Economic Characteristics
OF THE FOOD AND DRUG RETAIL INDUSTRYIt is extremely important to understand what the dominant economic factors are in an industry in which you are participating. These factors have a very strong influence in determining the corporate strategies that a company will decide to implement. How can a corporation define and implement their corporate strategy without understanding the environment of the market they are in? They simply can not! The economic factors to be considered are as follows: market size, scope of competitive rivalry, market growth rate, number of rivals, number of customers, degree of vertical integration, economies of scales, resource requirements for market entry, and profitability of the industry. Each one of these factors will be defined in the following paragraphs. The supermarket retail market is a $363 billion industry(sales 2000). Approximately $272 billion in sales, or 75%, is achieved by 25 companies with 16,000 stores. The total number of retail grocery stores total 127,000. It is obvious that the market share is dominated by a select few corporations. The largest company is Kroger (11% market share), followed closely by Albertson's(9%), Safeway(6%), and Winn-
The number of rivals in this industry is becoming more important to recognize. According to Progressive Grocer, supermarket sales have increased 5. Gross margins are approximately 2% greater for a supermarket when they have access to a distribution center. In closing, the supermarket industry is profitable. All indications in the research that I have done leads me to believe that sales have increased at the same pace in 2000 that it did in 1999. These companies manufacture some of their products in inventory. Because of the single-person and one-parent households, less people are frequenting the grocery stores and more people are eating out at restaurants. Kroger brand(private label) products account for approximately 25% of their grocery sales and almost 9% of drugs and general merchandise. Albertson's has acquired American Food to increase their market share in the West region. Kroger is the only major supermarket operator to implement a three-tier distribution system. As stated above, the top 25 companies capture 75% of the market. Safeway, SuperValu, and Kroger are the only companies that go even further upstream concerning vertical integration. They use these facilities to produce private label products.
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