Consumer Behavior Influencing the Grocery Industry

Beatrice Teston

Business 1.0
Professor Persily Lamel

The average consumers in the grocery industry have been evolving over the years.  Consumers have been changing their product preference requiring grocery stores to stock their shelves with more products that cater to the growing new consumer behavior towards organic foods. It is not only the products that are changing, but also the physical consumers themselves. The demographic for the average American family has been changing drastically, influencing the choice in products to purchase. Food is an “affordable luxury” which is much of the reason why consumers have been collective bargaining greatly.

Organic food and drinks has been what consumers have been recently opting towards. The average person is now twice as concerned about the delivering safety of their food. As of now, we are in the midst of an organic food movement. Organic foods are now a major sector of the grocery trade. Many worry whether dangerous pesticides and artificial fertilizers have touched the products they are purchasing. The grocery industry is now influenced greatly by organic food and drinks because it offers a wide range of ethical benefits for consumers, producers and the environment. Grocery stores like Whole Foods and Trader Joe’s are exponentially growing faster than places like Kroger and Harris Teeter because they offer a wider variety of healthy organic foods.

The average American family demographic has also been evolving over the past decade changing the direct buyer within the grocery store and whom the buyer is acquiring it for. 40% of kids are born to unwed mothers and couples are more frequently have children out of wedlock. Previously, the average American family had consisted of a husband, wife, and one to three children. The female housewife had done all of the supermarket shopping. In the current day, single, divorced and married men share the food shopping tasks. Males shopping alone, which also change the consumer product preference, conduct 30% of shopping trips.

Consumers are also becoming collective bargainers. Enormous deals found in places such as Groupon and Living Social have convinced consumers that they can score deals on everything, including groceries. Consumers have been leaning toward more technological ways of obtaining discounts such as online coupons and bargain deals advertised through email and grocery store websites. Grocery stores are becoming more innovative in ways to sell their products using technology taking into account the convenience of the consumers.

The average consumer has been evolving which has required grocery stores to become more inventive with the way people want to perceive their stores. The way a grocery store is able to keep up with consumer behavior determines its success in the industry as a whole. In order to keep up, marketers must research the specifics from the types of consumers shopping at grocery stores to the types of products people that are purchasing. 

http://360.datamonitor.com/Product?pid=BI00012-027 

How do companies in this industry differentiate themselves from one another?

Blog # 3

Sofia Klotz

10/23/2012

       How do companies in this industry differentiate themselves from one another?

Differentiation is one of the most important aspects of marketing for any company. If you are not able to differentiate your business from that of your competitors there is nothing stopping your customers from taking their business elsewhere.  This lack of differentiation in extreme cases can make the company in question become a price taker versus a price maker. This means that when there is nothing proprietary about a business it falls into the perfectly competitive market category, one in which the owner loses control of the price that they can charge. Not being in control of pricing can greatly diminish revenue and thus profit since the companies have to price their product at the market price. In most cases, the market price is lower than what a consumer would pay for a product or experience they perceive to be special, even if it was the exact same thing. 

 The grocery market has a very difficult time differentiating themselves from there competitors for one main reason. This being that there is not much room for further growth of this industry in the United States. Large amounts of growth come from seeing an open market and being the producer or the company that fills it. However, with the grocery market that gap is already filled, and so their only way of increasing the amount of costumers is by taking them from their competitors in order to gain market share.  Whereas in other industries that have room for growth, companies can focus on convincing people who have yet to buy the product to purchase it, which is a much easier endeavor. Think about it… There would have to be a pretty significant reason for you to change grocery stores after you had been shopping at the same one for years especially since they all have a seemingly similar product mix.  

Quite frankly, this is the reason why the grocery industry fell 15% in sales over the past ten years. Other companies such as Wal-Mart, Target, and Costco, who are classified as discount stores, have cued in on this opportunity and taken over the food market industry. This is because they all have strong differentiation from their competitors. At Wal-Mart, you know you can get cheap products and better convenience since you only have to stop at one place to get a huge variety of household products. Target is seen as a more fashionable Wal-Mart, and Costco differentiates by selling in bulk.  As a result of this Discount stores count for 18% of “food at home sales” and grocery stores only account for 6%. Differentiation is a key factor in gaining customers and the success of these companies.

http://online.wsj.com/article/SB10001424052702304373804577522912244866078.html

The Competitive Landscape of the Grocery Industry

The grocery industry has many characterizations to help clarify its competitive landscape. The industry concentration is low as of now but appears to be seeking a potential rise. Competition has had a huge increase in this industry along with the increasing trends of the industry. Finally, globalization trends seem to be heading positively at a steady pace. All of these factors come into play when describing the competitive landscape of the grocery industry.

