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‡ Grocery Wars ² The intense fight for market
share among the food retail industry
‡ The Key Players:
² New Superstore Entrants
² Existing Local Chains
² Independent Grocers
 ˜
‡ All the firms are competing to win
market share, or customers
² The Fight Tactics:
‡Change/innovate in food retail service
‡Minimize costs of production
‡Drop market prices
‡ With all the competing firms, who will
win the grocery wars?
 ˜
 
K Assumption of Perfect Competition:
K Many small firms
K Homogeneous Products
K Easy entry/exit in long run
K Firms are ´price takersµ because ð
 
   exist
 þ  
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‡The more firms that 



 

enter a market, the less ï 
 




control original firms
will have over prices: 

‡Firms are price takers
in perfect competition 

and it is impossible to
stray from market
demand
‡As supply increases,

price decreases _


 

_ _
   þ 
‡ Even though in perfect competition firms can·t control
output prices:
² The food retail industry proves to be very profitable as
per-product profit margins are individually small, but
increasingly large when multiplied
² New entrants have raised the bar (implementing in-
store franchises, carry-out, and other services)
encouraging others to expand their services too
² Firms have mastered the art of bulk buying and
discount pricing which increases profit margins
² Consumers will always have the need to eat despite
the state of economy
 ¢

 
‡ Location plays a significant role in the
competition for market share

‡ All firms exist in a Geographic Market

² Customers are not affected by
transportation costs or tax differences
² Convenience is not a major factor
 ¢

 
‡ Upon entrance into the food retail industry
and/or to gain competitive advantage, firms
must evaluate their geographic market:
² Identify their target market or audience
² Identify competitors and their target market
² Forecast positive trends by evaluating other
geographic markets to decide the best location
‡ For Example ² On average, people grocery shop once/wk. Yes,
they like cheaper prices and services, but location is important
(they won·t drive an extra 20 minutes to save 5 dollars)
‡ Convenience is the key!
 ë  
‡ Now, based on the previous information, a
categorized introduction to the three main
competitors allow for further evaluation and
predictions of the winner:
² Superstores
² Local Chains
² Independent Grocers
 !% 

‡ Large discount grocers, typically expanding from solely general
merchandise firms to selling groceries (Ex. Wal-Mart
Supercenters, Super Targets)
‡ Advantages:
² Production Techniques-
‡ Greater ability of bulk buying and discount pricing
‡ Nonunion Labor lowers input costs
² Size
‡ They are huge! Some as large as 200,000 sq ft have 60,000 sq ft of
grocery space.
‡ General Merchandise + Groceries = Very attractive to customers
‡ Inevitable pressure on other competition forces some
surrounding firms out of business
² Wal-Mart surpassed local chains to become the nation·s top grocer
with $53 billion in grocery sales
 ¢
 
‡ Focus typically on groceries, existing national chains
(Ex. HEB, Kroger·s, Albertson·s, etc)
‡ Feel pressure from Superstores
² Rising competition sparks price wars that drive down grocery
prices
‡ Hard to decrease grocery prices
² Higher input prices because lower ability to bulk-buy and
discount price compared to Superstores
² Union Labor forces higher labor prices
‡ Ex. Current Kroger Strike ² by practicing union labor, this chain
has the risk of creating a liability if they try to cut prices
because they would have to cut labor costs
 þ%6
 
‡ Focus on Customer Loyalty
² Need to differentiate themselves through superior
customer service
‡ Some may prefer to pay more in exchange for staying in
their comfort zone and better service
² By focusing on customer retention, they have the
ability to remain profitable and in the food retail
market
‡ 80% of a firms· revenue comes from 20% of its customers
‡ However, pressure from competition leads to
² Merges with other stores
² Leave industry
6  

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‡ With increased competition, grocery prices
remain consistent with consumer market
demand  cheaper and cheaper prices
‡ Firms realize the importance of convenient
locations
‡ More and more new services targeting
customer loyalty (one-hr photo, in-store
franchises, etc) surface
 
   &

CONSUMERS!
 
   &
Firms· competition is based on winning
consumer loyalty. Thus, customers are put
in the position to demand what they want
and suppliers have no choice but to listen
to what consumers are looking for if they
want to stay in the market and on the
competitive edge.
 ¢'
‡ Questions?
‡ As a consumer, where do you usually buy
groceries? Why?
‡ What new services have you seen develop?
‡ Which ones do you actually find useful and
like?
‡ Who else would you consider a winner?