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MarketLine Industry Profile

Food & Grocery Retail in the United States

February 2020

Reference Code: 0072-2058

Publication Date: February 2020

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Food & Grocery Retail in the United States

Industry Profiles

1. Executive Summary

1.1. Market value

The United States food & grocery retail market grew by 3.8% in 2018 to reach a value of $2,218,273.1 million.

1.2. Market value forecast

In 2023, the United States food & grocery retail market is forecast to have a value of $2,567,147.4 million, an increase of 15.7% since 2018.

1.3. Category segmentation

Food is the largest segment of the food & grocery retail market in the United States, accounting for 71.6% of the market's total value.

1.4. Geography segmentation

The United States accounts for 22.5% of the global food & grocery retail market value.

1.5. Market rivalry

Competition between players is fierce due to the limited level of product differentiation and consumers' negligible switching costs, combined with a challenging and volatile market environment.

1.6. Competitive Landscape

The US market is home to the world’s highest-turnover company, Walmart, and is generally quite consolidated between its big three. However, disruptive moves from Amazon into the grocery market are finding a footing in the US before being rolled out to global markets, making for a rapid pace of change.

Food & Grocery Retail in the United States

Industry Profiles

TABLE OF CONTENTS

1. Executive Summary2

1.1. Market value ................................................................................................................................ 2

1.2. Market value forecast .................................................................................................................. 2

1.3. Category segmentation ............................................................................................................... 2

1.4. Geography segmentation ............................................................................................................ 2

1.5. Market rivalry ............................................................................................................................... 2

1.6. Competitive Landscape ............................................................................................................... 2

2. Market Overview8

2.1. Market definition .......................................................................................................................... 8

2.2. Market analysis ............................................................................................................................ 8

3. Market Data10

3.1. Market value .............................................................................................................................. 10

4. Market Segmentation11

4.1. Category segmentation ............................................................................................................. 11

4.2. Geography segmentation .......................................................................................................... 12

4.3. Market distribution ..................................................................................................................... 13

5. Market Outlook14

5.1. Market value forecast ................................................................................................................ 14

6. Five Forces Analysis15

6.1. Summary ................................................................................................................................... 15

6.2. Buyer power ............................................................................................................................... 16

6.3. Supplier power ........................................................................................................................... 18

6.4. New entrants .............................................................................................................................. 20

6.5. Threat of substitutes .................................................................................................................. 21

6.6. Degree of rivalry ........................................................................................................................ 22

7. Competitive Landscape23

Food & Grocery Retail in the United States

Industry Profiles

7.1. Which leading players were particularly notable in 2018? ........................................................ 23

7.2. Are any disruptors posing a threat to the incumbents? ............................................................. 23

8. Company Profiles25

8.1. Walmart Inc ................................................................................................................................ 25

8.2. The Kroger Co ........................................................................................................................... 31

8.3. Target Corp ................................................................................................................................ 38

9. Macroeconomic Indicators44

9.1. Country data .............................................................................................................................. 44

Appendix 46

Methodology ............................................................................................................................................. 46

9.2. Industry associations ................................................................................................................. 47

9.3. Related MarketLine research .................................................................................................... 47

About MarketLine ..................................................................................................................................... 48

Food & Grocery Retail in the United States

Industry Profiles

LIST OF TABLES

Table 1: United States food & grocery retail market value: $ million, 2014–18 10

Table 2: United States food & grocery retail market category segmentation: $ million, 2018 11

Table 3: United States food & grocery retail market geography segmentation: $ million, 2018 12

Table 4: United States food & grocery retail market distribution: % share, by value, 2018 13

Table 5: United States food & grocery retail market value forecast: $ million, 2018–23 14

Table 6: Walmart Inc: key facts 25

Table 7: Walmart Inc: Annual Financial Ratios 26

Table 8: Walmart Inc: Key Employees 27

Table 9: Walmart Inc: Key Employees Continued 28

Table 10: Walmart Inc: Key Employees Continued 29

Table 11: Walmart Inc: Key Employees Continued 30

Table 12: The Kroger Co: key facts 31

Table 13: The Kroger Co: Annual Financial Ratios 33

Table 14: The Kroger Co: Key Employees 34

Table 15: The Kroger Co: Key Employees Continued 35

Table 16: The Kroger Co: Key Employees Continued 36

Table 17: The Kroger Co: Key Employees Continued 37

Table 18: Target Corp: key facts 38

Table 19: Target Corp: Annual Financial Ratios 39

Table 20: Target Corp: Key Employees 40

Table 21: Target Corp: Key Employees Continued 41

Table 22: Target Corp: Key Employees Continued 42

Table 23: Target Corp: Key Employees Continued 43

Table 24: United States size of population (million), 2014–18 44

Table 25: United States gdp (constant 2005 prices, $ billion), 2014–18 44

Table 26: United States gdp (current prices, $ billion), 2014–18 44

Table 27: United States inflation, 2014–18 44

Food & Grocery Retail in the United States

Industry Profiles

Table 28: United States consumer price index (absolute), 2014–18 45

Table 29: United States exchange rate, 2014–18 45

Food & Grocery Retail in the United States

Industry Profiles

LIST OF FIGURES

Figure 1: United States food & grocery retail market value: $ million, 2014–18 10

Figure 2: United States food & grocery retail market category segmentation: % share, by value, 2018 11

Figure 3: United States food & grocery retail market geography segmentation: % share, by value, 2018 12

Figure 4: United States food & grocery retail market distribution: % share, by value, 2018 13

Figure 5: United States food & grocery retail market value forecast: $ million, 2018–23 14

Figure 6: Forces driving competition in the food & grocery retail market in the United States, 2018 15

Figure 7: Drivers of buyer power in the food & grocery retail market in the United States, 2018 16

Figure 8: Drivers of supplier power in the food & grocery retail market in the United States, 2018 18

Figure 9: Factors influencing the likelihood of new entrants in the food & grocery retail market in the United

States, 2018 20

Figure 10: Factors influencing the threat of substitutes in the food & grocery retail market in the United

States, 2018 21

Figure 11: Drivers of degree of rivalry in the food & grocery retail market in the United States, 2018 22

Food & Grocery Retail in the United States

Industry Profiles

2. Market Overview

2.1. Market definition

The food & grocery retail market includes the retail sales of all food products, both packaged and unpackaged, as well as beverages (including retail sales of all alcoholic and non-alcoholic beverages), tobacco, and household products. All on-trade sales of food and beverage are excluded. All currency conversions are calculated at constant average 2018 exchange rates.

For the purposes of this report, the global market consists of North America, South America, Europe, Asia-Pacific, Middle East, South Africa and Nigeria.

North America consists of Canada, Mexico, and the United States.

South America comprises Argentina, Brazil, Chile, Colombia, and Peru.

Europe comprises Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden, Switzerland, Turkey, and the United Kingdom.

Scandinavia comprises Denmark, Finland, Norway, and Sweden.

Asia-Pacific comprises Australia, China, Hong Kong, India, Indonesia, Kazakhstan, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam.

Middle East comprises Egypt, Israel, Saudi Arabia, and United Arab Emirates.

