1997

$ millions

Advertising vs. Promotions:Share of Marketing Spending


1977 1982 1987 1991 19960%

20%

40%

60%

80%

100%

42%

58%

38%

62%

35%

65%

25%

75%

26%

74%

Media Advertising

Consumer & Trade Promotion

Shares of Total Marketing Promotional Expenditures


1985 1989 1993 19960%

20%

40%

60%

80%

100%

35%

30%

35%

34%

27%

39%

25%

28%

47%

26%

20%

54%

Media Advertising

Consumer Promotion

Trade Promotion

Reasons to Shift to Sales Promotion

✓ Increase in short run management view

✓ More parity products

✓ Sales force pressure

✓ Measurement capabilities

● More localized promotional planning

✓ Increasing media diffusion

Consequences of Shift in Promotional Spending

✓ Decline in brand loyalty

✓ Heightened price sensitivity-“commoditization” of brands

✓ Encourages forward buying and diverting

Sales Impact of Various Promotional Conditions

PromotionPrice Index1

Condition 100 95 90 85 80 75 70

sales index

Non-promoted 100 118 142 171 209 258 324

Ad Only 198 234 281 338 414 511 641

Display Only 213 251 302 364 445 550 690

Display & Ad 395 466 561 675 825 1,019 1,280

Source: A. C. Nielsen

1 100=undiscounted, everyday normal price


Sale

s of

Top

20

Gro

cery

C

ompa

nies

, 19

961

Ran

kC

ompa

nySa

les

$ m

illio

ns1

Kro

ger

Co.

25,2

00

2Safe

way Inc.

22,7

00

3W

al-M

art

17,5

00

4A

lbert

son’s

Inc.

13,6

50

5A

merica

n S

tore

s C

o.

13,3

01

6W

inn-D

ixie

Sto

res

Inc.

12,9

55

7A

hold

USA

11,2

00

8Publix

Super

Mark

ets

Inc.

10,4

00

9A

&P

10,1

00

10

Food L

ion Inc.

9,7

50

11

Meijer

Inc.

5,6

00

12

Ralp

hs

Gro

cery

5,3

62

13

H.E

. Butt

Gro

cery

Co.

5,2

00

14

Super

Km

art

5,0

00

15

Superv

alu

, In

c.4,5

00

16

Gia

nt

Food Inc.

4,0

00

17

Path

mark

Sto

res

Inc.

3,9

07

18

Fle

min

g C

om

panie

s In

c.3,6

00

19

Fre

d M

eyer, Inc.

3,5

49

20

Penn-T

raff

ic C

o.

3,3

09

Sourc

e: Pr

ivat

e La

bel,

Marc

h/A

pril 1997

1 U

.S. gro

cery

sale

s only

U.S. Grocery Chains Market Shares, 1929-1996

Year Top 4 Chains Top 8 Chains Total All Chains

percent

1929 23.1 26.7 31.5

1948 21.7 25.5 38.6

1963 18.7 25.0 41.1

1975 17.0 25.0 46.6

1980 17.5 26.3 46.7

1984 19.4 26.8 49.3

1993 17.2 26.1 54.5

1996 18.6 29.8 59.3

1996

Gro

cery

Sal

es

By V

olum

e an

d Fo

rmat

Num

ber

% o

fSa

les1

% o

fof

Sto

res

Tota

l($

bill

ions

)To

tal

All

Gro

cery

Sto

res

127,0

00

100.0

425.7

100.0

Superm

ark

ets

$2 m

illio

n +

29,9

00

23.5

323.2

75.9

Chain

Superm

ark

ets

$ m

illio

ns18,9

20

14.9

252.3

59.3

2–3.9

1,3

75

1.1

4.0

0.9

4–7.9

4,0

90

3.2

24.6

5.8

8–11.9

4,0

65

3.2

39.0

9.2

12–19.9

5,2

85

4.2

78.5

18.4

20–29.9

3,0

75

2.4

70.9

16.7

30 +

1,0

30

0.8

35.3

8.3

Independent

Superm

ark

ets

$ m

illio

ns10,9

80

8.6

70.9

16.7

2–3.9

4,5

35

3.6

13.1

3.1

4–7.9

4,0

20

3.2

22.4

5.3

8–11.9

1,1

40

0.9

10.9

2.6

12–19.9

785

0.6

11.2

2.6

20–29.9

330

0.3

7.5

1.8

30 +

170

0.1

5.8

1.4

Convenie

nce

Sto

res

55,1

00

43.4

26.8

6.3

Whole

sale

Clu

b S

tore

s705

0.6

19.6

4.6

Oth

er

Sto

res

41,2

95

32.5

56.1

13.2

By S

uperm

ark

et

Form

at

Conventional

18,2

00

60.9

142.5

44.1

Ext

ended

28,2

00

27.4

140.0

43.3

Eco

nom

y3

3,5

00

11.7

40.7

12.6

Tota

l Sup

erm

arke

ts29

,900

100.

032

3.2

100.

0

Sourc

e: Pr

ogre

ssiv

e G

roce

r, A

pril 1997

1 s

uperm

ark

et

item

s only

. 2 incl

udes

com

bin

ation (

1,5

00)

and s

upers

tore

(6,7

00).

3 incl

udes

limited

ass

ort

ment

(850),

ware

house

(1600),

super

ware

house

(450),

and h

yperm

ark

et/

superc

ente

r (6

00).

