Grocery Retailers - US Euromonitor International Country Sector Briefing January 2011 Grocery Retailers US List of Contents and Tables Headlines ................................................................................................................................................................. 1! Trends ...................................................................................................................................................................... 1! Traditional Vs Modern ........................................................................................................................................... 2! Competitive Landscape .......................................................................................................................................... 2! Prospects .................................................................................................................................................................. 3! Channel Formats ..................................................................................................................................................... 4! Chart 1! Modern Grocery Retailing: Wal-Mart Supercenter in US ................................................. 4! Chart 2! Modern Grocery Retailing: Super Target in US ................................................................ 5! Chart 3! Modern Grocery Retailing: Super Target in US ................................................................ 6! Chart 4! Modern Grocery Retailing: Dominick's in US .................................................................. 7! Channel Data ........................................................................................................................................................... 8! Table 1! Sales in Grocery Retailing by Category: Value 2005-2010 ............................................... 8! Table 2! Sales in Grocery Retailing by Category: % Value Growth 2005-2010.............................. 8! Table 3! Grocery Retailers Company Shares: % Value 2006-2010 ................................................. 9! Table 4! Grocery Retailers Brand Shares: % Value 2007-2010 ....................................................... 9! Table 5! Forecast Sales in Grocery Retailing by Category: Value 2010-2015................................10! Table 6! Forecast Sales in Grocery Retailing by Category: % Value Growth 20102015 ..................................................................................................................................10! ! Euromonitor International Page i Grocery Retailers US GROCERY RETAILERS IN THE US HEADLINES " " " " " Grocery retailing grew by 2% in 2010, to reach US$938 billion Discounters experienced the strongest growth in 2010, of 6%, as consumers' shopping behaviour changed The number of grocery outlets declined by 1% in 2010 Cross-channel competition continues, as supermarkets battle with discounters and hypermarkets Grocery retail sales are expected to continue to grow over the forecast period, with a 8% increase projected for 2010-2015 TRENDS " In 2010, competition intensified across channels within the grocery retailing sector, driven to a significant extent by consumers still looking for value. As hypermarkets and discounters took share away from supermarkets in 2009, many supermarkets reacted by opening new formats or lowering prices in 2010 to win back consumers. Several national supermarket chains discounted prices and expanded their private label offerings. Coupon use also grew significantly in 2009 and 2010, as consumers became more comfortable looking for and using coupons. Supermarkets are the largest channel in terms of sales among grocery retailers, and are the most common place in the US for Americans to purchase the majority of their grocery items. However, hypermarkets, discounters and even mass merchandisers have begun to take some sales away from supermarkets. Despite this increased competition, supermarkets serve the greatest number of people in the US, as they are located in a wide variety of locations, whereas hypermarkets and discounters are often in suburban or rural areas with smaller populations. Additionally, consumers tend to make large stock-up trips to supermarkets, which means that they account for a greater proportion of sales. Discounters constituted the fastest growing channel in terms of sales in 2010, with 6% value growth. Discounters offer a low-cost option for consumers by streamlining many operations. Retailers in the discounters channel hold smaller inventories and tend to carry only a single brand of a particular item. In addition, instead of paying employees to bag groceries and retrieve shopping carts, consumers are encouraged to pack their groceries in their own bags. Strong growth in 2010 was