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Industry Analysis: Supermarkets and Grocery Stores in the US
MGT 4800J
Madison Kristoff
Ohio University
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Executive Summary
The Supermarket and Grocery industry is a $611.9 billion industry and has seen a 1.0% growth
rate since the year 2012 (IBISWorld, 2017). With a strengthening economy, the supermarket and
grocery industry gain revenue as consumers’ preference shift towards healthier, organic brands
and an increase of household per capita income.
The Supermarket and Grocery Industry is a fast-paced industry changing rapidly to cater towards
the customer’s needs. Despite the steady revenue growth, the supermarket and grocery industry
face increased competition from alternative retailers. Supercenters, such as Costco and Walmart,
drive competition due to their low prices and convenience to consumers. Mass merchandisers
purchase in bulk resulting in lower prices offered to consumers (IBISWorld, 2017). With
increased competition, grocery stores focus on the importance of loyalty program to strengthen
the relationships with returning customers. Traditional grocery stores struggle to maintain large
profit margins in light of the intense price competition in the industry.
The top three companies in the Supermarket and Grocery Industry account for 31.3% of industry
revenue in 2017. This leaves the remaining 68.7% of the market share distributed among an
estimated 41,070 medium-sized operators (IBISWorld, 2017). Due to the Supermarket and
Grocery Store industry being highly fragmented, it is difficult for smaller, more regional
companies to gain a significant amount of the market. Large firms in the industry merge and
acquire smaller companies to increase market share in the industry. The main competitors in the
supermarket and grocery industry include The Kroger Company, Albertsons Company LLC, and
Publix Super Markets. In the upcoming years, medium-sized companies are expected to increase
market share caused by disposable income increasing creating a demand for more health-
conscious food options (IBISWorld, 2017).
Over the next five years, the number of industry operators is forecasted to rise at an average
annual rate of 0.2% to 41,569 by 2022 (IBISWorld, 2017). The supermarket and grocery industry
is projected to grow at an annual rate of 0.8% to $630.0 billion in the next five years to 2022
(IBISWorld, 2017). This increase in revenue is caused by the rising demand of healthier, organic
produce and the increase, household per capita income and the growth of buying food online.
First, the supermarket industry is benefitting from the growing demand for all-natural and
organic food. In 2015, sales from organic and all-natural products increased 11.0% (IBISWorld,
2017). Organic fruits and vegetables hold higher profit margins ranging from 30.0-100.0%
(IBISWorld, 2017). Next, per capita disposable income is expected to rise an annualized 1.6%
over the five years to 2017 (IBISWorld, 2017). A growth in household per capita disposable
income increases the amount of money consumers are willing to spend at grocery stores. Lastly,
the growth of online grocery sales are expected to surge over 20% of the United States grocery
market by 2025 (Hoovers, n.d.).
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Industry’s Macro-Environment
Economic
Strengthening Economy
The supermarket and grocery industry has grown over the past five years as the economy
strengthened. Per capita disposable income increased 2.4% from years 2013 to 2018 and is
forecasted to grow 2.8% in the next five years. Per capital disposable income determines an
individual’s ability to purchase goods or services (IBISWorld, 2017). Price is one of the top
factors customers take into consideration when deciding where to shop. Evaluating pricing
strategy in a changing economy attracts price conscious customers. In a strengthening US
economy, many consumers have shifted towards more premium, organic and natural brands
(IBSWorld, 2017). With a growing demand for premium goods, food retailers will benefit from
higher profit margins associated with organic and natural produce.
Sociocultural
Premium, Organic Produce
Consumers becoming more health conscious create a demand for healthier options in the grocery
and supermarket industry. The obesity epidemic and other diet-related health problems are
bringing attention to what people eat and drink (Lee, 2016) In 2017, the healthy eating index is
expected to grow slightly (IBISWorld, 2017). Food retailers are strategically placing healthier
food options in more visible locations throughout the store, such as near the entrance, end caps of
aisles, at eye level, and close to check-out counters (Lee, 2016). Organic and all-natural product
sales have significantly increased in 2015 up 11.0% from the previous year (IBISWorld, 2017).
Consequently, the supermarket and grocery industry is benefiting from the increased demand of
organic and natural produce.
Technology
Online Grocery Shopping
In a survey conducted in November of 2016 states 7.7% of United States customers shopped for
groceries online in the past 30 days, a 5.7% increase from two years ago (Skrovan, 2017). The
convenience of online grocery shopping appeals to its customers. Consumers’ top desires with
online food delivery include food arriving in excellent condition directly to the customers
doorstep and free/low-cost delivery service (Statista, n.d.). Online grocery shopping avoids
transportations issues, saves time, and eliminates the overwhelming and overcrowded shopping
experience. Many stores have implemented BOPIS, buy online, pickup in store. This strategy is
similar to online grocery delivery besides having to pick the groceries up at the store. This trend
is threatening brick-and-mortar grocery retailers as well as taking away business from operators
who have not implemented these strategies into its company. Stores who are able to merge in-
store and digital operations together to offer in-store pick up and at home delivery will be able to
increase sales significantly.
Latest Technology Implemented In-Stores
The supermarket and grocery industry utilize the latest technology in stores to cut costs, improve
productivity, and better the customer’s overall experience of grocery shopping. Some of the
technological advances include:
E-commerce and Mobile Applications:
The e-commerce grocery trend is changing the supermarket and grocery industry. The online
grocery industry in the United Sates has a market share of 6.0%, leaving room for significant
potential for growth (Varmeeren, 2016). Grocery store mobile apps are growing rapidly,
specifically among millennials. According to a recent Shopper STAT study conducted by
Progressive Grocer, an estimated 43% of shoppers use mobile apps to grocery shop (Heller,
2016). Kroger recently updated their mobile app in 2016 to save recently imported grocery lists,
simplify the shopping experience by with the aisle location of specific products, and sends
weekly promotions based off previous purchases (Samuely, n.d.).
Mobile Payments:
Pay By Touch scanners, e-wallets, and Apple Pay are all examples of mobile payments grocery
stores are using at checkout for a quicker and safer payment.
Self-Checkout Lines:
Self-checkout lines continue to remain popular in grocery stores. Customers prefer self-checkout
lanes when only purchasing a few products because it tends to be the fastest way of making a
purchase (IBISWorld, 2017). Self-checkout technology can also help improve a customer’s
experience of grocery shopping. Self-checkout lanes decrease the average time customers wait in
line to checkout.
In-store Wi-Fi:
Over the past five years, grocery stores have started offering free in-store Wi-Fi. Retailers have
