What is the No. 1 threat to the traditional grocery business today? There really isn't one answer that everybody will agree on. However, it's the right question to ask this week in Chicago. The industry is gathering there at the show of shows: the annual Food Marketing Institute convention. It should be the biggest and best yet, and everybody who's anybody will be on hand. Beneath the breathtaking extravaganza, however, there's an uneasiness that this industry can't quite shake. The vendors circling their wagons on the exhibit floor feel it. The supermarket retailers inspecting the latest products feel it. What's the cause of this distress?
In 1993, the supermarket sales of the top-20 packaged goods manufacturers decreased by $1.3 billion compared with the previous year. In the same period, unit sales by these brand marketers fell by 793 million. Twelve of the 20 declined in dollar sales and 17 of these companies declined in unit sales. These figures are from an Infoscan Vendor Ranking Report prepared by Information Resources Inc. for the 52 weeks ended Jan. 2, 1994.
What does it all mean? Here are some interpretations and predictions: · A chunk of big-brand business in 1993 shifted from supermarkets to mass merchandisers. IRI's Infoscan reports that total brands increased at mass merchandisers from $19.9 billion in 1992 to $23.5 billion last year for a gain of 18.1%. At the same time, unit volume increased 19.6%, from 9.2 billion to 11 billion. The top-20 manufacturers account for 46% in dollar sales and 42% in unit sales in supermarkets. They surely account for at least that much in mass merchandisers, and were a big part of the gains in business. · The difference in market share between big brands and store brands is startling. IRI figures put private label at an all-time high of 19.7% in unit market share. True, this is small when compared with 80% for all branded products. But the top-20 manufacturers account for 42.2% in unit volume. Seen that way, private label is nearly half of the major players and climbing. Yes, a lot of the private-label volume comes from milk, eggs and such products that don't compete with big brands. But private-label share is projected by many clear-thinking analysts to increase to 30% or more by the year 2000. That growth won't come from milk.
· Last year's drain of business from supermarkets to mass merchandisers is just the beginning. These retailers will be operating more than 300 supercenters around the country by 1997. That's a lot of grocery volume. Adding warehouse clubs to the mix makes the situation worse.
All this brings up several questions: Can Efficient Consumer Response take enough costs out of the system to prevent supermarkets from being undercut on prices by the new "food mass merchandisers"? How much will retailers be willing to invest in their store brands to keep shoppers loyal to their supermarkets? How much of a role will in-store marketing play in this unfolding story? At FMI in Chicago, everybody who's anybody knows it's not business as usual. For those executives with plans for long-term prosperity in the supermarket trade, it's time for a gut-check. See you on State Street, that Great Street.