2.2. Market analysis

The US food & grocery retail market has experienced a moderate growth rate in recent years which is expected to continue over the forecast period. The US had a 22.5% share in the global food & grocery retail market in 2018

Modest yearly food price increases for food & grocery’s fuel growth in this market. From 2014 to 2018, the all-food consumer price index (CPI) rose 4.5% creating higher value products sold by grocery retailers. However, CPI growth for groceries was weaker then 10.8% rise in housing costs and 11.4% increase in medical care costs, this may limit growth in the market as increasing living costs from other markets reduce consumer spending on food & groceries. Nevertheless, consumer spending on food retail remains high in the US; In 2018, Americans spent an average of 9.7% of their disposable personal incomes on food.

The US food & grocery retail market had total revenues of $2,218.3bn in 2018, representing a compound annual growth rate (CAGR) of 3.4% between 2014 and 2018. In comparison, the European and Asia-Pacific markets grew with CAGRs of 3.1% and 8% respectively, over the same period, to reach respective values of $2,061.5bn and $4,588.1bn in 2018.

Online retail is becoming increasingly important in this market accounting for a growing proportion of sales. food industry association (FMI) 43% of shoppers have purchased groceries online. The number of online-only retailers increased by 28% in 2018 with around 10% of consumers shopping for groceries online once or more every week.

The Food segment was the market's most lucrative in 2018, with total revenues of $1,588.8bn, equivalent to 71.6% of the market's overall value. The Drinks segment contributed revenues of $487.3bn in 2018, equating to 22% of the market's aggregate value.

Organic food products are becoming increasingly mainstream in the US, encouraged by consumers demanding healthier foods and protection for the environment, and animal welfare. Consumers are showing willingness to pay premiums for organic foods which is driving growth in the market the US organic food retail market is the largest in the world reaching a value of EUR 40.56bn ($47.7bn) and the ninth largest consumption rate with consumers paying EUR 125 ($147) on organic producers a year per capita.

Food & Grocery Retail in the United States

Industry Profiles

The performance of the market is forecast to decelerate, with an anticipated CAGR of 3% for the five-year period 2018 - 2023, which is expected to drive the market to a value of $2,567.1bn by the end of 2023. Comparatively, the European and Asia-Pacific markets will grow with CAGRs of 3.7% and 7.3% respectively, over the same period, to reach respective values of $2,474.6bn and $6,518.5bn in 2023.

Growth in this market in the coming years will be buoyed by robust employment growth which, coupled with strong consumer confidence, will ensure that income and consumption growth are sustained. U.S. grocery e-commerce is expected at a CAGR of 20% between 2018 and 2023 according to the Institute of Grocery Distribution (IGD) research 2018. Online sales will almost certainly encourage market growth over the forecast.

Food & Grocery Retail in the United States

Industry Profiles

3. Market Data

3.1. Market value

The United States food & grocery retail market grew by 3.8% in 2018 to reach a value of $2,218,273.1 million.

The compound annual growth rate of the market in the period 2014–18 was 3.4%.

Table 1: United States food & grocery retail market value: $ million, 2014–18

Year $ million € million % Growth

2014 1,938,367.7 1,641,278.2

2015 2,002,902.3 1,695,921.8 3.3%

2016 2,067,654.5 1,750,749.6 3.2%

2017 2,136,373.2 1,808,935.9 3.3%

2018 2,218,273.1 1,878,283.2 3.8%

CAGR: 2014–18 3.4%

SOURCE: MARKETLINE M A R K E T L I N E

Figure 1: United States food & grocery retail market value: $ million, 2014–18

SOURCE: MARKETLINE

M A R K E T L I N E

Food & Grocery Retail in the United States

Industry Profiles

4. Market Segmentation

4.1. Category segmentation

Food is the largest segment of the food & grocery retail market in the United States, accounting for 71.6% of the market's total value.

The Drinks segment accounts for a further 22% of the market.

Table 2: United States food & grocery retail market category segmentation: $ million, 2018

Category 2018 %

Food 1,588,828.8 71.6%

Drinks 487,306.2 22.0%

Tobacco 104,323.9 4.7%

Household Products 37,814.2 1.7%

Total 2,218,273.1 100%

SOURCE: MARKETLINE M A R K E T L I N E

Figure 2: United States food & grocery retail market category segmentation: % share, by value, 2018

SOURCE: MARKETLINE

M A R K E T L I N E

Food & Grocery Retail in the United States

Industry Profiles

4.2. Geography segmentation

The United States accounts for 22.5% of the global food & grocery retail market value.

Asia-pacific accounts for a further 46.4% of the global market.

Table 3: United States food & grocery retail market geography segmentation: $ million, 2018

Geography 2018 %

Asia-pacific 4,588,116.9 46.4

United States 2,218,273.1 22.5

Europe 2,061,529.7 20.9

Rest Of The World 1,010,712.2 10.2

Total 9,878,631.9 100%

SOURCE: MARKETLINE M A R K E T L I N E

Figure 3: United States food & grocery retail market geography segmentation: % share, by value, 2018

SOURCE: MARKETLINE

M A R K E T L I N E

Food & Grocery Retail in the United States

Industry Profiles

4.3. Market distribution

Hypermarkets, Supermarkets and Hard Discounters form the leading distribution channel in the United States food & grocery retail market, accounting for a 69% share of the total market's value.

Convenience Stores and Gas Stations accounts for a further 11.4% of the market.

Table 4: United States food & grocery retail market distribution: % share, by value, 2018

Channel % Share

Hypermarkets, Supermarkets and Hard Discounters 69.0%

Convenience Stores and Gas Stations 11.4%

Value, Discount and General Merchandise Retail 3.5%

Cash and Carry and Warehouse Clubs 3.4%

Other 12.7%

Total 100%

SOURCE: MARKETLINE M A R K E T L I N E

Figure 4: United States food & grocery retail market distribution: % share, by value, 2018

SOURCE: MARKETLINE

M A R K E T L I N E

Food & Grocery Retail in the United States

Industry Profiles

5. Market Outlook

5.1. Market value forecast

In 2023, the United States food & grocery retail market is forecast to have a value of $2,567,147.4 million, an increase of 15.7% since 2018.

The compound annual growth rate of the market in the period 2018–23 is predicted to be 3%.

Table 5: United States food & grocery retail market value forecast: $ million, 2018–23

Year $ million € million % Growth

2018 2,218,273.1 1,878,283.2 3.8%

2019 2,295,106.6 1,943,340.6 3.5%

2020 2,375,633.5 2,011,525.3 3.5%

2021 2,452,745.6 2,076,818.6 3.2%

2022 2,528,401.2 2,140,878.6 3.1%

2023 2,567,147.4 2,173,686.3 1.5%

CAGR: 2018–23 3.0%

SOURCE: MARKETLINE M A R K E T L I N E

Figure 5: United States food & grocery retail market value forecast: $ million, 2018–23

SOURCE: MARKETLINE

M A R K E T L I N E

Food & Grocery Retail in the United States

Industry Profiles

6. Five Forces Analysis

The food & grocery retail market will be analyzed taking supermarkets, hypermarkets and specialist retailers as players. The key buyers will be taken as end-consumers, and food & grocery product manufacturers, farmers, agricultural co-operatives as the key suppliers.

