2005 IN FOCUS

David Merrefield

It's a little startling to think about how close we're drawing to the next millennium. That means industry seers trying to figure out what will happen 10 years hence are already peering into the year 2005.

In that vein, "Retailing 2005" is the title of a study issued this month by Management Horizons, a consulting division of Price Waterhouse. Publication of the "2005" study marks a new initiative on the part of Management Horizons to follow the food industry.

Actually, it's not a moment too soon to be thinking about what will happen as far out as 2005. More than that, the current nature and speed of change in the industry makes it essential to do so. In a bid to bring 2005 into focus, the study makes a number of predictions about the future, most of which should be familiar to regular readers of Supermarket News. But it's useful to sweep a variety of predictions together so we can see at a glance what major trends are developing, and how they might interact.

So, let's take a quick look at some of the currents that will likely be pushing the industry in the next 10 years. I'll highlight a few from the study that seem to be of particular importance and validity:

Industry concentration will continue to make major changes in the business: "Today, the combined sales of the top 10 supermarket chains still account for less than 30% of the business," said the report. "During the coming decade, supermarket-industry concentration will grow dramatically. We expect to see at least 50% of food store sales controlled by the top 10 players, including supercenters."

Electronic retailing, today barely visible over the horizon, will grow to become a real force: "The largest single change driver on the long-term horizon is electronic retailing. By the year 2005, electronic shopping will capture 10% of food-store sales. The major growth spurt will occur after the year 2000."

If electronic shopping is the biggest long-term change driver, the proximate one may be supercenters: "The supercenter is the biggest change driver on the near-term horizon for food, drug and mass retailing. The formula is diabolical. Logistical prowess and sheer scale keep costs down; food brings consumers in often and increased traffic crossing over into general merchandise hikes margins up.

"In their wake, supercenters will drive consolidation in the supermarket industry. Inefficient independents, small chains and low-market-share players will feel the brunt of the attack. "Supercenters will top 2,000 stores and reach $150 billion in sales ($65 billion in food) by the year 2005. This will equate to over 10% of food-store sales. At least one supercenter operator will emerge as the first national food-store chain. Others will follow. Much of this growth will occur by the year 2000."

Incidentally, an extrapolation of store-count predictions that formed a part of last week's SN special report about supercenters suggests that the prediction of 2,000 locations by 2005 may be a little overblown. The report suggests about 1,000 stores by the year 2000. It's possible the number could double again in five years' time, but only if Kmart kicks back into gear in a big way.

Delivery depots will emerge: "It is very likely that today's warehouse clubs will evolve into the delivery depots of the future. [A delivery depot is defined as a 'customer-direct distribution center.'] These players will be among the first to grapple with electronic customer orders and delivery service as they strive to satisfy the needs of their current core target market, small to midsize businesses."

Manufacturer direct selling: "Manufacturers will sell directly to the consumer. They will use formats ranging from in-store kiosks to electronic media to their own bricks and mortar. This trend will evolve because it will be harder to reach consumers at conventional outlets [because] supermarkets will limit the number of brands on their shelves. [And], as electronic shopping comes of age, the best place to reach many consumers will be in their homes."

More full-meal stores will emerge: "Leading companies will focus on adding value to the food-shopping experience by offering busy consumers meal solutions. They will sell meals, not ingredients."

So there's a quick look at some of the trends that are predicted between now and 2005, all of which I find to be quite valid, at least in terms of general direction.