Defense Commissary Agency Analysis

We have all been to a supermarket or store at some point in our lives. Have we found ourselves placing items in the cart that we did not come to buy, and why is that? Is there a reason the products we need are located in the back of the store? Marion Nestle wrote an article entitled, “The Supermarket: Prime Real Estate.” She teaches in the department of nutrition and food studies at New York University. Nestle writes a column regarding food for the San Francisco Chronicle. Shortly after reading the title, one can determine Nestle opposes supermarkets. “Prime Real Estate,” indicates that large supermarkets are feeding grounds for them against unsuspecting customers. Supermarkets can determine what somebody will buy, based on where the store places certain products. The general argument made by Nestle in her work, “The Supermarket: Prime Real Estate, is that supermarkets are taking advantage of our unconscious mind and we are purchasing products on impulse.

The grocery industry has a relatively high market commonality; a lot of grocery stores are somewhat related in terms of technologies used, labor force and the products or services offered in the stores. Differentiation with other competitors is key for survival in this highly competitive industry.

1. The grocery industry is a commoditized industry, which makes it difficult for grocers to sustain through differentiation. Buyer power is high and thus, cost leadership and operational efficiencies are critical. There is fierce competition amongst various grocery stores, with the main players such as Loblaw and A&P holding multi-banner stores in various market segments. Traditional grocery stores also lose some of their market share to drug stores, convenience stores and other retailers who have entered the industry. Threat of substitutes from fast-food and take- away outlets is not as prevalent, since many grocery stores have started stocking ready-to-eat meals and have deli services available for consumers. Competitive

Relying on statistics residents spend $30.6 million dollars per year on grocery store and other food products. Based upon the number of households and the average spending residents spend $16,872.00 per year on grocery store and other food products. Calculating the average spending it is estimated that Brother’s Convenience Store could conservatively gross $100,000. It is anticipated that the market penetration will increase over the next five years from 5% of local residents spending to 10%, and the client market area will increase to a 15-block radius.

In the United States, the food retail industry is absolutely massive. According to Statista, this industry brings in nearly 5.27 trillion dollars annually and 594.4 billion of that is from grocery store sales. In this market, the 20-ton gorilla in the room is Walmart, racking in nearly 20% of the entire market at around 118 billion dollars in 2013 according to the Harvard Business School case study. Following Walmart, Kroger and Costco own the biggest next largest slices bringing in 76 billion and 71 billion respectively. In this highly competitive market that has some of the smallest margins of any industry it can be tough to get ahead and even tougher to grow. However, Trader Joe’s has managed to pierce what was once a very small world

Operating on very thin profit margins, players in the supermarket industry traditionally either focus on a premium segment or follow a discounter strategy at the low end. Premium players address educated and more price elastic consumers who value healthy, natural and organic food; the share of perishable items for these players is normally distinctly higher. Players that focus on a discounter strategy offer a higher share of simple necessity items and value price competitiveness over premium features like healthiness or organic origin. Independently of the focused customer group it is imperative for players in the supermarket industry to be cost efficient and optimize operations

Renee Brooks Catacalos and Kristi Bahrenburg Janzen wrote, “Suburban Foraging: Two Families Eat Only Local,” and found that, “Price comparisons revealed that no one store was cheaper across the board” (120). They wrote this piece to inform others of their journey and some details that weren’t originally on the market. One grocery store in particular,

Grocery shopping is more diversified and evolved than ever before. Individuals across the nation have access to everything from exotic products to unique delivery services. Often, specialty stores have limited locations whereas specialty services have a limited reach. However, two retailers have expanded to hundreds of locations while adhering to unexpected market positioning for previously untargeted market segments. Whole Foods Market and Trader Joe’s have become household names while also innovating beyond regional and national traditional chains. Despite comparable size in

By choosing to implement “Everyday low-pricing” strategy to all Hi- Value Supermarket products in Centralia, Missouri, Hi- Value would begin direct competition with Harrison’s via most reasonable prices. According to the Exhibit 6 found on page 506, data shows that, Harrison’s is a market leader with 36 percent of customers agreeing that Harrison’s has the most reasonable prices , while customers rated Hi- Value with only 7percent . Also in this data we can see that Hi Value scored lowest on best overall variety with 2 percent while Missouri Mart came in at 74 percent. With 13,500 households retaining an average income of a mere $36,000/ year,

There are a few changes in the social environment that created challenges for Bob’s Supermarket. The introduction of high powered competition and the recession had a negative impact on the grocery store. Customers were more likely to eat lower cost meals at home vs at restaurants however, “Consumers favored stores that were known for deep-discounts,” (Parnell, 2014, p. 403). The new stores caused commoditization of products offered by the store because of the extremely lower prices. Consumers were really looking for lower prices during the recession (Parnell, 2014).

Grocery industry is a highly competitive market with thin profit margins. Super markets are dominant players in the grocery industry. They use grocery offerings to drive traffic to their higher profit margin retail items. With its operations efficiency, Walmart, the largest grocery retailer has been able to offer significant price drops. This also forces other grocery stores to drop prices which keeps the profit margin thin. Even with all the advantages of operational efficiency and economies of scale, Walmart’s share in grocery sales was down at 51% in 2011.

This would suggest a weakness within the Whole Foods organizations as it only targets consumers who are willing to pay higher than average prices for groceries. The cost of

Stores like Wal-Mart are famous for keeping their prices so low. This is one reason why they are able to maintain a grip on the consumers of an area. They accomplish this by keeping the cost to produce and transport the goods low. In January, a study by the Los Angeles County Economic Development Corp. found that, “an individual family could save $589 a year on groceries by shopping at a supercenter. Overall, shoppers could save $3.76 billion in merchandise nationwide.” (Blazier, A, 2004) A major reason they can keep prices lower than mom-and-pop run businesses is their ability to buy merchandise in bulk. Buying in bulk works the same way it does for a consumer. The more of a product that is purchased, the less the cost is per unit. Consumers see this every day when they go to stores like Sam’s Club or Costco. When they buy their merchandise in bulk, they are able to offer it to the consumer at a lower price. (Kale, 2011) This is what could eventually drive the mom-and-pop owned businesses out of the area, and draw a negative criticism from the public. The interesting thing about this criticism is that the public complains about Wal-Mart

Gordon, Goldfarb, and Yang (2013) examined price sensitivity changes with the macroeconomic environment. The authors explored this relationship by measuring price elasticity using household-level data across 19 grocery categories over 24 quarters. The researchers extended the works related to meta-analyses of price elasticity by Bijmolt, Van Heerde, and Pieters (2005), as well as Bronnenberg, Mela, and Boulding (2006) on estimating price elasticity across categories. Their results provided a rich set of measures of price sensitivity across categories and over time. These measures should enable XYZ Company to move beyond common effects and focus on

The problem remains that we struggle to maintain a competitive advantage, when stores like Sprouts, Costco, and Trader Joes continually lowering their prices meanwhile our prices remain the same. I propose a real and practical suggestion that will fix our continuous struggle against our intrusive competitors, by improving our price perception.