6.1. Summary

Figure 6: Forces driving competition in the food & grocery retail market in the United States, 2018

SOURCE: MARKETLINE

M A R K E T L I N E

Competition between players is fierce due to the limited level of product differentiation and consumers' negligible switching costs, combined with a challenging and volatile market environment.

Since the vast majority of retail sales in the food & grocery market come from food sales, analysis will focus largely on this segment of the market.

A lack of switching costs and the limitations in product differentiation lead to buyer mobility, which forces larger retailers to maintain attractive pricing schemes. There is a rising pressure laid on players to adapt to fast changing consumer needs and the market leaders should be able to position the desirable product at a price suitable for customers and manufacturers. Whilst specialist, luxury or organic retailers do not feel the same price sensitivity, they are not able to secure a large volume of customers, and may have no choice but to commit to long term supplier contracts in order to secure a steady supply, quality, or specifically prepared products.

Potential new entrants may struggle to compete with the aggressive marketing and pricing policies of the existing players. Nonetheless, relatively low entry and exit costs, the emergence of thriving health and ethical niches which are sheltered from direct competition from current players, and strong historical growth, offer attractive prospects.

Food service (takeaways, vendors and restaurants) can be seen as a substitute to food retail products, however for the vast majority of people it currently exists as an occasional accompaniment rather than a wholesale alternative. Subsistence farming is a more direct substitute, sometimes replacing standard retail behavior outright, yet it is no longer a common practice in many parts of the world.

Food & Grocery Retail in the United States

Industry Profiles

6.2. Buyer power

Figure 7: Drivers of buyer power in the food & grocery retail market in the United States, 2018

SOURCE: MARKETLINE

M A R K E T L I N E

The buyers in this market are end-consumers. This significantly weakens buyer power; the loss of any one buyer’s custom is unlikely to have a significant effect on a player’s revenues. Additionally, the standing of any individual customer is diminished because of the sheer volume of potential customers.

Although the revenue generated by any particular consumer is minimal, collectively they represent wider consumer interests, and retailers cannot afford to disregard the sensitivities of buyers. However, grocery stores conversely play a key role in shaping consumer demand. The concentration of the market amongst a small handful of market players lessens buyer power considerably. There are a number of factors that affect a consumer’s choice. Price and convenience are two central concerns. A recent survey by the Bureau of Labor Statistics found that US consumers spent an average of $4,363 per household on food products at home in 2017. However, a rise in health consciousness has driven a growing demand for nutritional quality in food products. This is particularly true for the US where the high obesity levels have led to various initiatives to encourage consumers to opt for healthier lifestyles. A 2018 study found that the obesity level stands at over 20% in all US states, over 30% in 22 US states, and over 35% in 7 states.

The culture of convenience now faces the challenge of a counter-trend in which a shift back towards fresh, simple or traditionally prepared foods undermines the retail position of frozen foods and similar products. There is also a demand for a mixture of domestic and international food. The emergence and development of ethical niches adds further momentum to this movement within the market. Food retailers must accommodate such diverse interests, which also increase buyer power somewhat.

A number of retailers operate incentive schemes for frequent shoppers, which can help secure customer retention. For example, in March 2016, Walmart introduced its 3-2-1 Save program in which all Walmart Credit Cards, Walmart MasterCards and Walmart MoneyCards offer 3% cash back on online purchases made on Walmart.com, 2% back on fuel purchases at Walmart or Murphy USA gas stations, and 1% cash back on purchases at Walmart. Discouraging movement across retail outlets can reduce consumer mobility which, in the long term, can weaken buyer power.

Although high brand recognition does not automatically translate into consumer loyalty, if it is supported by a product range in which popular food products are central, the retailer can often draw indirectly on the loyalty base that manufacturers have established. Specialty, luxury or organic retailers can, due to the high level of product differentiation, justify price levels that would otherwise be unsustainable, yet the limited volume of consumers restrains the power of such players.

Food & Grocery Retail in the United States

Industry Profiles

The growth of multi-channel shopping is increasing the power of buyers. There are increasing alternatives available to consumers aside from the typical grocery stores. For example, there has been a growth in farm shops and direct marketing, while the launch of Amazon Fresh has intensified the competiveness of the market and given consumers a new way to shop. Meanwhile, the growth of social media is putting more power in the hands of consumers in terms of their ability to highlight poor service/products/experience with a retailer. Social media also allows consumers to become a collective voice as opposed to a single buyer.

Overall, buyer power is assessed as moderate.

Food & Grocery Retail in the United States

Industry Profiles

6.3. Supplier power

Figure 8: Drivers of supplier power in the food & grocery retail market in the United States, 2018

SOURCE: MARKETLINE

M A R K E T L I N E

Suppliers to this market are producers of base ingredients as well as manufacturers of food and grocery products.

The production of base ingredients stage is dominated by large players, although individual farmers with smallholdings are present. Crop production is dependent on land. The more land there is, the more crops that can be produced. This increases financial viability and consequently, production is dominated by global powerhouses. For example, Adecoagro is one of the largest owners of productive farmland in South America, while the likes of Bunge and Cargill have revenue exceeding $40bn. In the case of the latter, it exceeds $100bn. Small-scale farms are a feature of this stage of the value chain. Individual or family-owned farms are commonplace and may in some cases be key suppliers to supermarket chains or local, independent retailers. Such suppliers have much less power than large, multinational agricultural companies.

Large retailers often maintain relationships with a wide range of suppliers, which ensures stability and helps to offset the dangers of local sourcing problems or price fluctuations. For example, Walmart has over 100,000 suppliers across the globe. This strengthens retailers' standing in relation to their suppliers as their dependency is reduced, meaning any risks to retailers are minimized.

Where possible, long term contractual obligations are avoided and switching costs are kept to a minimum. With a firm hold on key distribution channels, the leading retailers can dominate negotiations with certain suppliers. The leading players in this market often make up a larger proportion of a supplier’s revenues and as such can negotiate lower prices with suppliers. Smaller retailers, such as specialist, luxury or organic outlets may find such negotiations difficult. The limited number of suppliers in niche areas and the centrality of product quality or preparation type restrict the available range of sourcing options. With switching costs subsequently higher, the balance of power shifts somewhat from smaller retailers to specialist suppliers.

Backward integration is possible, with some retailers growing their own produce and selling it on. This is particularly true for small, independent retailers such as open-air market retailers. Backward integration is also possible by some of the larger market players. For example, Kroger operates 37 food production plants, which supplied approximately 33% of the company’s private label brands in 2017. In this case supplier power is reduced. On the other hand, forward integration by suppliers is possible if a manufacturer/grower decides to establish retail operations.

