Strong Competition in Food Retailing
Despite Consolidation
Phil
Kaufman
In the late 1990s, a number of leading grocery
retailers went on a buying spree. Between 1997 and
2000, more than 4,100 stores were acquired, amounting
to almost a fifth of all U.S. supermarkets. Mergers
and acquisitions by large grocery retailers, including
Kroger, Albertson’s, Ahold USA, and Safeway,
produced a significant increase in the share of
grocery store sales by the largest firms. By 2005,
the 20 largest retailers accounted for 61.6 percent
of total U.S. grocery store sales, up from 40.6
percent in 1995.
This increase in concentration—the
share of sales held by the largest firms—has
raised concerns about the level of competition and
its impact on consumers, agricultural producers,
and food processors. Fears about rising food prices
have not been borne out, however. According to the
Bureau of Labor Statistics, at-home food prices
rose slightly less than overall prices during 1995-2005.
Federal antitrust regulations may have had a role
in keeping prices competitive. When a merger or
acquisition eliminates a competitor in a market
area, the merging retailers must often divest a
certain number of stores, typically selling them
to a food retailing competitor. For example, the
merger of Albertson’s and American Stores
(Jewel, Acme, and Lucky banners) in 1998 required
the sale of 144 supermarkets in 57 cities and towns.
Meanwhile, the growth of food
offerings by nonfoodstore retailers—supercenters,
warehouse club stores, mass merchandisers, and dollar
stores—with their price-oriented focus and
greater general merchandise mix, has provided additional
competition in retail food markets and helped to
hold down at-home food prices. By 2005, food sales
by nonfoodstore retailers amounted to 31.6 percent
of the $518.7 billion in retail food sales, up from
16 percent in 1995.
In response, consolidating retailers
are striving to improve procurement and operating
efficiencies by introducing new information technologies
and supply chain initiatives. They are aiming to
lower procurement costs by aggregating purchases
by different regions or divisions into a few large
buying offices, counting on large volume discounts
from agricultural suppliers and processors.
Researchers are also investigating
other potential effects of rising retail food concentration.
For example, some agricultural producers have raised
concerns about fewer but larger retail buyers for
their products. Fresh fruit and vegetable grower-shippers
have questioned whether marketing practices with
retailers favor large buyers, resulting in lower
prices received. An ERS study of fresh fruit and
vegetable prices found mixed evidence across the
commodities studied.
This
finding is drawn from . . . |
| ERS
Briefing Room on Food Market Structures, Food
Retailing chapter.
U.S.
Fresh Produce Markets: Marketing Channels,
Trade Practices, and Retail Pricing Behavior,
by Carolyn Dimitri, Abebayehu Tegene, and
Phil R. Kaufman, AER-825, USDA, Economic Research
Service, September 2003. |
|
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