Grocery chains losing market-share to superstores, warehouse clubs and convenience stores

Food & Drink Weekly, Sept 29, 2003

Faced with competition from superstores, warehouse clubs and even gas station mini-marts, traditional grocery stores are losing market share at a brisk clip. The nationwide food fight has forced traditional grocery giants to acquire new stores from smaller competitors to ensure growth and capture more food sales.

"It's pretty tough to gain share when all the competitors are selling the same products at the same price or lower," said Bob Goldin, a food industry consultant with Chicago-based Technomic Inc. "Acquisitions are a way for grocers to gain additional revenues and a higher share in markets where there is no room for new stores because they're already built out to capacity."

The encroachment of giant discounters such as Target, Meijer and Wal-Mart Supercenters--now the nation's No. 1 food seller--has been the main reason for the frantic pace of acquisitions. Just 10 years ago, warehouse clubs and supercenters accounted for about 2 percent of all retail grocery sales in the U.S.; now, they account for between 12 percent and 13 percent, according to the Food Institute, a New Jersey-based trade group that tracks grocery-related information.

Wal-Mart--considered the biggest threat to established grocers--has led the growth in non-traditional food retailing with an estimated $80 billion in annual food sales at its more than 1,200 supercenters. By 2007, Wal-Mart's food sales could top $162 billion, giving the behemoth retailer a remarkable 35 percent share of supermarket sales, based on projections from Retail Forward, a Columbus, Ohio-based retail consulting firm.

Wal-Mart's "aggressive expansion will continue to wreak havoc and steal share away from conventional food, drug and mass retailers at an alarming pace," said Sandy Skrovan, vice president at Retail Forward and author of the book Wal-Mart Food: Big, and Getting Bigger. "For competitors to survive in the Wal-Mart world, the key is to be what Wal-Mart is not."

But for most competitors, the battle with Wal-Mart for market share isn't even a fair fight. The best they can hope to do is "grow a little bigger themselves and carve a little bigger piece of the pie," said Mark Hughsam, an equity analyst who follows Kroger for Morningstar Inc. "There is really nothing you can do to stop them (Wal-Mart) from taking market share," Hughsam said. "Wal-Mart is going to be No. 1. The question is, who is going to be No. 2?"