The industry concentration is used to measure the extent to which the top four players dominate an industry.  IBISWorld quotes that they, “expect that the top four players in this industry will account for 38.3% of market share in 2012.” This signifies a low concentration level because select companies are attempting to control the industry on their own. Even though the shares are not equally distributed, there is still small growth that is occurring in the concentration. Players are winning market shares during an economic downturn which means that even though the economy is supposedly going down the drain and people are spending less money they are still selling market share. IBISWorld states that over the past five years, market share had increased and that the forecast shows that it will continue to rise in the next five years to come.

Aside from the industry concentration, a great competitive landscaping factor of the grocery industry is its increase in competition and trends. Grocery stores, such as Whole Foods, are constantly engaged in a war of pricing their goods better than any other. The level of internal rivalry is fierce and becoming fiercer because the supermarkets are introducing new trends, such as organic foods, that have little differentiation. This allows any players to enter the market and compete with even the biggest companies, such as Whole Foods. Stores also differentiate themselves for competitive purposes by supplying a range of quality products. The stores who can extend their reach for goods, with more variety and can permit a better grasp for people with both high and low-income households, will be the most successful. Lastly, the promotions given in stores eminently attract customers searching for deals on goods. These tactics are used constantly by stores everywhere to compete effectively against any store.

Globalization is an additional category of competitive landscape. For the most part, US-owned establishments earn their revenue from domestic operations. However, IBISWorld states, “American companies have increasingly been expanding their operations beyond US borders.” One quick example of this would be Safeway and how it owns 49% of a food and variety store operation in Mexico. The more stores that can go abroad, the better they allow themselves for opportunities for success. This is because they are expanding and growing internationally, which tolerates for possibly more revenue and even bigger opportunities.

http://clients1.ibisworld.com.proxyau.wrlc.org/reports/us/industry/competitivelandscape.aspx?entid=1040  

Current Events and CSR in The Grocery Industry

Anibal Quevedo

Business 1.0

Professor Lamel

In the recent years there have been several heated discussions around banning the use of plastic bags in grocery stores. Activists claim that it is a waste of resources, and that the convenience factor is not worth the environmental hazards inherited to the use of plastic bags. In addition to that, grocery stores raise 3 to 5 cents for each bag used in the price of food. Furthermore, it produces unnecessary expenses for the government. The cleaning process, activists argue,  is swallowing a huge chunk of the budget that could go to the improvement of social services instead, such as schools and hospitals. 

Some cities and countries are implementing radical  plastic-use and environmental policies. For example, Bangladesh completely banned the use of plastic bags because the city do not have an effective litter processing system and plastic bags were blocking some of the storm-drain systems, causing major flooding during rain season. Companies in the Grocery Industry are also taking action into the issue. Whole Foods Market, like many others, encourages its customers to reuse their organic and more resistant bags. Their Corporate Social Responsibility policies take into account many of the aspects touched above. 

Activists add that plastic bags also threaten animal life and higher toxicity levels in the environment. And since these "toxic" objects are always in direct contact with humans they might even harm our health as well. However,there is plenty of dissonant arguments. Opposing opinions claim that the use of organic bags is even more toxic, since they are made out of crops such as cotton and paper. These crops require fertilizers and herbicides for example. Therefore, toxic components are passed onto the organic, supposedly healthier and environment friendly, bags. 

The Grocery Industry, governments, and communities confront an important dilemma here. Is it best to ban the use of plastic bags? Many companies would see their marketing plans affected. The trademarks in the plastic bags are in some cases an important portion of the advertising strategy. A change to organic bags or to any other option would mean an investment in new marketing strategies, ultimately risking the profits. On the other hand, they also have to appreciate their social duty. Is it right to neglect the dangers of using plastic bags to guaranty more profits? I think it depends on the ethics and principles of each company and the Industry in general. 

Note: It is important to remark that there is a lot of contradicting data. Debaters lower the credibility of the opposing opinion with very strong arguments. I look forward to investigate the issue myself and find out which perspective is more accurate. 

This post is based on information taken from: 

http://online.wsj.com/article/SB10000872396390444165804578006832478712400.html?KEYWORDS=grocery

basic economics

Sofia Klotz

Business 1.0

Professor Lamel

October 6^th 2012

                                                            Blog #2

The grocery market is a 491.2 billion dollar industry and accounts for 72% of the country’s food retail market.  9.8 billion dollars of the total revenue are profits, which makes for a 2% profit margin after all expenses. Currently there are 2,279,952 million people employed in this industry with wages totaling 47.6 billion dollars.  In all retail markets the objective is simple: to buy or produce their products at a lower cost than the price they sell them for. 