Food & Grocery Retail in the United States

Industry Profiles

Whilst the need to satisfy consumer demand for popular products bolsters manufacturers, many others face the problem of a high degree of retailer mobility as they switch suppliers in accordance with pricing pressures. Supplier power has been affected by the surge of many retailers offering private label products, which may sideline certain suppliers. For example, in 2017 private label items accounted for a quarter of Kroger’s total sales. Meanwhile, Walmart has been growing its private label offering. Suppliers who are able to differentiate their product can wield some power over retailers, should their product be popular with the end consumer. In respect of large suppliers, such as Unilever, Coca Cola, and Procter & Gamble, supplier power is increased. These companies supply products with strong brands. Ultimately, end-consumer demand is critical in this market and the leading market players will need to stock the brands that consumers want. However, for food retail a vast swathe of products are commodities (such as fruit and vegetables) and homogenous, which diminishes supplier power.

Backwards integration by the largest retailers in this market is also evident in terms of integrating into storage and warehouses in a drive to achieve improved efficiency. For example, Walmart has its own distribution centers and logistics in place in order to gain greater levels of efficiency across its supply chain.

Traders and their customers (food companies, retailers that have backwards integrated etc.) have come under a great deal of pressure in recent years to make sure that farmers get a fair price for what they produce and sell on. Several movements and certification standards have been implemented, the most visible of which are Fairtrade and Utz Certified. Companies that manufacture end products like packaged coffee, chocolate bars, and cereals exert pressure on suppliers to conform to standards around issues like pay, child labor, environmental responsibility, and freedom of expression. Some manufacturers will only buy from traders who can prove that their inputs come from compliant sources as this then allows them to prominently display Fairtrade, Utz Certified etc. logos on their packaging. This is crucial because of increased consumer awareness of such issues and the pull through from buyer demands. Such issues have helped to improve supplier power to a certain extent in recent years.

In the US, the 2018 imposition of tariffs on imported goods has the potential to disrupt supply chains in this market. The leading companies in this market source products from across the globe. This could potentially result in market players terminating contracts with some suppliers for certain products. However, any price increases as the result of imposed tariffs are likely to be passed on to the consumer.

Overall, supplier power is assessed as moderate.

Food & Grocery Retail in the United States

Industry Profiles

6.4. New entrants

Figure 9: Factors influencing the likelihood of new entrants in the food & grocery retail market in the United States, 2018

SOURCE: MARKETLINE

M A R K E T L I N E

The food & grocery retail market in the US is dominated by Walmart, which accounted for over a quarter of the US food & grocery market value in 2017. This company makes for an incredibly formidable incumbent and may prove off- putting to potential new entrants. Other large market players include Kroger, Target, Costco, and Ahold among others. These companies are large-scale, established retailers, with operating businesses that benefit significantly from economies of scale and the ability to employ aggressive pricing schemes that cannot be matched by smaller retailers, thus enjoying a significant advantage. Strong branding exercises and fast paced expansion deepens this market control.

Nevertheless, large retailers are not invulnerable to the threat of new entrants. Potential entrants may be encouraged by the relatively low entry and exit costs. There has been a rapid growth of health consciousness, plus an increasing number of consumers opting for a more ethical or organic range of goods. This is evident in MarketLine data, which indicates that the organic food market in the US grew at a compound annual growth rate 15.3% between 2013 and 2017. As such, while the food & grocery retail market as a whole is growing only moderately, it is apparent that certain segments of the market are offering good growth potential. This forms attractive avenues for new entrants seeking to move into a niche area that offers inbuilt protection from pricing pressures and mainstream marketing.

While the US food & grocery retail market is heavily dominated by hypermarkets, supermarkets and discounters (over 61% of the market value in 2017), independent retailers are on the increase. According to the United States Department of Agriculture, in 44% of US counties, at least half of the food retailers are independent stores. As such, small-scale entry is feasible in this market.

Switching costs for end consumers are minimal in this market, with consumers often heavily influenced by price. While this means that companies wishing to enter on a large scale, for example through an acquisition, can achieve success; smaller start-ups will struggle to compete on price alone.

The US food & grocery retail market has seen stable growth in recent years. Such a situation offers an attractive prospect for potential new entrants.

Overall, the threat of new entrants is assessed as moderate.

Food & Grocery Retail in the United States

Industry Profiles

6.5. Threat of substitutes

Figure 10: Factors influencing the threat of substitutes in the food & grocery retail market in the United States, 2018

SOURCE: MARKETLINE

M A R K E T L I N E

There are few direct substitutes to food & grocery retail. The dominant alternative to food retail is food service. Strong marketing campaigns in the case of fast food companies, and cultural traditions with respect to sit-down restaurants, mean both types may represent a relative alternative for many consumers. However, for the vast majority of people, foodservice accompanies food retail rather than replaces it.

A more direct substitute to food retail is found in subsistence agriculture, in which individuals or families farm food to provide for their own personal needs. However, the emergence of market capitalism, machinery that enables growing on a large scale, and increased population density mean subsistence agriculture is no longer common. The impact of this substitute is fractional. Environmental concerns, increasing health consciousness, and fears over political or economic instability may, in the long term, give this substitute a more significant role. However, it is unlikely to threaten food retailers in the foreseeable future being both labor intensive and often involving considerable start -up capital.

With regards to tobacco, traditional nicotine replacement therapies such as gum, patches and lozenges are substitutes, providing nicotine to alleviate cravings. Electronic cigarettes (e-cigarettes) are also becoming a threat on a global scale and although they are not approved and are even prohibited in some countries, such products are widely sold and are seeing success. In the US, these have grown in popularity, with a study in 2018 estimating that around one in 20 US adults use e-cigarettes.

The main substitute to household products is posed by homemade alternatives. End-users may prefer these on grounds of price, or because they can control what ingredients are used in their preparation. However, any substitutes for household products need to be prepared, which can be a time-consuming process requiring specific knowledge, and may not provide the desired results, thus reducing the threat of substitutes. Furthermore, as the manufacturers are now aware of the increasing demand for environmentally friendly and allergy-free alternatives, they are incorporating these qualities into their products, which, combined with their greater convenience, reduces the threat of substitutes.

Overall, the threat from substitutes is assessed as weak.

Food & Grocery Retail in the United States

Industry Profiles

6.6. Degree of rivalry

Figure 11: Drivers of degree of rivalry in the food & grocery retail market in the United States, 2018

SOURCE: MARKETLINE

M A R K E T L I N E

In particular, Walmart is a fierce competitor. Companies such as Walmart, Kroger, Target, and Costco are extremely well-entrenched within the market and enjoy a high level of brand recognition that helps engender a sense of customer loyalty. However, the real key to their success is their ability to exploit scale economies. Large-scale, established retailers benefit significantly from economies of scale and the ability to employ aggressive pricing schemes that smaller retailers struggle to match. As food & grocery retail is a market in which price is very often the deciding factor in consumer choice, these large players enjoy a significant advantage.

Consumers face negligible switching costs, meaning retailers fight increased pressure to secure consumers' custom and loyalty by attempting to cut prices. Larger retailers are pushed into competitive pricing policies due to the limited level of differentiation across the basic product range. Rivalry is also increased by the close similarity of players, although they may attempt to differentiate through products and price.

Leading players in the market are having to diversify their offerings in response to multiple threats that are intensifying the competition level. Such threats include purely online retailers, budget stores and developing consumer trends, which place much greater emphasis upon having access to small, convenience stores in the center of towns and cities than used to be the case. Budget stores have forced leading players to engage in aggressive price reduction strategies which have resulted in significant changes to offerings in supermarkets and hypermarkets.

