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