Supermarket/Grocery Industry Economics Assignment

Economic Brief

Supermarket’s & Grocery Stores

Economic Brief

Super Market & Grocery Industry

The supermarket and grocery industry are the leading retailer for the food industry in the United States. People rely heavily on stores that are nearby to be able to go grocery shopping. In this paper, we will discuss the steady growth of this monopolized competition markets industry, and how the economy plays a critical role in how consumers shop.

Industry Goods and Services

Some of the leading stores in this industry are Kroger’s, Walmart, Albertsons & Sons LLC, Aldi's, Publix, and more. According to research, the supermarket and grocery retail industry generate a $654.6 billion revenue yearly, with $10.5 billion in profits (IBISWorld & Kalyani Report 4451, 2019). This industry is in a mature lifestyle stage and has high competition.

In the chart below, from IBISWorld and Kalyani (2019), you will see a breakdown of the goods and services offered within these two industries and the revenue they produce. The graph depicts the demand for each good and service. For example, we see that 35.0% are "other foods," including pasta, bakery, canned goods, condiments, etc. (IBISWorld and Kalyani Report 4451) (2019). Shockingly, we see that fruits and vegetables only make up 3.7% of the revenue (this may mean that not enough people in America care to eat their fruits and veggies). The graph also shows that within this retail market, other non-food goods make up 9.4% of the revenue. Some of the items included in this would be household products such as paper towels, toilet paper, napkins, laundry detergent, etc. Overall, the graph shows that 85.1% of the supermarket and grocery chain stores see more revenue when it comes to customers buying food. The other 14.9% explains that customers use these stores to purchase products outside of the food categories.

Market Structure and Characteristics

The market structure of supermarkets and grocery stores are considered a monopolistic competition. The supermarket/grocery stores have a monopolistic competition because even though they have many competitors, they try to differentiate themselves by selling different products. For example, if customers are not looking to purchase name brands, they can buy the alternative cheaper store brand named great value. Walmart can set their prices low and still be able to make high profits (which is why they are the leading supermarket retailer).

Some of the characteristics from these supermarkets and grocery stores are that the prices are generally lower, and they offer a large variety of goods, some offer loyalty memberships, and the product pricing can be low, but profits can be high.

Microeconomic Relationships, Market Outcomes, and/or Trends

Some of the characteristics from these supermarkets and grocery stores are that the prices are generally lower, and they offer a large variety of goods, some offer loyalty memberships, and the product pricing can be low, but profits can be high.

Over the past five years, the supermarket/grocery store industry has seen an increase in growth and revenue due to economic strengthening, according to (IBISWorld and Kalyani Report 4451)(2019). Since there has been steady job growth and more people are earning better wages, they are purchasing more. The industry is even seeing that more people are purchasing name brand products than the store brands. "IBISWorld anticipates industry revenue to increase at an annualized rate of 0.9% to $654.6 billion over the five years to 2019. This includes the growth of 1.0% in 2019 alone, driven by strong growth in per capita disposable income" (IBISWorld and Kalyani Report 4451). In the chart below from IBISWorld, you will see the projection of growth anticipated growth in the next five years.

(1) (IBISWorld and Kalyani Report 4451, 2019)

How Government Intervention May Impact the Industry

Grocery stores serve a massive purpose to our local communities economic wise. They help produce jobs, attract other companies to the areas, assist with traffic around our towns, help stabilize housing communities, and generates local taxes within the communities. Having these types of stores in your area causes more benefit than harm. Since the supermarket and grocery stores are within the retail industry, they have rules and regulations to abide by both the Department of Labor for employees and the FDA (U.S. Food and Drug Administration). Retailers must adhere to the Federal procedures for standardization of retail food safety and will be inspected by inspectors.

Another way the government can impact businesses such as grocery stores is to increase and decrease the cost of goods. The government can control the amount of money consumers are spending on items to help boost the economy. This is called the Fiscal policy, and it affects not only the grocery market's ability to compete but also consumer demand and business cost.

The world of supermarkets and grocery stores are leading the retail industry across the globe. Supply and demand are incredibly high as people count on food to survive. When the economy is crashing, we see people purchasing the least expensive items or store name brands. When the economy is rising, we see people buying the more expensive name brands. We recognize that when we have national emergencies or disasters that our demand for products rises.

Sources

1. "Supermarkets & Grocery Stores in the US," by Darshan Kalyani, IBIS World Industry Report 44511, April 2019. Found at https://data.greaterpeoria.us/wp-content/uploads/2019/07/44511-Supermarkets-Grocery-Stores-in-the-US-Industry-Report.pdf

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