Some companies operate in other markets as well. For example, Walmart offers electronics, homeware, apparel, pharmaceuticals and more. This can help to absorb the temporary impact of declining food sales, or high supply price; however, food & grocery retail lies at the heart of the business for many. This basic dependency gives rise to aggressive competition.

Rivalry is assessed as strong overall.

Food & Grocery Retail in the United States

Industry Profiles

7. Competitive Landscape

7.1. Which leading players were particularly notable in 2018?

Walmart

Walmart, the world’s highest-turnover company, is the biggest player in food and grocery retail in the US and Mexico, and is one of the biggest in 25 other countries including China. In 2018, the company’s US strategy was significantly focused on omnichannel retail. It opened its 1,100th pick-up location for online grocery customers, having increased this number by almost 50% in a year, and its ecommerce sales grew by 44%. All this activity enabled the company to surpass $500bn revenue for the first time in its history.

Kroger

Walmart’s main competitor in groceries operates only in the US, with total sales revenues in 2018 of $121bn. It was the first year of the company’s ‘Restock Kroger’ plan to transform its business, generating $1bn in cost savings and growing its online sales by 58%. It also partnered with Microsoft to improve its digital customer-experience, and with Ocado to optimize its warehousing and logistics. With these changes it managed to sustain steady revenue growth in 2018.

Target

Since 2016, Target has seen impressive year-on-year revenue growth, and in 2018 it beat its competitors on this metric. The company saw digital sales growth maturing ahead of its competitors as well, having mounted up five years of advances in this distribution channel and displaying lower online growth overall than Walmart or Kroger. Whilst being an influential player in food and grocery, Target is more diversified than its competitors, generating just 20% of its overall revenues from this market.

7.2. Are any disruptors posing a threat to the incumbents?

Amazon.com, the world’s biggest ecommerce company, has made entries into the grocery market in several countries recently, and began its foray in the US. Its Amazon Fresh food delivery service launched in the country in 2007 and significantly expanded with the company’s acquisition of Whole Foods in 2017; a handful of brick-and-mortar Amazon Go stores have also opened.

The relative potential for disruption of Amazon grocery deliveries on the one hand and its convenience stores on the other is up for debate, but its two-pronged attack on the market is unlikely to leave incumbents unaffected. The delivery service faces constraints on profitability due to the logistics of transporting perishable goods. However, the importance of Amazon Fresh to its Prime subscription strategy – of which it became a free inclusive offering in 2019 – may make this a non-issue for the company. Meanwhile, the disruptive potential of Amazon Go lies in its ‘Just Walk

Food & Grocery Retail in the United States

Industry Profiles

Out Technology’, a new cashierless store model that traditional grocers will have to contend either in the form of Amazon Go or other retailers which license the technology.

Food & Grocery Retail in the United States

Industry Profiles

8. Company Profiles

8.1. Walmart Inc

8.1.1. Company Overview

Walmart Inc (Walmart) is a global retailer that operates grocery stores, supermarkets, hypermarkets, department and discount stores, and neighborhood markets. The company’s stores offer grocery and consumables, health and wellness, technology, office and entertainment, hardlines, apparel and home categories at everyday low prices. It also operates warehouse clubs (including Sam's Clubs) and cash & carry outlets. Walmart markets products under various private labels and licensed brand names including Equate, Everstart, Bonobos, Mainstays, George, Onn, Parent’s Choice, Time and Tru, Wonder Nation and No Boundaries. The company offers fuel, gift cards and financial services and other related products including money orders, prepaid cards, wire transfers, money transfers, check cashing and bill payments. It also merchandises products through various e-commerce portals. Walmart is headquartered in Bentonville, Arkansas, the US.

The company reported revenues of (US Dollars) US$514,405 million for the fiscal year ended January 2019 (FY2019), an increase of 2.8% over FY2018. In FY2019, the company’s operating margin was 3.3%, compared to an operating margin of 3.5% in FY2018. In FY2019, the company recorded a net margin of 1.3%, compared to a net margin of 2% in FY2018.The company reported revenues of US$130,377 million for the second quarter ended July 2019, an increase of 5.2% over the previous quarter.

8.1.2. Key Facts

Table 6: Walmart Inc: key facts

Head office: 702 South West 8th StreetBentonville, Arkansas, United States

Number of Employees: 2200000

Website: www.walmart.com

Financial year-end: January

Ticker: WMT

Stock exchange: New York Stock Exchange

SOURCE: COMPANY WEBSITE M A R K E T L I N E

8.1.3. Business Description

Walmart Inc (Walmart) owns and operates wholesale and retail stores and other e-commerce websites globally. The company classifies its business operations into three reportable segments: Walmart US, Walmart International, and Sam’s Club.

Walmart’s online platform comprises websites offering own brands, third-party retail partnership channels, and related mobile commerce and voice-activated commerce applications.

As of January 2019, the company had a total of 4,588 owned and 780 leased retail units in the US and 1,946 company- owned and 4,047 leased retail units internationally. It also operated a total of 179 Walmart US distribution facilities and Sam’s Club distribution facilities. Internationally, Walmart operated 226 distribution facilities.

Walmart sources products from more than 100,000 suppliers worldwide and serves over 275 million customers every week through its 11,300 retail stores and e-commerce platforms operating under 58 banners in 27 countries.

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Table 7: Walmart Inc: Annual Financial Ratios

Key Ratios 2015 2016 2017 2018 2019

Growth Ratios

Sales Growth % -0.73 0.78 2.98 2.81

Operating Income Growth % -11.21 -5.56 -24.00 -0.83

EBITDA Growth % -11.21 -5.56 -24.00 -0.83

Net Income Growth % -10.20 -7.15 -27.71 -32.37

EPS Growth % -7.87 -4.02 -10.56 -10.77

Working Capital Growth % 121.77 110.94 104.10 -17.38

Equity Ratios

EPS (Earnings per Share) USD 4.96 4.57 4.38 3.21 2.41

Dividend per Share USD 1.92 1.96 2.00 2.04 2.08

Dividend Cover Absolute 2.58 2.33 2.19 1.57 1.16

Book Value per Share USD 25.21 25.47 25.52 26.38 25.19

Profitability Ratios

Gross Margin % 24.83 25.13 25.65 25.37 25.10

Operating Margin % 5.59 5.00 4.69 3.46 3.34

Net Profit Margin % 3.37 3.05 2.81 1.97 1.30

Profit Markup % 33.02 33.56 34.50 34.00 33.51

PBT Margin (Profit Before Tax) % 5.11 4.49 4.22 3.02 2.23

Return on Equity % 20.10 18.24 17.54 12.66 9.20

Return on Capital Employed % 19.64 17.86 17.26 13.73 12.10

Return on Assets % 16.08 7.29 6.85 4.89 3.15

Return on Working Capital % -329.31 -1374.53 -550.34 -246.39 -91.75

Operating Costs (% of Sales) % 94.41 95.00 95.31 96.54 96.66

Administration Costs (% of Sales) % 19.24 20.13 20.96 21.29 20.83

Liquidity Ratios

Current Ratio Absolute 0.97 0.93 0.86 0.76 0.80

Quick Ratio Absolute 0.28 0.24 0.22 0.20 0.23

Cash Ratio Absolute 0.14 0.13 0.10 0.08 0.10

Leverage Ratios

Debt to Equity Ratio Absolute 0.60 0.59 0.54 0.48 0.68

Net Debt to Equity Absolute 0.50 0.52 0.46 0.46 0.64

Debt to Capital Ratio Absolute 0.37 0.37 0.35 0.32 0.40

Efficiency Ratios

Asset Turnover Absolute 4.77 2.39 2.44 2.48 2.43

Fixed Asset Turnover Absolute 8.33 4.14 4.21 4.37 4.55

Inventory Turnover Absolute 16.18 8.06 8.26 8.60 8.75

Current Asset Turnover Absolute 15.35 7.81 8.24 8.53 8.46

Capital Employed Turnover Absolute 3.51 3.57 3.68 3.97 3.63

SOURCE: COMPANY FILINGS M A R K E T L I N E

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Table 8: Walmart Inc: Key Employees