due in large part to the expansion of Aldi in the US. After seeing considerable success in 2009, as consumers sought value when shopping for groceries, Aldi decided to expand its presence in the US. Hypermarkets underperformed in 2010 as compared to 2009, growing by only 1%. Although this was below the growth rate in 2009, these outlets still benefited from the lingering effects of the US economic recession. The hypermarket sector is driven by Wal-Mart. Wal-Mart saw strong gains in 2009, as consumers opted for one-stop shopping and lower prices by visiting Wal-Mart stores instead of supermarkets, or a combination of supermarkets and mass merchandisers, for grocery and household needs. As Wal-Mart realised some consumers may shift back to pre-recession shopping behaviour as the economy recovers, it is working hard to retain customers by improving stores and offering new products. Supermarkets experienced 2% growth in value sales in 2010, up slightly from 1% in 2009. In 2010, consumers began shifting back to regular supermarket visits, as many supermarkets lowered prices. Additionally, consumers became more comfortable using coupons as a result of the recession, and therefore began visiting supermarkets again to use coupons. Non-grocery items make up the majority of sales in hypermarkets with a 67% share of value sales attributed to non-grocery and 33% to grocery products in 2010. Hypermarkets are very large in size and offer a wide variety of products. Though a significant portion of retail space within hypermarkets is dedicated to grocery products, a large number of other products are stocked, leading to non-grocery sales outweighing those of grocery items. However, this is changing, as hypermarkets further expand their food offerings. In 2010, Wal-Mart began buying local and organic produce and meat for its stores. Supermarkets have the opposite sales composition: grocery items account for 75% of sales, while non-grocery accounts for 25%. Supermarkets focus on food and grocery products, with a limited assortment of non-grocery items. " " " " " ! Euromonitor International Page 1 Grocery Retailers US " American consumers remain time-starved and busy. They are constantly seeking convenient solutions, and grocery retailing is no exception. However, in 2009, consumers focused more on value and price than on convenience. This is now waning to some extent, as the US is coming out of recession. In the US, consumers will typically choose retailers that are conveniently located between their place of business and their homes. However, consumers have become more willing to go out of their way to drive to a hypermarket or discounter that offers lower prices. A new trend occurring in grocery retailers, primarily in supermarkets, is retailers employing dieticians to be on-site in stores. As retailers seek ways to focus on health and wellness, adding in-store dieticians can be quite useful for consumers. Consumers can ask dieticians questions about specific conditions and help find the right products. Additionally, many in-store dieticians offer tours of the stores to help consumers make healthier choices. Some retailers have dieticians on site for limited hours or on certain days, while others have hired full-time dieticians in stores. Though consumers seek convenience, they are not confident in convenience stores' ability to fulfil all of their grocery needs. Convenience stores tend to be located in busy, high-traffic areas; however, consumers tend only to shop at convenience stores for snacks, beverages or for the purchasing of a few items, often discretionary purchases. Additionally, the prices are often rather higher at convenience stores for certain products, making it a difficult trade off for consumers. This is also true of forecourt retailers. Typically, if consumers are at a petrol station for fuel, they may visit the forecourt retailer to purchase a few small items, but cannot complete the majority of their grocery shopping at forecourt retailers. Small grocery formats remain weak in comparison with hypermarkets, supermarkets and discounters. Small grocery formats include convenience stores, forecourt retailers and independent small grocers. All of these formats offer limited selections compared with hypermarkets, supermarkets and discounters. Additionally, hypermarkets, supermarkets and discounters have stronger negotiating power with manufacturers and therefore are able to offer lower prices to consumers. Small grocery retailers have less flexibility when it comes to pricing. Food specialists made up the largest portion of food/drink/tobacco specialists in 2010, sales of which grew by 2% in value in that year. As consumers have more discretionary income, they are beginning to visit speciality retailers once again to purchase speciality food items, such as chocolate confectionery