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Economics Essay on The United States Supermarket Retail Market Overview

The United States Supermarket Retail Market Overview

The supermarket retail sector in the US comprises of large national and multinational firms that sell domestic goods to customers directly. Their customers are mainly the end-users’ group of household goods. The key players of this market include the chains of retail supermarkets that sell different consumer products such as consumer electronics, cosmetics, clothes and grocery. Among the organizations in this category include Target Corporation, Wal-Mart Inc. Costco, ALCO stores and BJ’s Sears. The focus of this paper is on giving an overview of the US’ supermarket business sector in terms of market organization and major participants as well as other vital aspects.

The available Supermarket Facts at fmi.org show that the organization of the supermarket industry comprises of different subcategories. These include the traditional supermarkets that earn yearly revenues of about $ 2million. These supermarkets in most cases stock foodstuffs although they occasionally have bakeries and pharmacies in them. Target and Wal-Mart belong to this category. Supercenters specialize in different non-food stuff and food stuff which are similar to traditional supermarkets.

However, they occupy larger spaces which can be up to 170,000 sq. feet. Among the supermarkets that can be included in this category are Fred Meyer, Super Target and Wal-Mart supercenters. Drug stores specialize in the sale of prescription drugs. However, it is estimated that 20% of these outlets earn revenue from the sale of merchandises of the general consumers. CVS and Walgreens as well as Medicine Shoppe are the main dominant organizations in this category of supermarket business within the US. Several governmental stores that include Military Commissaries form another group of supermarkets. These sell goods to the government employees only such as the military personnel. They sell their goods at specific prices.

Over the recent past, another group of supermarkets called the dollar chains has come up in the US. These are retail shops which are generally of a small size and they specialize in consumer goods. They sell their goods at reduced prices. As such, they are a great threat to the other retailers in terms of competition. In the supermarket industry, Wal-Mart Inc. is the leader both globally and within the US. Target Corporation follows it.

Consumers drive the supermarket enterprise because consumer tastes, income, preferences as well as population determine their demand. Therefore, they are the sources of their revenues. According to Supermarket Facts, the US households spend about $116.52 on average per week in purchasing household goods. This is a very sensitive market and it is highly affected by the price index of consumers which is used to measure the entire variation of consumer goods’ prices. A reduction in the index of consumer goods prices for instance of about 1% can result in a great decline in revenue.

It is apparent that because of price deflation during the 2008-2010 recessions, there was a drop in price index by 0.4% during the financial year 2009. This increased to 1.6% in 2010 and 3.2% in 2011. However, this dropped to 2.1% in 2012. According to reports by Bustillo and Martin, the recession was beneficial to Wal-Mart because it reduced prices slightly and this increased its revenues since it attracted more customers who wanted to save during this recession.

Every product unit that supermarkets sell has very low profit margin of about one dollar or even less. For supermarkets to realize significant profits, they have to sell large volumes of products in order to have higher revenues. They also have to monitor operating costs very closely in order to keep them low while increasing profits. To a large extent, supermarkets benefits from the reality that they buy products in bulk from manufacturers. As such, they negotiate with manufacturers to acquire products at low prices. This enables them to sell products at slightly reduced prices. This attracts more customers which earn them more revenues and profits.

Supermarket Facts reveal that there were more than 37,053 US supermarkets with $2 million as their annual revenue in 2012. These have about 42,686 different types of consumer products. They employed about 3.4 million Americans in 2012. These earned the supermarkets $153.2 in terms of the revenue earned every hour.  By 2010, the size of Median Physical Supermarket was 46,000 sq. feet. It earned revenue of $602.609 billion in 2012. This was an increase of 31% from that of 2011 that stood at 459.699 billion. The largest revenue came from perishable foodstuffs which contributed $241.6999 billion. Grocery followed generating revenue that amounted to $164.522 billion. Pharmaceuticals, beauty products and general health merchandise products generated $13.67 billion, $14.27 and $25.12 billion respectively.

There is a stiff competition in the supermarket sector. To get and maintain a good market share, companies employ different strategies. Cutting prices is the mostly used strategy. For instance, according to a report by Bustillo and Martin Wal-Mart reduced prices on about 10,000 items in 2010 as a way of reinforcing its position in the market. Others such as Kroger Company employ strategies like cleanliness and customer services to maintain customers.

Conclusion

It is apparent that the supermarket sector can be viewed at as a market whose contribution in the national economy is very significant. It is also a sector that relies heavily on consumers. Companies in this sector have minimum profit margins and therefore they struggle to attract more customers in order to make profits which increases competition. Price reduction is their main weapon that they use to emerge winners in the competition.

 

 

Works Cited

Bustillo, Miguel, and Martin Timothy W. “Wal-Mart Bets on Reduction in Prices” Wall Street

 Journal 9 April 2010. Web. 23 February 2014.

<http://online.wsj.com/news/articles/SB10001424052702304198004575172271682347064>

“Supermarket Facts” Food Marketing Institute n.d. Web. 23 February 2014.

< http://www.fmi.org/research-resources/supermarket-facts>

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