What Opportunities are there in the Grocery Industry for Small Businesses?

Anibal Quevedo

Professor Persily- Lamel

KSB 100- 001

 Blog 5

  The economic crisis of 2008 made people start buying food regularly in the sake of saving more of their disposable income. This shift towards grocery purchases allowed a lot of small business to start up. Therefore, during the post-recession period—opposed to what happened in other industries—the grocery industry experienced an increase in the number of competitors.

The bust of grocery purchases that the recession of 2008 produced, however, is expected to fade during the next 5 years. As the economy recovers, consumers might start thinking about grocery as an inferior good, and spend their dollars in other industries. For example, people could start going more to restaurants and cooking less at home.  For that reason, it will become tougher to jump in the supermarket business. Moreover, many of those “created-by-the-crisis” small businesses will fade away along with the bust.

The companies that will be able to resist this shift will be those that address two fundamental problems: 1) reduce costs so they have a greater profit margin to play with 2) are capable of attract customers and maintain them. Now, how can they do that?

We can answer that question by looking at what companies in the industry are doing now. Many companies are heavily investing in TI (Technology Information). For example, by improving software in their warehouse system they can improve their distribution capabilities. This will allow them cut expenses and better compete through those 5 years. An example of this IT improvement are the POS (point-of-sale) scanners, which lower labor costs and allow collect UPC data from products and stores in a computer for later review and analysis. Other IT improvement is EDI systems, which connect retailers and suppliers in a way that enable them to monitor inventory and improve product mixes. These technological improvements also provide data to be used in marketing. For example, from these systems marketers can collect demographic statistics, frequency of shopping for a certain product, and geographical data.

Moreover, apart from reducing costs, companies must aim to convince customers to expend money in grocery rather than in restaurants or other alternative goods. They do that by improving the final product experience. Customer service plays a big role in this aspect. Changing to a “give the customer whatever he or she wants” policy might be the answer.

Altogether, the competitive landscape in the Grocery Industry is likely to change as the economy recovers. The ones able to invest capital in the strategies described above are the ones likely to succeed in the near future. That implies that small business with tight budgets will be largely affected and it will be extremely hard independent entrepreneurs to try to compete.

Data pulled from:

http://www.cdfifund.gov/what_we_do/resources/Understanding%20Grocery%20Industry_for%20fund_102411.pdf

Sofia Klotz

November 17^th 2012

Business 1.0

Section 1

                                                            Blog # 5

The grocery industry is one of the largest industries totaling 1.07 trillion dollars in revenue per year.  The industry creates 2.4 million full and part time jobs in the United States alone. There are a multitude of jobs that the grocery industry creates for a wide range of differently qualified personnel. It is especially interesting to look at the distribution of income throughout jobs the industry.

Sales related occupations, more commonly known as front line workers such as supervisors, managers, cashiers and salespersons, represent the largest sector of jobs in this industry, accounting for 41.7% or 1.08 million jobs in the grocery industry. The second largest category is the office and administrative support occupations, which consist of supervisors and managers of the office and administrative support workers, bookkeepers, accountants, auditing clerks, and order fillers, that when combined account for 22% of the 2.4 million jobs in the grocery industry.

 The third largest group is composed of production and service occupations such as pharmacy aids, cooks, bakers, food preparation workers, and meat, fish and poultry trimmers, which account for 21% of jobs in the industry. The last large chunk is jobs that relate to the transportation of materials, which account for 10.6% of the industry’s jobs.  Together these four groups account for 95.6% of the jobs in the grocery industry however these employees on average only get paid an average salary of 28,680 per year, equaling about 13.7 dollars per hour.

On the opposite end of the job spectrum are the Management, business, pharmaceutical, and financial occupations which account for the remaining 4.4% of jobs in the grocery industry. Out of these 105 thousand jobs the average salary is around 140 thousand dollars per year. This shows that 4.4% of people are making 14.7 billion dollars, as apposed to the 64 billion that the other 95.6% of workers combined earn.

http://salaries-job-industry.findthedata.org/d/i/Grocery-Stores

http://www.collegegrad.com/industries/trade03.shtml#ear

Influential Leaders in the Grocery Industry

Beatrice Teston

KSB 100-001

Professor Persily Lamel

         There have been several influential leaders within the grocery industry throughout the past twenty years. Each of these significant people have changed and evolved each different face of the grocery industry. In doing so, each company has been able to mold towards what best fits consumer needs and to adapt to consumer’s changing demands over the past two decades.