Name Job Title Board

Andy Barron Executive Vice President Softlines and

General Merchandise, Walmart US Senior Management

Ashley Buchanan Chief Merchandising Officer - Sam's Club Senior Management

Ashley Buchanan Executive Vice President Sam's Club Senior Management

Ben-Saba Hasan Chief Culture, Diversity and Inclusion Officer Senior Management

Ben-Saba Hasan Senior Vice President Senior Management

C. Douglas McMillon Chief Executive Officer Executive Board

C. Douglas McMillon Director Executive Board

C. Douglas McMillon President Executive Board

Carla A. Harris Director Non Executive Board

Cesar Conde Director Non Executive Board

Charles Redfield Executive Vice President Food, Walmart US Senior Management

Cindy Moehring Chief Ethics and Compliance Officer – US Senior Management

Cindy Moehring Senior Vice President Senior Management

Clay Johnson Enterprise Chief Information Officer Senior Management

Clay Johnson Executive Vice President Senior Management

Daniel J. Bartlett Executive Vice President Corporate Affairs Senior Management

Daniel Trujillo Chief Ethics and Compliance Officer Senior Management

Daniel Trujillo Executive Vice President Senior Management

David M. Chojnowski Controller Senior Management

David M. Chojnowski Senior Vice President Senior Management

David Searle International Chief Ethics and Compliance

officer Senior Management

David Searle Vice President Senior Management

Dirk Van den Berghe Chief Executive Officer Walmart Canada and

Asia Senior Management

Dirk Van den Berghe Executive Vice President Walmart Canada

and Asia Senior Management

Enrique Ostale Chief Executive Officer UK, Latin America and

Africa Walmart International Senior Management

Enrique Ostale Executive Vice President Senior Management

Gisel Ruiz Chief Operating Officer Sam's Club Senior Management

Gisel Ruiz Executive Vice President Sam's Club Senior Management

Greg Smith Executive Vice President Supply Chain,

Walmart US Senior Management

Gregory B. Penner Chairman Executive Board

SOURCE: COMPANY FILINGS M A R K E T L I N E

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Table 9: Walmart Inc: Key Employees Continued

Name Job Title Board

Jacqueline P. Canney Executive Vice President Global People Senior Management

Jamie Iannone Chief Executive Officer Samsclub.com Senior Management

Jamie Iannone Executive Vice President Membership and

Technology Senior Management

Janey Whiteside Chief Customer Officer Senior Management

Janey Whiteside Executive Vice President Senior Management

Jay T. Jorgensen Executive Vice President Senior Management

Jay T. Jorgensen Global Chief Ethics and Compliance Officer Senior Management

Jerry R. Geisler Chief Information Security Officer Senior Management

Jerry R. Geisler Senior Vice President Senior Management

John Furner Chief Executive Officer Walmart US Senior Management

John Furner President Walmart US Senior Management

JP Suarez Chief Administrative Officer Walmart

International Senior Management

JP Suarez Executive Vice President Walmart

International Senior Management

Judith McKenna Chief Executive Officer Walmart International Senior Management

Judith McKenna Executive Vice President Walmart

International Senior Management

Judith McKenna President Walmart International Senior Management

Julie Murphy Executive Vice President People – Walmart

US Senior Management

Karen Roberts Executive Vice President Senior Management

Karen Roberts General Counsel Senior Management

Kathleen McLaughlin Chief Sustainability Officer Senior Management

Kathleen McLaughlin President Walmart Foundation Senior Management

Kathleen McLaughlin Senior Vice President Senior Management

Kathryn McLay Executive Vice President Neighborhood

Markets Walmart US Senior Management

Kerri L. Ruttenberg Senior Vice President Litigation Senior Management

Kerry Kotouc General Counsel Asset Protection and

Compliance Senior Management

Kerry Kotouc Senior Vice President Sam’s Club Senior Management

Kerry Pauling Chief Technology Officer Walmart

International Senior Management

Kerry Pauling Senior Vice President Walmart International Senior Management

M. Brett Biggs Chief Financial Officer Senior Management

M. Brett Biggs Executive Vice President Senior Management

SOURCE: COMPANY FILINGS M A R K E T L I N E

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Table 10: Walmart Inc: Key Employees Continued

Name Job Title Board

Marc Lore Executive Vice President US eCommerce Senior Management

Marc Lore President US eCommerce Senior Management

Marissa A. Mayer Director Non Executive Board

Mark Ibbotson Executive Vice President Realty and Central

Operations, Walmart US Senior Management

Michael Dastugue Chief Financial Officer Finance and e

commerce Finance, the US Senior Management

Michael Dastugue Chief Financial Officer Walmart US Senior Management

Michael Dastugue Executive Vice President Walmart US Senior Management

Rachel Brand Chief Legal Officer Senior Management

Rachel Brand Executive Vice President Global Governance Senior Management

Rachel Brand Secretary Senior Management

Richard Mayfield Chief Financial Officer Walmart International Senior Management

Richard Mayfield Executive Vice President Walmart

International Senior Management

S. Robson Walton Director Non Executive Board

Sameer Aggarwal Deputy Chief Executive Officer-Walmart India Senior Management

Sara Mortimore Vice President Global Food Safety

Compliance Senior Management

Sarah Friar Director Non Executive Board

Scott A. Pleiman Executive Vice President Merchandising

Operations, Walmart US Senior Management

Scott Eckert Head Store Number 8 Senior Management

Scott McCall Chief Merchandising Officer Senior Management

Simon Belsham President Jet.com Senior Management

Steuart L. Walton Director Non Executive Board

Steve Bratspies Chief Marketing Officer Walmart US Senior Management

Steve Schmitt Chief Financial Officer Sam's Club Senior Management

Steve Schmitt Senior Vice President Sam's Club Senior Management

Steven S Reinemund Director Non Executive Board

Suresh Kumar Chief Development Officer Senior Management

Suresh Kumar Chief Technology Officer Senior Management

Suzanne Wachsstock Chief Antitrust Counsel Senior Management

Thomas W. Horton Director Non Executive Board

Timothy P. Flynn Director Non Executive Board

SOURCE: COMPANY FILINGS M A R K E T L I N E

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Table 11: Walmart Inc: Key Employees Continued

