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The US Grocery Industry

Kroger is the nation’s largest traditional grocery chain, yet no company is safe in the American grocery business. Kroger has to contend with competition from retailing juggernaut Wal-Mart, the largest seller of food overall, whose supercenters offer groceries at lower prices, and natural foods retailers like the Whole Foods and Wild Oats chains, which siphon off high-end customers.

Kroger, with sales of more than $60 billion a year, runs nearly 2500 retail grocery stores and supermarkets under more than 20 different banners in 31 states, five chains of convenience stores, and more than 40 manufacturing and food processing facilities for its private-label products. While Kroger remains robust, former powerhouse Albertson’s is closing hundreds of stores. A number of the largest grocery chains have been crippled by major strikes, a problem that does not affect union-free Wal-Mart.

The Wal-Mart supercenters compete on more than just food price. While configurations vary, the super center near you may have a full-service drive-through pharmacy, an optical center, a one-hour photo lab, a portrait studio, a bank, a video rental store, a hair and nail salon, one or more fast food outlets, a tire shop, and be open 24 hours a day, 365 days a year. Traditional supermarket outlets may often include a pharmacy or bank branch, but they lack the wherewithal for many of the other supercenter bells and whistles, especially staying open on a “we never close” basis. Wal-Mart has even begun to add organic foods to its mix.

Wal-Mart’s sheer size has allowed it to cut costs along with prices. A computer in Wal-Mart’s central office in Bentonville, Arkansas controls the local stores’ heating and cooling, inventory and restocking down to the smallest detail. Wal-Mart has the power to tell suppliers how to package its meats, demanding uniform weights on its packaged chicken, for example. But meats remain one area in which Wal-Mart has some weaknesses: the traditional supermarket usually has an in-house butcher who will cut meats to order, while Wal-Mart has avoided using such expensive, unionized labor. The large full-service traditional supermarket as typified by Kroger, Albertson’s, Safeway, A&P and many regional chains (like Shaw’s in New England and Stater Brothers on the West Coast) offers a larger selection of products than Wal-Mart, and, to many, a more pleasant shopping experience.

Whole Foods Market has begun its own campaign to reach more of the higher end of the market for groceries. While the chain specializes in “natural foods” its product mix is broad enough to allow it to act as a general supermarket, though with fewer brands of non-food items like detergents and paper goods. Its new store in Dallas, Texas includes a day spa (which uses sheets and towels made of organically grown cotton) where customers can get massages and beauty treatments and purchase select natural wellness and beauty products. The new store maintains a “Food Concierge” desk; for an extra fee per hour, a staff of experts will do your shopping for you. The special cheese and beef aging rooms and the candy manufacturing facility are all cleverly designed to bring on spectators and increase demand for the products. The profitable Whole Foods chain, with only about 200 stores in select upscale regions, poses little threat to Wal-Mart (nor Wal-Mart to it) because it caters to a different type of consumer.

Warehouse clubs like Wal-Mart’s own Sam’s Club (named after chain founder Sam Walton) and industry leader Costco, sell food and grocery items (often under their own brand names), including fresh produce, in large bulk packages, but like Wal-Mart’s supercenters they lack the variety of products typified by the large traditional supermarket. (These warehouse stores usually charge an annual fee for membership and sell a lot more than food.) The maverick Trader Joe’s chain, with several hundred stores in select high-end markets, also does a good business by selling a limited number of grocery items, many under its own label, changing its product mix frequently to offer products that are unique and at the same time a good value.

The availability of groceries varies widely in the United States, depending on population density and demographics such as average income. This author lives in a small town. He does most of his shopping at a medium-sized supermarket (which has its own butcher and deli counter) located within walking distance of his home, and occasionally takes a ten-minute drive to the next town to a traditional butcher for higher quality meats when he entertains. He purchases milk at a local convenience store, where it is less expensive. When he finds himself in a larger town about twenty minutes from home he occasionally shops at a full size supermarket, knowing they have better selections of specialty items like Latin American products and imported cheeses. He also buys fresh fruits and vegetables, when in season, from a farm stand in the same town. About once every six weeks, he shops in the outskirts of a city about 40 minutes from his home where he buys specialty products, including coffee, from both Trader Joe’s and Whole Foods. About twice a year he stocks up on staples—canned tuna, teabags, bulk soy sauce—at Costco.