and premium steaks, often as gifts. "Other" grocery retailers in the US consist primarily of upscale/gourmet food retailers. This sector grew by 1% in 2010, showing better performance than in 2009. Many supermarkets in the US have improved their selections of premium products, therefore there is less need for some of the speciality shops dedicated to gourmet food items. " " " " " TRADITIONAL VS MODERN " " " Modern grocery retailers are most prevalent in the US. Modern grocery retailers represent 84% of sales, 61% of outlets and 81% of selling space in the US. Traditional retailing remains relevant in the US; however, it is seeing a decline as consumers favour modern formats like supermarkets, hypermarkets and discounters. Traditional grocery retailers focus on their core products in order to maintain sales. Independent small grocers concentrate on customer service and offer a local appeal. Convenience stores and forecourt retailers focus their strategies on impulse items and discretionary items, while they have also increased their food offerings, such as fresh produce and prepared food. COMPETITIVE LANDSCAPE " Wal-Mart leads in grocery retailing, a with 24% value share in 2010. Following Wal-Mart, the second and third leading grocery retailers in the US are Kroger and Supervalu with 7% and 4% value shares, respectively. Wal-Mart has a strong national presence, and is therefore able to capture a large proportion of the US population. They company also benefits from its everyday low price guarantee, which was of particular interest to consumers in 2009 and into 2010. Additionally, the company operates formats within both hypermarkets and supermarkets. ! Euromonitor International Page 2 Grocery Retailers US " Safeway experienced a decline in value sales of 2% in 2010. This was the second year in a row that sales fell. As consumers shifted to hypermarkets and discounters, the company offered steep discounts on a number of items to help lure customers into its stores. In 2010, Supervalu divested some properties. The company closed or sold 112 locations, mostly underperforming stores. The company also sold six Bigg's stores and closed the rest. Additionally, the company sold 18 Shaw's supermarkets to its competitor Stop & Shop. Within the grocery sector there is a great deal of differentiation among formats. Hypermarkets are very large, typically not found in urban areas and offer a wide variety of products and services, including banking, optical services and photo printing. Prices are lower than in supermarkets, as hypermarkets have greater bargaining power with manufacturers. Discounters are no-frills formats with little in terms of d?cor or customer service. The selection is limited, typically private label and possibly one other brand in most product categories. The no-frills format and reduced staff allow discounters to keep costs down, therefore offering lower prices for consumers. Supermarkets offer a variety of products, are in urban, suburban and rural areas, and often appear to be cleaner than other grocery retailers. Most major supermarkets in the US offer customer loyalty programmes, providing discounts and special offers for loyal consumers. Convenience stores and forecourt retailers are generally not as clean as supermarkets, offer limited selections and little customer service. Domestic retailers make up the top five grocery retailers in the US, as it is easy for them to understand the local consumer tastes. However, many grocery retailers operate regional offices in the US to help better suit the needs of consumers in different regions of the country. Similarly, internationally owned retailers with grocery operations in the US, such as Aldi, Delhaize and Ahold, operate US offices to better understand and adapt to the local culture and preferences. Internet retailing among grocery retailers has been slow to take off in the US compared to other developed countries. However, Internet grocery retailers Peapod and Fresh Direct have both expanded their delivery areas in the hope of encouraging more Americans to utilise the Internet for grocery shopping. " " " " PROSPECTS " Grocery retailing is a very mature, saturated market in the US. However, consumers in the US will always need to buy food, therefore the channel will continue to grow over the forecast period, albeit at a slower pace than during the review period. The economic downturn caused channel shifting, and many consumers moved away from supermarkets to hypermarkets and discounters. Many of those consumers will retain their recession-based shopping behaviour in the short term, or even permanently. In response, grocery retailers, primarily supermarkets are implementing strategies to help lure customers back and retain loyal customers. Some are offering greater incentives through loyalty cards, while others