            Whole Foods CEO John P. Mackey is one of the most influential people in the natural products grocery industry who care deeply about giving Americans the means to live the healthiest lives they can. He has brought organic and natural foods into the mainstream of America through capitalizing on the greater health consciousness that has spread through society in the past twenty years. Along with this, he has transformed Whole Foods from a small grocery into a major enterprise.

            The CEO of Safeway Steven A. Burd was able to be an influential leader in the grocery industry through his pioneering management practices. He had the ability to create an extensive cost cutting plan that included deep cuts in capital expenditures enabling the company to lower the shelf prices in its stores and boost revenues. Burd steered the company forward by expanding the company into California, Illinois, Alaska and Texas and brought Safeway’s revenues to an estimated $28.9 billion. This gave Steven A. Burd recognition as one of the grocery industry’s best CEO’s.

            Buying in bulk has also been a new form of grocery shopping. James D. Sinegal had changed the face of buying groceries at wholesale stores as one of the founders of Costco Wholesale. Costco is the largest wholesale organization in the United States, beating Sam’s Club and BJ’s Wholesale. Sinegal is best known for progressive management practices that has enabled Costco to benefit from a low employee turnover and high productivity.

            The founder of Wegmans, Robert B. Wegman, was able to pride himself on not only being a successful company, but also giving back to his employees and community. In 2005 it ranked number one in the top 100 best companies to work for. In 1987, the company created the Work- Scholarship connection, a program that has been successful in reducing the drop out rate among at risk students in the Rochester city school district. This provided students part time jobs and workplace mentors at Wegmans. Since the program’s inception Wegmans has attributed $56 million dollars in tuition assistance to 18,000 employees.

            These four leaders had given their companies the best opportunities in the grocery industry to cater to consumer and employee needs. In doing so, the industry has benefited in a rise in overall revenues and meeting consumer demands. 

http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=1040

Grocery Innovation Opportunites

The grocery industry is maintaining a stagnant, or minute, growth status which means that there is not much extra room for improvement. If there was one area that had to use some innovation, it could be the online experience for each company. I think each store has the basic layout figured out to increase the customers’ satisfaction of their experience inside the store. The new question is what if people don’t like the hassle of shopping or don’t know their plan of attacking their grocery list before even entering? Would it not make it easier on the shopper if they knew exactly where to go to get exactly the foods they were looking for? This is where the innovation comes into play. In my opinion, companies should do one or both of the following options. They should (1) devise an online shopping center to allow customers to pick out the foods they desire and have their food delivered to them and/or (2) create an online site where the shopper could type in their list, specify exactly which brands of food they want, and the computer could automatically develop a route on a map of the store to show the customer what the quickest, easiest path to take to get in and out of the store as fast as possible. For those lazy people who do not even enjoy getting out of their couches and going to the store to shop, they should be given an alternative option to have their food delivered to them. If there were an extra charge for assorting the foods and having them delivered that same day, this could turn out to be profitable for the company if it turned out that people were actually this indolent. If they were not as lethargic as described, the excursion through the store should at least be made easier for the customer. After they were able to find their exact brand of each particular food item on their list on the store website program, it should formulate a specific route the customer can take through the store to be able to pick up every single item with the least amount of disturbances and in the shortest amount of time. Then all they would have to do is print out this map and their shopping experience would be a breeze. This would only encourage customers to shop at the grocery store because they know that it will be simple, fast, and less hectic because everything they need to retrieve is already planned out for them on their paper. This easy addition to a company could be a huge breakthrough in the innovation of the grocery industry. 

