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OWINGS MILLS, Md. -- The landscape of the food retailing industry continues to change dramatically, with traditional grocery chains being squeezed out of the picture by the growth of alternative formats. A new report from global trade credit insurer Euler Hermes ACI, based here, emphasizes that these other outlets -- namely supercenters, warehouse clubs, dollar stores, drugstores, and convenience stores -- are increasing their grocery square footage and sales, thus taking a big bite out of the consumer base of the traditional grocery chains.
The report finds that the competition for customers in the food retailing industry is fierce, while top-line growth in the industry remains modest. "The pricing pressure has intensified with the rapid expansion of the alternative formats, especially Wal-Mart Stores Inc.'s supercenter stores," said Euler Hermes' ACI risk v.p., Francois Bergeron, in a statement released yesterday. "This has affected operating margins for the grocery chains, and the smaller regional players in the industry may suffer disproportionately from the increased competition and tougher climate," he said.
In response to the changing business climate, many regional and national grocery chains are changing their primary focus in order to survive, Bergeron said. Some are offering more premium goods to customers, while others are focusing more on better execution and increased service for customers. "A new format is also emerging in the U.S., with chains like Aldi's, Trader Joe's, and Supervalu's Save-A-Lot," he said. "These no-frills, deep-discount stores are designed to compete well against the supercenters and warehouse clubs." However, Bergeron noted that no matter what the business model, it is obvious that many of the regional and national grocery chains will need to reinvent themselves in order to maintain their share of this increasingly competitive marketplace.
The report shows a troubled outlook for the retail grocery business over the coming years as the major shift in market share continues. The gap is expected to widen between the supercenters/discount clubs and traditional grocery outlets. "Overall, the outlook for traditional grocers is bleak," concluded Bergeron. "The alternative formats will keep flexing their muscles in the industry, putting a tighter squeeze on the regional and national grocery chains."
Euler Hermes ACI is a North American provider of trade credit insurance and global risk mitigation information. It is the U.S. subsidiary of the Euler Hermes group, which has offices in more than 40 countries, and is a company of Allianz. The company's risk underwriting department monitors and analyzes various trade sectors to provide proprietary risk mitigation information to policyholders.
The complete Food Retailing Industry report is available in the fall 2005 issue of "Foresight," a Euler Hermes ACI publication. For more information about Euler Hermes ACI products and services, visit http://www.eulerhermes.com/usa.