are expanding product selections and focusing on the growing Hispanic population in the US. Another factor that will greatly affect this channel is the growth of grocery delivery in the US. Peapod currently operates in several markets, as does Safeway. Sears and Meijer both announced plans to test grocery delivery in certain cities, while Publix is testing curb-side pick-up. Health and wellness will play a role in the growth of grocery retailers over the forecast period. Many supermarkets and hypermarkets have increased their selections of natural and organic products and have implemented nutritional guides/rating systems in stores. Additionally, the mass merchandiser Target has added large selections of food, including frozen and refrigerated products and fresh produce, to its stores. This will have an impact on grocery retailing over the forecast period. Supermarkets will remain the largest channel in sales terms in 2015, reaching US$366 billion at constant 2010 prices. American consumers are comfortable shopping at their local supermarkets, and proximity to their homes and workplaces will continue to appeal to shoppers. Hypermarkets are predicted to be the fastest growing channel over the forecast period in terms of sales, with growth of 19% in constant terms between 2010 and 2015. Wal-Mart is the leader in hypermarkets, and continues to offer prices that other retailers have trouble competing with. Though hypermarkets are often less convenient for consumers than other grocery outlets, many believe it is worth the trip to save some money and are willing to drive a bit further to visit hypermarkets. Discounters are also expected to experience strong growth over the forecast period, with a 14% increase in value sales between 2010 and 2015. Discounters became a key competitor in grocery retailing in 2009, as " " " " ! Euromonitor International Page 3 Grocery Retailers US consumers were lured by particularly low prices. Aldi, a leading discounter, has major expansion plans for the US over the next few years, aiding discounters' growth over the forecast period. " Consumers are always seeking convenient solutions, and grocery retailers have responded to this trend by offering prepared meals and meal solutions for busy Americans. The goal is that they can stop at the store on their way home and pick up a prepared meal or part of a meal. Buying a whole rotisserie chicken is quite common in the US, requiring consumers only to cook or prepare side dishes. This continues to be a popular product offer in US supermarkets. Convenience stores are known for quick shopping trips, but consumers typically do not think of convenience stores as a place to stock up on groceries, using them instead to purchase a few items or impulse buys. However, some convenience stores are looking to change that perception. 7-Eleven is testing selling whole rotisserie chickens, either ready to eat or heat and eat in its Chicago stores, for US$7.99. The company is hoping to capitalise on the prepared food trend that has been successful for supermarkets. It is too early to determine whether or not this will be a success, but it shows the company's focus on expanding product selection and private label products. Small grocery formats will suffer at the expense of larger grocery retailers, like hypermarkets, supermarkets and discounters. Recession-wary consumers looking for value will continue to favour hypermarkets and discounters, while other consumers will tend to prefer supermarkets for large, stock-up trips. Smaller grocery retailers do not have the broad assortments that supermarkets offer. Food/drink/tobacco specialists are expected to experience an overall decline in value of 5% between 2010 and 2015. As supermarkets and hypermarkets continue to expand their product offerings, there is less of a need for consumers to make additional trips to specialist retailers. "Other" grocery retailers are expected to experience growth over the forecast period, as the economy rebounds. Other grocery retailers include premium/gourmet grocery retailers and smaller locations, such as kiosks. Often, due to their location and limited assortment, prices are higher in these outlets. Consumers may have avoided these outlets during the recession, but are likely to return to visiting them as their discretionary incomes increase. " " " " CHANNEL FORMATS Chart 1 Modern Grocery Retailing: Wal-Mart Supercenter in US ! Euromonitor International Page 4 Grocery Retailers US Source: Euromonitor International Chart 2 Modern Grocery Retailing: Super Target in US ! Euromonitor International Page 5 Grocery Retailers US Source: Euromonitor International Chart 3 Modern Grocery Retailing: Super Target in US ! Euromonitor International Page 6 Grocery Retailers US Source: Euromonitor International Chart 4 Modern Grocery Retailing: Dominick's in