Name Job Title Board

Todd Harbaugh Executive Vice President Supercenters

Walmart US Senior Management

Tony Rogers Chief Member Officer - Sam’s Club Senior Management

Tony Rogers Senior Vice President Sam’s Club Senior Management

SOURCE: COMPANY FILINGS M A R K E T L I N E

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8.2. The Kroger Co

8.2.1. Company Overview

The Kroger Co (Kroger) is an in-store and online grocery retailer. The company specializes in the production and distribution of food in its supermarkets. It operates retail food and supermarket, drug stores, multi-department stores and jewelry stores throughout the US. The company’s product portfolio includes natural food and organic sections, pharmacies, and general merchandise. It also offers pet centers and high-quality perishables such as fresh seafood and organic produce, apparel, home fashion and furnishings, electronics, automotive products, toys, outdoor living products, electronics, home goods and fine jewelry. It sells private label products under various banners such as Baker's, Harris Teetre, Kroger, Dillons, Fry's, Fred Meyer, TurkeyHill, QFC and The Little Clinic, among others. Kroger is headquartered in Cincinnati, Ohio, the US.

The company reported revenues of (US Dollars) US$121,162 million for the fiscal year ended February 2019 (FY2019), a decrease of 1.2% over FY2018. In FY2019, the company’s operating margin was 3.6%, compared to an operating margin of 2.1% in FY2018. In FY2019, the company recorded a net margin of 2.6%, compared to a net margin of 1.6% in FY2018.

8.2.2. Key Facts

Table 12: The Kroger Co: key facts

Head office: 1014 Vine StreetCincinnati, Ohio, United States

Number of Employees: 453000

Website: www.thekrogerco.com

Financial year-end: February

Ticker: KR

Stock exchange: New York Stock Exchange

SOURCE: COMPANY WEBSITE M A R K E T L I N E

8.2.3. Business Description

The Kroger Co (Kroger) is involved in retailing, manufacturing and distribution activities across the US. As of February 2019, the company along with its subsidiaries operates 2,764 supermarkets which are located in the 35 US states and the District of Columbia. Under these stores, it also operates 2,270 pharmacies and 1,537 fuel centers. These stores sell grocery, general merchandise, health and beauty care and natural foods under more than 15,000 private labels.

The company classifies its supermarkets under four formats: combination food and drug stores (combo stores); multi- department stores; marketplace stores; and price impact warehouses.

It operates supermarkets, price-impact warehouse stores, marketplace stores, and multi-department stores under various banners including Kroger, Private Selection, Simple Truth, Simple Truth Organic, HemisFares, Big K, Check This Out, Heritage Farm, Ralphs, Dillons, Smith's, King Soopers, Fry's, Foods Co, City Market, Owen's, Jay C, Pay Less, Fry's Marketplace, King Soopers Marketplace, Kroger Marketplace, Baker's, Loaf N Jug, Gerbes, Harris Teeter, Pick N' Save, Copps, Metro Market, Mariano's and Fred Meyer.

The company’s Combo stores format is larger in size which range from 2 to 2.5 miles radius. Through these stores, it offers general merchandise, pharmacies, natural food and organic sections, pet centers and high-quality perishables such as fresh seafood and organic produce.

Food & Grocery Retail in the United States

Industry Profiles

Its Multi-department stores are larger in size than combo stores. It offers various general merchandise products such as apparel, home fashion and furnishings, outdoor living, electronics, automotive products and toys.

Kroger through Marketplace stores offers full-service grocery, pharmacy and health and beauty care products as well as perishable and general merchandise apparel, home goods and toys.

The Price-Impact warehouse stores are involved in providing shoppers an everyday low price on various national branded groceries, health and beauty care items, meat, dairy products, baked goods and fresh produce.

Apart from Retailing, Kroger is also involved in operating 37 food production plants including 17 dairies, ten deli or bakery plants, five grocery product plants, two beverage plants, one meat plant and two cheese plants.