Costs for this industry include wages, energy, infrastructure, marketing, and inventory. However, unlike other industries such as clothing, automobiles, energy, and electronics, the grocery industry faces a unique setback: food can spoil. This setback creates a shorter shelf life and therefore less time to sell the product. This puts forth a huge pressure to price the products at the maximum profit point. This price point is found by using the basic theory of supply and demand.

In the grocery industry however, a surplus of a perishable product is much more costly then a surplus of cars. This is due to the fact that when the product expires, the rest of the inventory that the store has left instantly becomes a loss. With a car, if there is a surplus the seller has a greater amount of time to change the price to attract more buyers.  Setbacks like perishability of products increase the costs because the company must insure that the products’ profitability margins can make up for potential losses due to products going bad. 

The other main way that the grocery industry makes a profit, and therefore offsets the risk of inventory going bad, is by charging manufactures a slotting fee. This is a fee that a manufacture will pay to have their products in a desirable location, which will result in higher sales of the product, thus benefiting both the manufacturer and the retailer.  However, there is a lot of debate whether this is good or bad for the consumers. Retailers try to use it as a marketing strategy. They declare that since they charge this extra fee, they can in turn lower the price of the product to consumers. On the other hand, the manufacturers say that if they did not have to pay this fee, their wholesale price would then be less.  Over all the economics of the grocery industry are quite complex and take many different things, such as what was touched upon above, into account. 

http://clients1.ibisworld.com/reports/us/industry/ataglance.aspx?indid=1040

Ethical Challenges In the Grocery Industry

Beatrice Teston
Professor Persily Lamel
Section 001
7 October 2012

Ethics is a system of moral principles that an individual or a group decides to conduct themselves by. Many grocery retailers are being confronted with the task of meeting the consumer demand of more ethical and socially responsible organic foods and drinks that are sold in their stores. Throughout the United States and Europe, more organic foods within supermarkets are becoming highly desired. Also, CSR groups are cracking down on grocery retailers like Wal-Mart to start convincing their suppliers to use less packaging in order to reduce packaging waste. Not only do grocery store have challenges with environmental ethics, but they are also faced with the decision of how to treat their workers.

         Grocery retailers like Wal-Mart are notoriously known for being one of the biggest corporate villains in the United States and around the world. Wal-Mart has three basic ethical principles: respect for the individual, service to the customer and striving for excellence. Wal-Mart aims to provide their consumers with the lowest possible prices for their products, however this comes at the cost of their works and their wages. Wal-Mart had been fined by the labor department for attempting to deny their workers overtime and are known for not paying “livable wages.” Because of this, many people try to avoid shopping from Wal-Mart because of how poorly their treat their workers and hope by doing this, the store will feel forced to improve their employee working conditions.

         The grocery store industry is required to meet consumer demands if they want to compete with other stores. They have to abide by the boundaries of ethically and socially responsible business practices. This includes being environmentally friendly and also treating their employees with respect while trying to bring the best service at the lowest price possible. 

http://360.datamonitor.com/Product?pid=BI00014-005&view=d0e30

http://www.globalexchange.org/sweatfree/walmart/racetobottom

Supply and Demand of the Grocery Industry

There are several factors that can affect the supply and demand of the grocery industry. A few are income levels of households, strong sentiment of the stock markets, and the seasonal changes. The combination of these aspects all add up to the supply and demand of grocery stores.

                Income levels of households have a lot to do with people’s demand for grocery store products. As a result, the higher the demand for products the higher the stores will keep their supply and vice versa. Households regularly purchase goods from grocery stores but it is the disposable income that determines the quantity and quality of the goods bought. Statistics show that out of the eight different income categories buying from grocery stores, households earning over $70,000 make up just under 20 percent of the population. It’s simple to think about actually. The more money you make, the more you can and are willing to spend. But there is more than just income that affects the supply and demand of grocery stores.

                The stability of the stock market and the strength of the economy have a great affect on grocery stores’ supply and demand too. When the economy does well and stocks go up, people have more capital to spend on things like groceries instead of fast food. Now granted everyone like to go out to eat every so often, but thinking overall, people spend more money in grocery stores on food that can be cooked at home when they have the money to do so. This adds to the point again that when the demand rises for grocery goods, grocery stores increase their supply.

                One last affect, specifically on the supply grocery stores, would be the seasonal changes. When seasons change, different foods are being grown or stop being grown. When foods are being grown they are plentiful in stores. For example, corn grown in Pennsylvania flourishes in quantity around late July early August, depending on when it was planted. This means that during this time, stores in Pennsylvania will have a higher supply of corn than any other months, and, in turn, will increase the demand because people like foods that are freshly picked in stores. During the off months, most stores can’t sell corn because it goes bad and people jump on all of the newly sold corn.

http://clients1.ibisworld.com.proxyau.wrlc.org/reports/us/industry/productsandmarkets.aspx?entid=1040