US ! Euromonitor International Page 7 Grocery Retailers US Source: Euromonitor International CHANNEL DATA Table 1 US$ bn 2005 Discounters Food/Drink/Tobacco Specialists Hypermarkets Small Grocery Retailers - Convenience Stores - Forecourt Retailers - Independent Small Grocers Supermarkets Other Grocery Retailers Grocery Retailers Source: Sales in Grocery Retailing by Category: Value 2005-2010 2006 17.3 70.0 207.0 225.6 20.5 130.1 75.0 315.9 6.4 842.2 2007 19.3 69.8 230.7 226.8 21.0 130.1 75.7 320.6 6.4 873.5 2008 20.2 69.2 251.4 224.2 21.6 126.5 76.1 330.4 6.2 901.7 2009 21.8 67.8 272.5 221.8 22.1 123.4 76.4 333.7 6.1 923.8 2010 23.2 69.3 274.5 224.1 22.6 124.4 77.0 340.4 6.1 937.5 18.0 64.1 181.1 220.0 21.0 125.1 73.9 313.4 6.2 802.8 Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources Table 2 Sales in Grocery Retailing by Category: % Value Growth 2005-2010 % current value growth 2009/10 2005-10 CAGR 2005/10 TOTAL ! Euromonitor International Page 8 Grocery Retailers US Discounters Food/Drink/Tobacco Specialists Hypermarkets Small Grocery Retailers - Convenience Stores - Forecourt Retailers - Independent Small Grocers Supermarkets Other Grocery Retailers Grocery Retailers Source: 6.0 2.2 0.7 1.0 2.6 0.9 0.8 2.0 1.1 1.5 5.2 1.6 8.7 0.4 1.5 -0.1 0.8 1.7 -0.4 3.2 28.9 8.1 51.6 1.9 7.8 -0.5 4.3 8.6 -2.1 16.8 Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources Table 3 Grocery Retailers Company Shares: % Value 2006-2010 % retail value rsp excl sales tax Company Wal-Mart Stores Inc Kroger Co Supervalu Inc Safeway Inc Publix Super Markets Inc Ahold USA Inc Delhaize America Inc Meijer Inc Target Corp HE Butt Grocery Co 7-Eleven Inc Great Atlantic & Pacific Tea Co Inc, The (A&P) Trader Joe's Co Whole Foods Market Inc Giant Eagle Inc Aldi Inc Winn-Dixie Stores Inc Hy-Vee Inc BP America Inc Albertson's LLC Pathmark Stores Inc New Albertson's Inc Others Total Source: 2006 19.6 6.8 2.1 4.1 2.6 2.7 2.0 1.5 1.3 1.3 1.0 0.8 0.7 0.7 0.8 0.5 0.7 0.6 0.6 1.5 0.5 2.3 45.3 100.0 2007 21.2 6.7 4.3 4.1 2.6 2.4 2.1 1.6 1.5 1.3 1.0 0.7 0.7 0.8 0.8 0.7 0.7 0.6 0.5 0.7 0.5 44.6 100.0 2008 22.8 7.0 4.2 4.2 2.7 2.4 2.1 1.5 1.5 1.2 1.0 1.1 0.7 0.9 0.8 0.7 0.7 0.6 0.5 0.6 42.6 100.0 2009 23.8 7.1 4.0 3.8 2.6 2.5 2.1 1.5 1.5 1.3 1.0 1.0 0.9 0.8 0.8 0.7 0.8 0.6 0.5 0.5 42.3 100.0 2010 24.1 7.0 4.0 3.6 2.6 2.5 2.2 1.5 1.5 1.3 1.0 1.0 0.9 0.9 0.8 0.7 0.7 0.6 0.4 0.4 42.2 100.0 Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources Table 4 Grocery Retailers Brand Shares: % Value 2007-2010 % retail value rsp excl sales tax Brand Company Walmart Kroger Safeway Publix Albertson's Food Lion Save-A-Lot Meijer Super Target H-E-B Wal-Mart Stores Inc Kroger Co Safeway Inc Publix Super Markets Inc Supervalu Inc Delhaize America Inc Supervalu Inc Meijer Inc Target Corp HE Butt Grocery Co 2007 21.2 6.2 4.1 2.6 2.8 1.5 1.4 1.6 1.5 1.3 2008 22.8 6.4 4.2 2.7 2.7 1.6 1.4 1.5 1.5 1.2 2009 23.8 6.5 3.8 2.6 2.4 1.6 1.5 1.5 1.5 1.3 2010 24.1 6.4 3.6 2.6 2.3 1.7 1.6 1.5 1.5 1.3 ! Euromonitor International Page 9 Grocery Retailers US 7-Eleven Super Stop & Shop Trader Joe's Whole Foods Aldi Giant Eagle Winn-Dixie Hy-Vee Giant Landover Giant Foods Others Total Source: 7-Eleven Inc Ahold USA Inc Trader Joe's Co Whole Foods Market Inc Aldi Inc Giant Eagle Inc Winn-Dixie Stores Inc Hy-Vee Inc Ahold USA Inc Ahold USA Inc 1.0 1.0 0.7 0.8 0.7 0.8 0.7 0.6 0.6 0.5 48.4 100.0 1.0 1.1 0.7 0.9 0.7 0.8 0.7 0.6 0.6 0.5 46.3 100.0 1.0 1.1 0.9 0.8 0.7 0.7 0.8 0.6 0.6 0.5 45.8 100.0 1.0 1.0 0.9 0.9 0.7 0.7 0.7 0.6 0.6 0.5 45.5 100.0 Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources Table 5 US$ bn Forecast Sales in Grocery Retailing by Category: Value 2010-2015 2010 Discounters Food/Drink/Tobacco Specialists Hypermarkets Small Grocery Retailers - Convenience Stores - Forecourt Retailers - Independent Small Grocers Supermarkets Other Grocery Retailers Grocery Retailers Source: 2011 24.1 70.9 287.1 224.9 23.1 124.0 77.8 343.8 6.2 957.0 2012 24.8 70.2 298.6 224.7 23.4 125.1 76.2 347.8 6.3 972.3 2013 25.3 68.8 308.1 225.6 23.7 126.7 75.2 353.0 6.3 987.2 2014 26.1 66.9 318.9 225.4 24.0 125.4 76.0 361.3 6.3 1,005.0 2015 26.4 66.2 326.6 224.2 24.3 124.8 75.1 366.3 6.4 1,016.1 23.2 69.3 274.5 224.1 22.6 124.4 77.0 340.4 6.1 937.5 Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources Table 6 Forecast Sales in Grocery Retailing by Category: % Value Growth 2010-2015 % constant value growth 2010-15 CAGR Discounters Food/Drink/Tobacco Specialists Hypermarkets Small Grocery Retailers - Convenience Stores - Forecourt Retailers - Independent Small Grocers Supermarkets Other Grocery Retailers Grocery Retailers Source: 2010/15 TOTAL 14.2 -4.5 19.0 0.1 7.4 0.3 -2.5 7.6 4.3 8.4 2.7 -0.9 3.5 0.0 1.4 0.1 -0.5 1.5 0.8 1.6 Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources ! 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