Retail Sector

The food system consists of broad sectors that include production, processing and manufacturing, distribution, and retail. The retail sector is the part of this system that is closest to the consumer. Although processors/manufacturers were once quite powerful, exerting tremendous influence over retailers and consumers, this dynamic is shifting toward greater retailer power. The leading retailers make up a large and increasing percentage of sales for the largest food processors. Wal-Mart, for example, sells more than 10 percent of the products made by Dean Foods, General Mills, Kellogg, Kraft, Campbell's, Tyson, and Pepsi. This gives Wal-Mart the leverage to demand low wholesale prices, as well as exacting packaging and delivery requirements, from its suppliers. Leading retailers are also more effectively encouraging consumers to behave in ways that enhance their profits, using means such as store design and shelf placement. Their increasingly sophisticated marketing strategies also include discounts for customers who use loyalty or rewards cards—these enable the collection of massive amounts of data and highly targeted advertising efforts.

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A shopper in Maputo, Mozambique, selecting packaged meat at a supermarket butcher counter in 2002. The supermarket format has spread to much of the world, and Western companies are looking to developing countries for new audiences.

Source: World Bank

Food retailing was dominated by supermarkets from the 1950s to the 1990s. The supermarket format originated in the United States and is characterized by: (1) a reliance on customers to self-service and line up to check out; (2) a larger store size and higher number of food items (currently 15,000+) than most other formats; (3) low markups from wholesale prices; and (4) high sales volumes (currently $2 million or more annually). Many of these innovations were facilitated by the development of a national highway system and refrigerated trucking, which lessened dependence on railroads and encouraged more self-distribution by retailers. By shipping directly from manufacturers, supermarkets were able to negotiate price discounts based on volume. Until recently, more than 75 percent of food sales in the United States were made through supermarkets and grocery stores, and the average person was estimated to spend 2 percent of their life in these retail outlets.

Supermarkets and grocery stores are facing increasing competition from other retail formats including hypermarkets/supercenters (a combination supermarket and department store, pioneered by the French firm Carrefour in the 1960s), wholesale buying clubs, convenience stores, inexpensive department stores (e.g., dollar stores), and specialty retailers (e.g., natural/organic markets, ethnic markets). They are also affected by a trend of increasing expenditures for food consumed outside the home, particularly at fast food restaurants. The differentiation unfolding in the retail sector reflects a shift from mass production and consumption to a model more highly targeted to particular groups of consumers (based on age, socioeconomic status, ethnicity, or other differences), or even to individuals.

The entrance of Wal-Mart into food retailing has had a dramatic effect on the retail sector. Wal-Mart began selling groceries in a supercenter format in 1988, and in little more than a decade it became the leading food retailer in the United States. The corporation also operates a chain of wholesale buying clubs (Sam's Club) and introduced a chain of smaller-format grocery stores (Wal-Mart Neighborhood Market) in 1998. Wal-Mart's involvement in food retailing helped to trigger a wave of consolidation in the 1990s, particularly in North America and Europe, as other retailers merged or made acquisitions to remain competitive. It is estimated that the top 3 firms control 80 percent of grocery sales in Australia, the top 4 firms control 75 percent of sales in the United Kingdom, the top 5 firms control 50 percent of sales in the United States, and the top 30 firms control 33 percent of sales globally.

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