"At Your Service" Newspaper Column

 

Michael R. Milam

Agronomy Specialist

                Daily Dunklin Democrat-At Your Service

            May 28, 2008

 

Old vs. new grocery retail

 

            The way that we buy groceries has certainly changed over the last 20 years. The new technologies and the new marketing strategies have certainly changed the food industry landscape. Do you remember what it was like 20 years ago and even before that?

Much of this article comes from the Amber Waves-April edition-electronic magazine of the USDA Economic Research Service. The entire article can be found at http://www.ers.usda.gov/AmberWaves/April08/Features/FoodMarketing.htm.

Twenty years ago, Wal-Mart opened its first supercenter. By offering food items as well as department store merchandise, it has now become the U.S.’s leading retailers of grocery products. Warehouse clubs, dollar stores, drugstores, and natural and organic food stores have also entered into the retail grocery markets. Foreign-owned retailers and other food service options offer competition for consumer food dollars. The good news is that consumers have been the beneficiary of this change with more diverse food products and brands, new and improved services and lower prices.

While the traditional markets such as Kroger and Schnucks are still very much an important part of grocery retailing (Kroger is now no.2 behind Wal-Mart) there are many more options. Warehouse Club’s such as Costco and Sam’s Club provide significant competition. By offering a limited number of products and a grocery section with large packages and bulk sales the unit price is lower. Regional discount firms such as Aldi’s can reduce their costs by offering store brands, no-frill shopping, and having customers provide their own bags. They do not accept check or credit cards but cash, food stamps cards and pin-based debit cards. By reducing returned checks, it can be more competitive.

Drugstores such as CVS, Walgreens, and Rite Aid offer convenience foods in addition to the traditional drugstore items and some stores have frozen and refrigerated items. Many of the Target locations have an expanded grocery listing. Dollar stores such as Dollar General, Dollar Tree, and Family Dollar also have convenience items at their stores.

The non-traditional outlets have increased their share of U.S. food purchases for at-home use, from 13.8 percent in 1988 to 32.6 percent in 2006. Most of this growth was due to supercenters and warehouse club stores which accounted for 17.9 percent of food-at-home expenditures in 2006.

In addition to these outlets there has been a growth in “fresh” formats. This type of store emphasizes perishable goods, typically ethnic, natural and organic products.  There are several of these stores that come to mind. In the Houston, Texas area there are Fiesta stores; nationally there are Whole Foods and Wild Oats and Trader Joes.

Globalization has now resulted in foreign retailers operating in the U.S. sales from foreign retailers has totaled $85 billion in 2005. The British retailer Tesco is beginning to open stores in the U.S. It is a formidable competitor since it is the no.3 largest retailer in the world behind Wal-Mart and Carrefour (France).  

Traditional supermarkets are expanding the number of types of product offerings, designing new store formats, and using innovative technologies. Private labels or store brands have always been a way to lower food prices but now many retailers are offering premium store brands. Most food stores offer a selection of natural and organic foods. Even the large agricultural commodity firms such as Archer Daniel Midlands work with suppliers to produce organic foods that meet the USDA standards.

There has been an emphasis on buying locally grown perishable items. By buying locally, it is possible to reduce the unit cost by reducing the shipping costs which have increased due to the global demand for fuel. Both the Missouri Department of Agriculture and the University of Missouri have promotions and educational materials directed to producers on selling direct rather than going through brokers.

The use of electronic scanners has certainly increased the speed of checking out. Rather than having to put cost labels on each item, bar codes have made it simpler. This has reduced the amount of time to put items on the shelves and helped to lower the unit price by reducing labor costs. In 2005, 56 percent of food retailers used self-checkout systems. This is up from 38 percent on 2004.

When I am visiting other cities either on vacation or when attending meetings, I enjoy visiting local grocery stores. I used to buy several items and bring them home in my carry-on luggage. However, I began to re-think this practice when my items looked suspicious and my bags were dumped into containers so that the screeners could get a better look.

When in St. Louis, I like to visit the Whole Foods and the Trader Joes. Both stores offer many ethnic food items, specialty foods, and many bulk items. They often have locally grown produce in season and they have many specialty areas within the store. I always enjoy the prepared food section and the gelato bar. There are more “healthy” food choices if consumers want to reduce either fat or carbohydrates.  There is no doubt that there have been many changes in both marketing and items available in both traditional and non-traditional food markets. The consumers have benefited from this change. 

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