FOOD LOGISTICS TRENDS FOR 2017 by BILL STANKIEWICZ

The Nation's 212,000 traditional food stores sold $571 billion of retail food and nonfood products in 2011. Grocery stores, including supermarkets, accounted for the largest share of food store sales (91.0 percent), followed by convenience stores without gasoline (5.5 percent). Specialized food stores, including meat and seafood markets, produce markets, retail bakeries, and candy and nut stores, accounted for the remaining 3.4 percent of the total.

Industry Structure

Sales by the 20 largest food retailers totaled $449.3 billion in 2013, accounting for 63.8 percent of U.S. grocery store sales, an increase from 39.9 percent in 1993. Although shares held by the largest 4, 8, and 20 supermarket and supercenter retailers have decreased slightly since 2008, the longer-term trend shows an increasing concentration of sales among the Nation's largest grocery retailers. One contributing factor to such increases over the past decade has been the steady growth of Wal-Mart Supercenters. Their food and nonfood grocery sales amounted to an estimated $117.4 billion in 2013, making it the largest U.S. retailer of grocery products. In comparison, second-place Kroger—the largest traditional grocery retailer—had sales of $76.7 billion in 2013. Meanwhile, aggregate grocery store sales rose 2.4 percent in 2013, a slightly smaller increase than in 2012 and the fourth consecutive annual increase since a recession-induced decline in 2009.

Supermarkets experienced major consolidation and structural change through mergers, acquisitions, divestitures, and internal growth in the mid-to-late 1990s. These factors produced increasing shares of the largest 4, 8, and 20 grocery retailers during this period. This vigorous consolidation activity slowed throughout the following decade and has risen during the last couple of years. Supermarket mergers and acquisitions were slightly higher in 2013 than in 2012, and the 2013 mergers and acquisitions were at their highest level since 2007. Some highlights for 2013 include the following: 

• The top four grocery retailers in 2013 were Wal-Mart Stores, Inc., Kroger, Safeway, and Publix Super Markets.
• In 2013, the share of grocery sales by the top 4 and top 20 grocery retailers rose for the first time since the recession of 2007-2009, and held steady for the top 8 grocers.
• Kroger, the largest traditional supermarket chain, acquired Harris Teeter, a retailer with 212 stores operating in eight states. However, these stores will continue to operate under the Harris Teeter name.
• Following divestiture by Supervalu, Albertson’s returns to the top rankings and is currently the sixth largest grocery retailer. Albertson’s agreed to acquire Safeway in the first quarter of 2014, and the sale was confirmed by shareholders in July, 2014. The combined companies would have held third place in these rankings—roughly midway between Kroger and Publix by sales volume—had they operated as a single company in 2013.
• Target is now included in these rankings and was the 16th-largest grocer in 2013. Adjusted sales from Target and Wal-Mart Stores, Inc. are added to grocery sales from the Census Bureau because these stores are not classified as supermarkets by the North American Industry Classification System (NAICS). Therefore, grocery sales reported by the Census Bureau are smaller than total sales used to estimate the reported concentration ratios. 

Of the 18 grocery and warehouse club brands studied, just 50% offered curbside pickup with even fewer delivering goods to home. Features such as wish and shopping lists oriented towards increasing transaction rates were the exception rather than the norm, with just one third of brands possessing that capability. And Sam’s Club was the only grocery or warehouse store to have implemented the “Subscribe and Save” to facilitate loyalty through repeat transactions.

Given the speed and intensity with which Amazon has moved into other retail sectors, brands should be actively and aggressively working to improve their omnichannel experience.

FOOD SERVICE

In competing for consumers' food dollars, foodservice operators, including restaurants, fast food outlets, and institutional foodservice operators in schools, hotels, and recreational sites, have increased their share of total food expenditures over the years. By 2011, food-away-from-home spending by households and businesses accounted for 48.7 percent of all food spending, up from 47.1 percent in 2000 and 43.0 percent in 1990. Prior to the current recession, the share of household expenditures for prepared foods and meals had risen due to changes in household composition—such as more single-person households and more households with two working adults—as well as increased household incomes and changes in consumer preferences for convenience foods.

In response, some supermarkets have expanded the variety of ready-to-eat entrees and meals in their prepared food departments. Many stores have added a seating area to challenge fast food outlets for business. such as Kroger, Walmart, Whole Foods. For example, Wegmans Food Markets, a Rochester, NY-based operator of 81 supermarkets, introduced the Market Café, an instore foodservice option containing a wide range of prepared and made-to-order foods. In the mid-2000s, the annual sales of prepared foods sold in supermarkets grew 4 to 4.5 percent annually, compared with 2 to 2.5 percent for other grocery products.

eCommerce Trends & Amazon updates

In Macy’s 2014 annual report, the company mentioned “multichannel” 26 times. E-commerce was not mentioned once, despite being up 30% year-over-year.
Macy’s has long been one of the most successful omnichannel players, having to take on pure play Amazon head-to-head in several of their product categories.