FULL ASSORTMENT

LIMITED ASSORTMENT

Supercenter/Hypermarket

Combination Store

Superstore

ConventionalSupermarket

LOW PRICE & SERVICE HIGH PRICE & SERVICE

Wholesale ClubWarehouse Store

Limited AssortmentStore

Mom-N-Pop Store

Convenience Store

Specialty Food Store

Retail Food Store Format Positioning

Store Format Growth Trends, 1980-1998

1980 1993 19981

Traditional % of ACV % of ACV % of ACVGrocery Channel Stores Share Stores Share Stores Share

Conventional 30,250 55.2 15,370 26.1 13,500 20.6

Superstore 3,150 11.6 6,270 22.4 7,200 23.1

Food/Drug Combo 475 2.2 2,190 10.2 3,500 14.5

Warehouse Store 920 2.5 2,400 6.5 1,950 4.7

Super Warehouse 7 na 500 3.4 675 4.1

Limited Assortment 750 0.6 730 0.6 930 0.6

Convenience Store (trad.) 35,800 5.4 49,800 6.6 48,500 5.7

Convenience Store (petro.) na na 34,200 3.6 36,000 3.4

Other 96,000 22.5 51,650 11.8 39,000 8.0

Subtotal 91.2 84.7


1 projections

Store Format Growth Trends, 1980-1998 (cont.)

1980 1993 19981

Non-traditional % of ACV % of ACV % of ACVGrocery Channel Stores Share Stores Share Stores Share

Hypermarket na na 18 0.2 19 0.2

Wholesale Club na na 603 5.6 800 6.6

Mini Club na na 148 0.3 175 0.3

Supercenter na na 250 1.5 1,020 7.0

Deep Discounter na na 690 1.2 750 1.2

Subtotal na na 8.8 15.3

Traditional Grocery ChannelSubtotal 91.2 84.7

TOTAL 100.0 100.0


1 projections

Supermarket Sales DistributionPast, Present and Future

1967 1989 1993 1996 2000

Meat 24.1 15.5 14.0 14.4 12.3

Dairy 11.1 6.2 6.0 6.1 6.1

Produce 7.6 9.1 10.4 10.9 12.7

Deli na 4.3 6.0 6.6 7.8

Bakery na 2.6 3.3 3.3 4.0

Seafood na 1.1 1.1 1.1 1.6

Frozen Foods 4.3 5.4 5.2 5.4 5.5

Grocery, Food 34.5 27.0 26.6 26.4 24.7

GM/HBC/Other 18.9 28.8 27.4 26.8 25.2

Total 100.0 100.0 100.0 100.0 100.0

Chain Store Age, 1968. Supermarket Business, September 1990, 1994, 1997.Cornell Food Executive Programprojections, 1997

1 2 2 2 3

1 2

3

Supermarket Gross Margins

Source: Supermarket Business, September 1997

GroceryFood

Dairy FrozenFoods

Meat Produce Deli Bakery Seafood GM/HBC/Other

StoreAverage

0%

10%

20%

30%

40%

50%

60%

25.9

29.7

35.3

25.0

44.142.7

52.3

21.5

30.5

25.6

Private Label Market Share TrendsU.S. Supermarket Industry

Year Dollar Share Unit Share


1991 13.6 18.1

1992 14.6 19.4

1993 14.9 19.7

1994 14.9 19.6

1995 14.9 19.5

1996 15.8 20.2


Private Label Share by Department, 1996U.S. Supermarket Industry

Dollar Share Unit Share


Edible groceries 10.6 15.3

Non-edible groceries 10.5 13.9

Frozen 15.3 19.9

Dairy 38.5 39.0

Bakery 26.2 35.5

Deli 12.2 15.2

HBC 9.7 13.2

General merchandise 10.1 16.2

Total 15.8 20.2


Glo

bal

Priv

ate

Labe

l Pen

etra

tion,

199

7C

ount

ry P

riva

te L

abel

Dol

lar

Shar

e

Cou

ntry

percent

Sw

itze

rland

45

United K

ingdom

40

Aust

ria

30

Denm

ark

30

Canada

25

Fra

nce

23

Belg

ium

22

Ger

many

21

Neth

erlands

21

United S

tate

s16

Irela

nd

12

Italy

11

Port

ugal

10

Spain

10

Fin

land

8

Norw

ay

8

Sw

eden

8

Gre

ece

7

Sourc

e: D

ata

monitor


6%

Average After Tax Profits as a Share of SalesManufacturing 1994–1996

Source: Statistical Abstract of the United States, 1997, no. 880

Food & Tobacco Nondurable Durable All Manufacturing0%

1%

2%

3%

4%

5%

7%

5.8

5.3

6.2

5.4

Net Profit Margin for Food Manufacturers, Wholesalers, and Retailers

Net Profit as a Percent of Sales



1993 4.4 0.9 1.5

1994 4.5 0.9 1.8

1995 4.8 1.1 1.9

1996 4.6 1.1 2.0

19971

4.7 1.1 2.1

19981

5.2 1.2 2.2

1 estimates

Return on Equity for Food Manufacturers, Wholesalers, and Retailers

Net Profit as a Percent of Total Equity



1993 16.1 9.6 23.7

1994 16.2 11.0 24.4

1995 16.6 12.2 22.8

1996 16.6 12.3 21.7

19971

17.0 12.5 22.0

19981

17.5 12.5 21.0

1 estimates


Food Industry Directions Toward the Year 2000

Adding more value

Eliminating unnecessarycosts

✓

✓

THE YEAR 2000

Adding Value

✓ Differentiation—product variety

✓ Positioning—new hybrid formats

✓ Growth of private label

✓ Service and freshness

✓ Consumer orientation

Eliminating Costs

✓ Electronic imperatives—ECR, EDI, logistics optimization

✓ Reduce advertising—but increase promotion

✓ Develop strategic alliances with preferred suppliers

Documents

F INDUSTRY MANAGEMENT CORNELLpublications.dyson.cornell.edu/outreach/extensionpdf/1998/Cornell_A… · food stores such as paper goods, de-tergents, etc. account for 12 percent of