Food more than general merchandise is particularly useful for driving up the frequency of shopper visits. For Walmart and Target supercenters, the goal is overall store sales and profitability food is often used to raise customer traffic and the spillover of shoppers to the general merchandise side of the store, increasing the sales of higher profit margin categories. Supercenters have a different objective for their grocery operations than traditional supermarkets, whose ultimate objective is the profitability of their food operations.
#Threat of new entrants grocery industry full
Target, considered more upscale than Walmart, has been opening most of its new outlets as Super Targets, with a full grocery operation on one side of the store, while also remodeling older stores. food retailer and groceries accounted for 51% of its total store sales in 2009 (The Packer, 2010). Virtually all the new Walmart stores opened in the last several years have been supercenters and a number of older stores have been remodeled and enlarged into supercenters. These new formats have increased the competitive rivalry/pressure on traditional supermarkets. operations and its sales have clearly benefited as households looked to save on their food purchases. Aldi is one of the largest German food retailers and by early 2010 had 1,084 stores in 31 U.S. In addition, deep-discount, limited assortment food retailers selling less than 2,000 items, such as Aldi and SUPERVALU’s Save-A-Lot, have grown rapidly. Costco is actually a wholesale club store and shoppers must be members as is the case with Sam’s Club, owned by Walmart, but the club stores compete in many respects with supercenters and conventional retailers. Porter’s threat of the entry of new competitors is well illustrated by the rapid growth of supercenters-big-box stores such as Walmart, Target, and Costco that sell both general merchandise and a full-line of the most popular food products. Finally, the deep recession caused households to economize on their food spending, which may have longer term impacts on consumer food purchasing behavior.
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The next major technological innovations may be the use of radio frequency identification, with substantial effects on the food retail value chain, and mobile-marketing coupon distribution through cellular phones. In terms of technology, the analysis of the point-of-sale (POS) data generated by checkout scanners and barcodes has helped shift bargaining power from the product suppliers to the increasingly-concentrated retailers. The growth of private-label products reflects both Porter’s risk of substitute goods and the power of product buyers. The rapid spread of supercenters and deep-discount food retailers illustrates Porter’s threat of the entry of new competitors, after supermarkets had been the predominant food retail format for several decades.
#Threat of new entrants grocery industry driver
This article explores current and possible future trends in the food retail value chain, particularly in relation to Michael Porter’s five forces, plus the impact of technology and another major driver of change, the most severe economic downturn since the Great Depression.