Ramifications of the Crisis on Kroger Inc. Financials

Anibal Quevedo

Professor Persily- Lamel

KSB 100- 001

Blog 4

  The financial crisis of 2008 did not affected Kroger Inc. as badly as it did to most of the other companies in the Grocery Industry. However, it slowed its growth rate. In 2007, one of the best financial years for Kroger, it had $70,235 million in sales. Compared with the $66,111 million in sales in 2006, it yielded a 6.2 % in sales growth alone. If we do the same comparison with 2008 ($70, 24 million) and 2009 ($76, 73 million), we get that sales grew 7.57 %; not a bad number if we take into account they were amid a financial crisis.   This was possible thanks to capital investment taken forward by the company in 2007 and 2008. Moreover, the ramifications of the crisis would show up later in 2010. Sales only grew 0.95 % from 2009 to 2010. That was due to the drop of the share price in October 2008.  They lost 12 % of the value of the company in a period of 8 days. Again, it was not as dramatic as the price drop of other companies in the industry. The lack of operational and investment capital led them to stop expanding. Additionally, customers moved a bit towards cheaper options.
  By 2011, however, they had recovered their traditional growth percentage range. Kroger Inc. had a 7.11 % growth in sales in 2011 and 9.96 % in 2012, being the latter year a record in sales growth for them.
  Looking at other companies in the industry, for example Safeway, we see that they could not avoid a negative revenue growth for 2009 (-7.38 %) so it’s easy to conclude that the crisis affected them much more. Whole Foods Inc. on the other hand, had a relatively good performance through the worst years of the crisis. They had a 12.13 % and 12.24 % sales growth in 2010 and 2011 respectively. 

Company Financial Reporting

Beatrice Teston

Professor Persily- Lamel

KSB 100- 001

Which companies are sharing good news in their financial reporting?

Two companies that have been continuously successful within the grocery industry are The Kroger Co. and Safeway Inc. Kroger has been able to able to maintain success within the industry, enduring the recession and staying strong during the recovery period. The popular supermarket chain is now a $70.0 billion company. Estimated 2012-2013 annual revenue for Kroger is $92,845 million, a 2.7% change from the 2011-2012 annual revenue report.  Kroger has been adding new establishments at an average annual rate of 1%. Total food sales for the supermarket has risen 6.1% for the year with an expectation to increase at an annualized rate of 5.7%.

Safeway Inc. has also been significantly increasing in market share and annual revenue for the past several years. Safeway has about 1,700 stores across the country with 32 manufacturing plants across the US. Safeway’s revenue is said to grow 2.0% annually, expecting to reach $40.8 billion by years end, more than $2 million from the previous year.  Safeway sits with a market share of 8.3%, however Kroger has the largest market share at 18.9%.

Whole Foods Market, although smaller and newer, is the world’s top natural food chain market. The company has 285 locations in the United States presently. They are definitely something to look out for in a competitive landscape, especially with 1.7% market share that is expected to grow continuously. The estimated average industry revenue for this year is said to reach $8.4 billion, mostly influenced by their loyal customer base and ideal product lines.

Safeway and Kroger are two major players in the grocery industry accompanied with Whole Foods slowly behind them, however gaining financial heat due to its growing consumer loyalty and preference. The two major players have been able to withstand during the recession and recovery period, now exceeding expectations and keeping up with new consumer demands. Whole Foods has been innovating and developing based on changing consumer ethics, which is also influencing places like Safeway and Kroger to also come up with breakthrough supermarket marketing ideas. 

http://clients1.ibisworld.com/reports/us/industry/majorcompanies.aspx?entid=1040

Sofia Klotz

Bus 1.0

Professor Lamel

11/6/2012

Blog #4

There are many current trends and events in the grocery industry that both help and hinder the success of certain companies in the industry. Rising commodity prices, the increase in quality of private label (generic) goods, increased competition, the demand for healthy products, and new safety regulations are all examples of current events and trends that are impacting the grocery industry.

Rising commodity prices sparked my interest because they affect the entire industry in a negative way. This increase in basic food commodity prices has caused the price of many products that grocery retailers carry to increase as well. This causes a huge dilemma for retailers in the grocery industry because there are only three ways to deal with the problem other than shutting down or discontinuing certain products and all of these solutions end in a decrease in the retailer’s profit margins.  

The first way retailers can deal with the cost increase is to offset some of it by charging consumers slightly more and then take a loss in profit margins to account for the rest of the costs. The second alternative would be to pass the entire price increase onto the consumers, which would only make their profits drop even lower. This is due to the basic theory that if a good has many close substitutes, price rises, demand falls drastically because the good is considered elastic due to the close substitutes.  The final option that retailers have is to take on the full cost of the price increase and not increase the price to consumers whatsoever. As shown here all three options end with a decrease in profit for the retailor.  

In most cases the first option will result in the smallest decrease in profits, if a store happens to be more inelastic for whatever reason, then the second option may suit that store better.  Similarly, if a retailer is very elastic then the third option may be the way to go as long as there is still a profit margin after the price increase is factored into the cost.