Supermarkets

Thursday, Feb 25, 2010

The first supermarket was opened in New York in 1930 [fmi.org]. Here are some statistics on supermarkets in the United States as of 2008:

  • Average number of items carried in a supermarket = 46,852
  • Total supermarket sales = $547.1 billion
  • Number of employees = 2.5 million [bls.gov]
  • Number of supermarkets ($2 million or more in annual sales) = 35,394
  • Net profit after taxes = 1.8%
  • Median Average Store Size = 46,755 square feet
  • Median Average weekly sales per supermarket = $333,000
  • Percentage of disposable income spent on food = 5.7%
  • Sales per customer transaction = $27
  • Average # of trips per week consumers make to the supermarket = 2

Industry Overview 2008, Food Marketing Institute, http://www.fmi.org/facts_figs/?fuseaction=superfact.

The margin for a supermarket business (1.8%) is amazingly tiny because of all of the competition-- less then 2¢ for every $1 of sales:

To earn a dollar, supermarkets would rather sell a $1 item 100 times, making a penny on each sale, than 10 times with a dime markup. Low markup to stimulate high volume is the fundamental principle of mass merchandising, which the supermarket industry introduced to the marketplace in the 1930s.

Competition and Profit, Food Marketing Institute, http://www.fmi.org/docs/facts_figs/CompetitionandProfit.pdf.

Food stays cheap because of the marketplace:

Food inflation in 2006 was 2.1 percent, less than the overall inflation rate of 2.5 percent, according to the Bureau of Labor Statistics — continuing a more than two-decade trend of low to moderate rates (Figure 1)...

The sustained low inflation is attributed to technology, increased efficiency in managing inventories and assortment and relentless competition... Consumers have never had more choice in variety, value, nutrition and quality. Many of these retailers emphasize low prices to gain a competitive edge...

Even more telling is the decrease in the portion of family income spent on food (Figure 2) — freeing up funds for other purchases. That figure continues to decline steadily to only 9.9 percent today — down from more than 20 percent a half century ago. In 2005, consumers spent 5.8 percent for food-at-home and 4.1 percent for food away from home.

U.S. consumers spend less of their income on food than people in any other country, including people in industrialized nations such as France (14.9 percent), Italy (14.9 percent) and Spain (17.1 percent). Families in China (26.4 percent), Russia (28.5 percent) and Indonesia (55.1 percent) spend a lot more.

Food Prices, Food Marketing Institute, http://www.fmi.org/docs/facts_figs/foodprices.pdf (Food CPI Outlook: http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/consumerpriceindex.htm).

Supermarkets are really an amazing spectacle that we take for granted. While most people in the world spend anywhere from a third to almost all of their income on food, Americans' spending on food went down from 20% to about 5% in just 50 years. That's not even to mention that a supermarket has, on average, 47,000 items to choose from! A lot of the items are junk, but just as equally, the quality of the staple foods -- dairy, meats, fruits, vegetables, etc. -- is amazing, whether shipped from thousands of miles away, out of season, or bought from local farmers (as Wholefoods often does).

In communist Russia and China, food lines, shortages, and high prices were notorious. Many people would spend hours of their day, every day, going all over town to different stores to find what they could. Sometimes people would get in line at a store if they saw one -- people assumed that if that many people were waiting, it was probably worth waiting for.

Wal-Mart is now the biggest supermarket (http://supermarketnews.com/profiles/top75/2010/).

Here's the 2009 10-K for Safeway Inc, one of the largest supermarkets. A private supermarket has to constantly worry about margin, competition, and quality, the same engines that drive the growth of any private company, for the sole purpose of providing a valuable good or service to the general public.

Safeway Inc. (Vons, etc.) is one of the largest food and drug retailers in North America, with 1,739 stores at year-end 2008... Safeway's average store size is approximately 46,000 square feet (5).

Sales revenue of food for 2008 was $36.3 billion (6).

At year-end 2008, Safeway had more than 197,000 full- and part-time employees (9).

Profit margins in the grocery industry are very narrow. In order to increase or maintain our profit margins, we develop strategies to reduce costs, such as productivity improvements, shrink reduction, distribution center efficiencies, energy efficiency programs and other similar strategies. Our failure to achieve forecasted cost reductions across the Company might have a material adverse effect on our business.

We could be adversely affected if consumers lose confidence in the safety and quality of certain food products. Adverse publicity about these types of concerns, whether valid or not, may discourage consumers from buying our products or cause production and delivery disruptions. The real or perceived sale of contaminated food products by us could result in product liability claims, a loss of consumer confidence and product recalls, which could have a material adverse effect on our sales and operations (11).

Our stores are subject to various federal, state, local and foreign laws, regulations and administrative practices that affect our business. We must comply with numerous provisions regulating health and sanitation standards, food labeling, equal employment opportunity, minimum wages and licensing for the sale of food, drugs and alcoholic beverages. We cannot predict either the nature of future laws, regulations, interpretations or applications, or the effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state, local and foreign regulatory schemes would have on our future business... Any or all of such requirements could have an adverse effect on our results of operations and financial condition (12).

Safeway Inc, Annual Report for 2009, Form 10-K, http://www.sec.gov/Archives/edgar/data/86144/000119312509043434/d10k.htm.

The federal securities laws require publicly traded companies to disclose information on an ongoing basis...

The annual report on Form 10-K provides a comprehensive overview of the company's business and financial condition and includes audited financial statements.

United States Securities and Exchange Commission, Form 10-K, http://www.sec.gov/answers/form10k.htm (10-K search: http://www.sec.gov/edgar/searchedgar/companysearch.html).

Grocery stores ranked among the largest industries in 2008, providing 2.5 million wage-and-salary jobs. Most grocery stores are small, with 80 percent employing fewer than 50 workers.

Young workers between the ages of 16 and 24 held 29 percent of grocery store jobs... Grocery stores provide many young people with their first work experience.

Bureau of Labor Statistics, U.S. Department of Labor, Career Guide to Industries, 2010-11 Edition, Grocery Stores, http://www.bls.gov/oco/cg/cgs024.htm.

On food banks:

Food banking began in the late 1960s. By 1980, America’s Second Harvest was established as an official clearinghouse for large donations. The supermarket industry has supported food banks since the concept emerged.

Each year, one-quarter of the supermarkets surveyed give food banks one million or more pounds of food — enough for at least 800,000 meals. More than half now donate at least 100,000 pounds annually. Most donations go to local food banks in the national network known as America’s Second Harvest. Supermarkets donate the products that food banks need most — led by dry grocery items, which have the longest shelf life. The survey of food banks found that 86 percent prefer these foods, and 88 percent of supermarkets donate them.

Survey of Supermarkets and Food Banks 2005, Food Marketing Institute, http://www.fmi.org/docs/community/2005foodbanksurvey.pdf.

The next time you enter a supermarket, marvel at it.