While Amazon has made tremendous investments in last-mile fulfillment, they currently boast 66 plus fulfillment centers in the U.S. market. However, by shipping from their store locations, Macy’s is able to have 775 unique points of distribution against servicing the U.S. Macy’s has not been the only omnichannel player to take on Amazon head-to-head from a fulfillment capacity. Target boasts a lower free shipping minimum of just $25 on their site, versus Amazon’s $35.

• One of the reasons Sam's Club has chronically lagged rival Costco Wholesale (cost, -1.23%) in sales growth is simple: Costco's stores are in more affluent parts of the country, serving wealthy suburbanites. Those customers increasingly demand high-quality food, and are willing to pay a premium for it.

• Sam's Club has reported better annual same-store sales growth than Costco only once since 2007. To close that gap, the Walmart Stores-owned warehouse club operator is making major changes to its business model, putting a much bigger focus on improving store food brands, opening new Sam's Club locations in higher income zip codes, and giving regional buyers more say in what the retailer sells, particularly as it pertains to gourmet and natural foods.

• Food generates more than half of Sam's Club $58 billion in annual sales, so this is no small point.

• "This is absolutely a reset for our business," Sam's Club Chief Executive Officer Rosalind Brewer told Fortune in an exclusive interview. "We realized that we have the ability to take Sam's to a higher household income." (Brewer had telegraphed in October that changes were coming, but had not made details about the plan public until now.)

• Currently, the median household income of a Sam's Club member is $80,000, according to Sam's Club estimates, and Brewer thinks she can get that up to $100,000. That compares to about $120,000 for Costco, whose stores are heavily concentrated in West Coast urban areas.

• There is growing urgency for Sam's Club's financial performance to improve. In the fourth quarter, comparable sales fell 0.5%, continuing a trend of disappointing results, especially vis-à-vis Costco. Sister chain Walmart report U.S. comps rose 0.6% during the holiday quarter.

• And things won't get easier for Sam's Club, the 8th largest U.S. retailer. Target (tgt, +0.05%) is overhauling its grocery assortment to promising initial results, while Amazon, whose Prime subscription service makes it very much a membership-based retailer, is expanding its online delivery service for groceries. Meanwhile, Whole Foods Market (wfm, +0.52%) this year will launch its less expensive "365" stores.

Both Target and Walmart have also been quite aggressive around curbside pickup. Target currently offers curbside in 11 markets, while Walmart is piloting in about 5 markets in the U.S.

However, when you look at great omnichannel players, many of them—namely Macy’s—have taken a hit in the stock market recently. If you look at what’s happened over the last six weeks, Macy’s stock is down more than 40%, prompting them to enter new product categories like consumer electronics for the first time, in partnership with Best Buy.

While the omnichannel investments that Macy’s have made set them up well for the longer term, the weather, the product categories that Macy’s sells in, as well as consumer demographics, are challenging for them over the shorter term. With the organizational realignment, they made in January of 2015, putting together their buying teams across Macy’s.com and the store’s environment, they also had to make some key compromises around endless aisle capabilities.

Over the longer term, they're going to need to figure out how to compete on endless aisle as the try to take on Amazon head-to-head.

Amazon is a huge company with its myriad tentacles in a growing number of operations. I am fortunate to know the folks that helped build the distribution centers for Amazon over the past 5-10 years.  It has given me an appreciation of their internal workings.

• Web Services: While Amazon’s cloud segment has been seeing good growth–it is most definitely the leader in the space–AWS missed revenue expectations last quarter. As MarketWatch points out, Amazon has had to cut prices recently thanks to growing competition from the likes of Microsoft, Alphabet, and IBM. We’ll be looking at whether the cloud operation’s growth has taken a hit.
• Video Dreams: For well over a year, Amazon has been pushing its digital content, both in the United States and in new markets like India. We’ll be interested to see if this Prime Video expansion will continue and how much the company plans to spend on original programming.
• Prime: Amazon Prime is one the company’s most popular services. In the U.S. alone, estimates put Prime subscriptions at 80 million, which makes it larger than COSTCO. Legacy retail outlets like Walmart and Target are feeling the pinch, but how much bigger can Prime scale? We’ll be keeping an eye out for more specifics.
• Products: Amazon has been slowly building and offering more features for its Echo product line, as well as expanding Alexa integrations. We’d like to know how well these product ventures are doing, and we’ll be looking out for clues about future projects down the line.

Regards,

Bill Stankiewicz

Supply Chain Executive

www.savannahsupplychain.com

www.beBee.com Brand Ambassador

Phone: 1-404-750-3200

bstankiewicz@portfreshlogistics.com

c: Thanks to these publication on info posted, Fast Company & http://fortune.com/2016/02/24/sams-club-costco-3/