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Retail stores

Recent growth in sales of nontraditional retail outlets - membership warehouse dubs, mass merchandisers, and deep-discount drugstores - has caused traditional grocery food stores to modify marketing strategies and appeal to the more price-conscious consumer.

While nontraditional outlets do not generally offer the broad array of produce, bakery products, fresh meats and dairy products, and frozen foods found in traditional foodstores, they do market large amounts of specific categories of products - such as dry groceries, health and beauty products, and general merchandise.

According to a recent Food Marketing Institute (FMI) report on alternative store formats, grocery sales of nontraditional retail outlets rose to $33.3 billion, or 62 percent of all grocery sales in 1991. The growth has primarily occurred within the last 5 years, but a rapid increase is expected through the end of the decade.

Because these outlets are more specialized, have lower operating costs, and subsequently offer lower prices to consumers, they are taking business away from some nearby supermarkets. Competition between traditional and nontraditional food operators, aided further by the recent recession, continues to increase as the nontraditionals expand into other traditional grocery departments, such as fresh produce and fresh meat.

In 1980, there were only eight wholesale dubs in the entire food retailing industry. In early 1993, there were 779, with an estimated combined annual sales of $34.2 billion in 1992. Mass merchandisers, such as Kmart and Wal-Mart, and deep-discount drugstores, such as Phar-Mor, Drug Emporium, and F&M, also sell increasing amounts of groceries, such as snacks, beverages, and canned and other packaged food products. Additionally, the new Kmart and Wal-Mart supercenters include full-line grocery stores, making competition in food retailing keener than ever.


Traditional Supermarkets Still Dominate

The traditional food retailing industry comprises a range of foodstores. These retailers include broad-line grocery stores - supermarkets, convenience stores, and superettes - and specialty foodstores, such as meat and seafood markets, produce stands, delicatessens, and bakeries. Total foodstore sales for 1992 were $384 billion. Grocery store sales at $361 billion accounted for 94 percent of this total, while specialty foodstores had a 6-percent share (fig. 1).

The supermarket, the central force in today's grocery market, is primarily a self-service grocery store with a full range of departments and annual sales of at least $3.3 million in 1992. Additionally, 50 percent or more of supermarket sales come from food. Supermarkets accounted for over 70 percent of total foodstore sales and 76 percent of grocery store sales in 1992.

Supermarket formats include conventional supermarkets, superstores, combination food/drug stores, limited assortment stores, warehouse stores, and hypermarkets . Each format is distinguished by size, percentage of food versus nonfood items offered, and variety of services.

The conventional supermarket was once the most common format. In 1980, 85 percent of all supermarkets fit the conventional format, accounting for 73.1 percent of grocery store sales . By 1991, only 49 percent of supermarkets were conventional, accounting shares and numbers over the last decade. Between 1980 and 1991, superstores, combination food/drugstores, superwarehouse/limited assortment stores captured 42.3 percent of total supermarket sales. The number of these formats in operation more than doubled in numbers, accounting for 24.9 percent of all supermarkets in 1991 and 33.9 percent of grocery sales.


Societal Changes Spur Retailing Changes

Changes in the work force, lifestyles, and economic factors have contributed to slow market growth for the traditional food retailing industry and to the increase in larger, more diversified stores over the last two decades. The increase in multiple-career households meant more disposable income, coupled with the demand for more convenience, quality, and time savings.

Retailers seeking new opportunities for greater sales to price-conscious consumers as well as service-oriented consumers responded with new supermarket formats and services to challenge the conventional supermarkets.

Many supermarkets pursued the "one-stop shopping" concept by providng expanded service departments (meat, fish, and deli), and expanded nonfood departments and services, such as pharmacies, video rentals, nonprescription/ prescription drugs, and general merchandise, such as clothing.

Competition was also sharpened by the recent recession and slow-paced recovery. Per capita disposable income, adjusted for inflation, rose 1.1 percent in 1992 from a previous drop of 1.3 percent in 1991. The 1992 food price increase was the lowest since that in 1967.


Nontraditional Retail Outlets Move into Territory

Added to these economic pressures was the growth of lower cost, price-oriented nontraditional outlets. Generally known to stock a high percentage of general merchandise, these outlets have expanded their offering of groceries and related products.

These formats have grown rapidly and, for the most part, profitably, over the last several years. Besides other benefits offered to consumers, they are noted most for offering low prices.


Membership Warehouse Clubs

Considered one of the fastest growing segments of retailing, according to Progressive Grocer magazine, the first membership warehouse dub store opened in San Diego, California, in 1976. The Price Company opened Price Club designed to appeal to a select group of individuals and small businesses looking to save money.

Warehouse club stores were fully computerized, no-frills operations offering a limited selection of first quality, name- brand merchandise. Grocery products were mainly dry groceries and paper products. Today, club stores have expanded their offerings to include some services and perishable foods.

Warehouse clubs stock fewer items than do traditional supermarkets, but they concentrate on highvalue, branded items displayed on pallets and packaged in large, multipack sizes. They also offer fewer services than do supermarkets: there is no bagging, and operation hours are shorter.

Warehouse clubs also incur lower expenses for advertising, administration, and shipping, resulting in lower overall operating expenses compared with those of supermarkets. The clubs pass on these savings to shoppers through lower prices. An FMI study concluded that prices in club stores for grocery-related items averaged 26 percent lower than in traditional grocery stores.

More than 21 million people have memberships in U.S. warehouse clubs. Club sales totaled $34.2 billion in 1992. According to FMI, sales growth of warehouse clubs has averaged 31 percent over the last 5 years. Four firms accounted for over 90 percent of total sales .


Deep-Discount Drugstores

Deep-discount drugstores are known for their low-price image. They offer a broad selection of products - mainly health and beauty care products and general merchandise, such as small household appliances; some food items, such as candy and other snacks; and a limited assortment of popular, shelf-stable, high-volume foods. Located mainly along the east coast and in the Midwest in high-traffic shopping centers, these stores vary in business style. Store sizes range from 25,000 to 65,000 square feet. They generally stock a variety of brands in limited sizes and negotiate with manufacturers to obtain low costs or bargain for close-out items to keep costs low.

Like warehouse clubs, deep-discount drugstores have lower labor and fixtures' costs than do supermarkets. Gross margins (retailer markup over cost as a percentage of total sales) are higher than those for membership warehouse clubs, but less than those of grocery stores


Mass Merchants

Mass merchandise stores offer an array of general brand-name merchandise and some private (or store) label goods, grocery related products, and snacks and dry groceries. New stores often exceed 100,000 square feet and stock between 70,000 and 80,000 products. They are largely located in small towns and large suburbs. Mass merchandise stores emphasize every day low prices,' and are increasing the number and variety of grocery products offered.


S.N.I.W, Parc d'Innovation de la Haute Borne - Cité Scientifique - 4 rue Archimède - 59650 Villeneuve d'Ascq, France - Tel: - Fax: - E-mail: sniw@nordnet.fr

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