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Industry Profiles

Table 13: The Kroger Co: Annual Financial Ratios

Key Ratios 2015 2016 2017 2018 2019

Growth Ratios

Sales Growth % 10.26 1.26 5.01 6.35 -1.22

Operating Income Growth % 15.12 13.99 -3.47 -24.33 68.30

EBITDA Growth % 15.01 11.31 2.62 -13.68 36.73

Net Income Growth % 13.76 18.00 -3.14 -3.44 63.08

EPS Growth % 19.59 18.74 -1.44 -45.62 93.08

Working Capital Growth % 32.91 23.56 -18.16 22.22 12.69

Equity Ratios

EPS (Earnings per Share) USD 1.74 2.06 2.04 1.07 3.76

Dividend per Share USD 0.34 0.40 0.45 0.49 0.53

Dividend Cover Absolute 5.11 5.22 4.54 2.19 7.10

Book Value per Share USD 5.56 7.05 7.25 7.97 9.88

Profitability Ratios

Gross Margin % 21.16 22.16 22.40 22.01 21.68

Operating Margin % 2.89 3.26 2.99 2.13 3.63

Net Profit Margin % 1.59 1.86 1.71 1.55 2.57

Profit Markup % 26.84 28.46 28.87 28.22 27.68

PBT Margin (Profit Before Tax) % 2.44 2.82 2.53 1.21 3.28

Return on Equity % 31.93 29.90 29.49 27.51 39.44

Return on Capital Employed % 16.43 17.09 14.60 11.36 18.44

Return on Assets % 5.78 6.33 5.61 5.17 8.26

Return on Working Capital % -145.33 -125.88 -116.14 -136.35 -67.69

Operating Costs (% of Sales) % 97.11 96.74 97.01 97.87 96.37

Administration Costs (% of Sales) % 16.47 17.00 17.38 17.90 17.49

Liquidity Ratios

Current Ratio Absolute 0.78 0.76 0.80 0.78 0.76

Quick Ratio Absolute 0.28 0.29 0.29 0.32 0.28

Cash Ratio Absolute 0.02 0.02 0.03 0.02 0.03

Leverage Ratios

Debt to Equity Ratio Absolute 2.14 1.77 2.10 2.25 1.93

Net Debt to Equity Absolute 2.09 1.73 2.05 2.20 1.88

Debt to Capital Ratio Absolute 0.68 0.64 0.68 0.69 0.66

Efficiency Ratios

Asset Turnover Absolute 3.63 3.41 3.28 3.33 3.22

Fixed Asset Turnover Absolute 6.23 5.85 5.68 5.83 5.67

Inventory Turnover Absolute 15.08 14.42 14.06 14.61 14.19

Current Asset Turnover Absolute 12.23 11.68 11.40 11.43 11.05

Capital Employed Turnover Absolute 5.68 5.25 4.88 5.33 5.08

SOURCE: COMPANY FILINGS M A R K E T L I N E

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Industry Profiles

Table 14: The Kroger Co: Key Employees

Name Job Title Board

Alessandro Tosolini Senior Vice President Business Development Senior Management

Ann M. Reed Head Louisville Division Senior Management

Anne Gates Director Non Executive Board

Ashok Vemuri Director Non Executive Board

Bobby S. Shackouls Director Non Executive Board

Bryan H. Kaltenbach Head Food 4 Less Senior Management

Calvin Kaufman Senior Vice President Retail Divisions Senior Management

Carin L. Fike Treasurer Senior Management

Carin L. Fike Vice President Senior Management

Christine S. Wheatley General Counsel Senior Management

Christine S. Wheatley Secretary Senior Management

Christine S. Wheatley Vice President Senior Management

Christopher T. Hjelm Chief Information Officer Senior Management

Christopher T. Hjelm Executive Vice President Senior Management

Clyde R. Moore Director Non Executive Board

Colleen Juergensen Head Dillons Food Stores Senior Management

Colleen R. Lindholz Head Pharmacy and The Little Clinic Senior Management

Dana Zurcher Head Columbus Division Senior Management

Daniel C. De La Rosa Head King Soopers/City Market Senior Management

Dennis R. Gibson Head Fred Meyer Stores Senior Management

Domenic A. Meffe Head Specialty Pharmacy Senior Management

Erin S. Sharp Vice President Manufacturing Senior Management

Gary Millerchip Chief Financial Officer Senior Management

Gary Millerchip Senior Vice President Senior Management

J. Michael Schlotman Chief Financial Officer Senior Management

J. Michael Schlotman Executive Vice President Senior Management

James A. Runde Director Non Executive Board

Joe Kelley Head Houston Division Senior Management

Jorge P. Montoya Director Non Executive Board

Joseph A. Grieshaber Senior Vice President Senior Management

SOURCE: COMPANY FILINGS M A R K E T L I N E

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Industry Profiles

Table 15: The Kroger Co: Key Employees Continued

Name Job Title Board

Karen M. Hoguet Director Non Executive Board

Kate Ward Head Kroger Personal Finance Senior Management

Keith G Dailey Group Vice-President, Corporate Affairs Senior Management

Kenneth C. Kimball Head Smith’s Senior Management

Liz Ferneding Head Ruler Foods Senior Management

Mark C. Tuffin Senior Vice President Senior Management

Mark S. Sutton Director Non Executive Board

Mary Ellen Adcock Vice President Retail Operations Senior Management

Michael J. Donnelly Chief Operating Officer Senior Management

Michael J. Donnelly Executive Vice President Senior Management

Michael Marx Head Roundy’s Senior Management

Michael R. Murphy Head Ralphs Senior Management

Monica Garnes Head Fry’s Food and Drug Senior Management

Nancy Lebold Vice President Merchandising, Food 4 Less Senior Management

Nicholas Tranchina Head Nicholas Tranchina Senior Management

Nora A. Aufreiter Director Non Executive Board

Pamela J. Matthews Head Central Division Senior Management

Paula Ginnett President Mid Atlantic Division Senior Management

Peter M. Engel Head Fred Meyer Jewelers Senior Management

Robert W. Clark Senior Vice President Merchandising Senior Management

Rodney C. Antolock Head Harris Teeter Senior Management

Ronald L. Sargent Director Non Executive Board

Scott Hays Head Cincinnati Division Senior Management

Sonya Hostetler President Nashville Division Senior Management

Stephen M. McKinney Senior Vice President Retail divisions Senior Management

Stuart Aitken Senior Vice President Alternative Business Senior Management

Susan J. Kropf Director Non Executive Board

Suzy Monford Head QFC Senior Management

Timothy A. Massa Senior Vice President Human Resources and

Labor Relations Senior Management

Timothy F. Brown Head Atlanta Division Senior Management

SOURCE: COMPANY FILINGS M A R K E T L I N E

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Industry Profiles

Table 16: The Kroger Co: Key Employees Continued

Name Job Title Board

Todd A. Foley Vice President Senior Management

Tom Schwilke Head Dallas Division Senior Management

Victor Smith Head Delta Division Senior Management

W. Rodney McMullen Chairman Executive Board

W. Rodney McMullen Chief Executive Officer Executive Board

Yael Cosset Chief Digital Officer Senior Management

Yael Cosset Vice President Senior Management

SOURCE: COMPANY FILINGS M A R K E T L I N E

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Industry Profiles

Table 17: The Kroger Co: Key Employees Continued

Name Job Title Board

SOURCE: COMPANY FILINGS M A R K E T L I N E

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8.3. Target Corp

8.3.1. Company Overview

Target Corp (Target) is a retailer of general merchandise and food products. The company’s product portfolio includes baby and beauty products, clothing, electronic equipment, furniture, grocery, home and pet products, school and office supplies, shoes, sports and outdoor products, toys and sports equipment. It also offers optical, clinics and other amenities, home delivery, photo printing service, rewards and gift card services. The company leases certain retail stores, warehouses, distribution centers, office space, land, and equipment. Target markets products under owned brands and exclusive brands. It operates stores under Target, SuperTarget and Bullseye Design banners. Target is headquartered in Minneapolis, Minnesota, the US.

The company reported revenues of (US Dollars) US$75,356 million for the fiscal year ended February 2019 (FY2019), an increase of 3.6% over FY2018. In FY2019, the company’s operating margin was 5.5%, compared to an operating margin of 5.6% in FY2018. In FY2019, the company recorded a net margin of 3.9%, compared to a net margin of 4% in FY2018.

8.3.2. Key Facts

Table 18: Target Corp: key facts

Head office: 1000 Nicollet MallMINNEAPOLIS, Minnesota, United States

Telephone: 16123046073

Fax: 16127615555

Number of Employees: 360000

Website: corporate.target.com/

Financial year-end: February

Ticker: TGT

Stock exchange: New York Stock Exchange

SOURCE: COMPANY WEBSITE M A R K E T L I N E

8.3.3. Business Description

Target Corp (Target) retails general merchandise and food items. The company generates revenue from two sources: General Merchandise Sales and Other Sources.

As of February 2019, the company operated through a network of 1,844 stores across the 50 states in the US with a total retail space of 239,581 thousands sq. ft. It operated 1,525 company-owned stores, 161 leased stores and 158 owned building on leased land stores.

Target also operates 40 distribution centers with total space of 51,688 thousands sq. ft. in the US, including 33 owned and seven leased distribution centers.

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Industry Profiles

Table 19: Target Corp: Annual Financial Ratios

Key Ratios 2014 2015 2016 2017 2018

Growth Ratios

Sales Growth % 1.88 1.61 -4.76 3.48 3.63

Operating Income Growth % -12.28 21.94 -19.67 -7.68 0.22

EBITDA Growth % -7.01 16.19 -16.22 -2.48 0.13

Net Income Growth % -183.00 -18.70 6.58 0.79

EPS Growth % -8.08 18.87 11.51 -3.49 12.71

Working Capital Growth % -256.81 -20.13 -147.61 -28.69 387.30

Equity Ratios

EPS (Earnings per Share) USD 3.86 5.25 4.58 4.66 5.43

Dividend per Share USD 1.90 2.16 2.32 2.44 2.52

Dividend Cover Absolute 2.03 2.43 1.97 1.91 2.15

Book Value per Share USD 21.86 21.52 19.69 21.51 21.82

Profitability Ratios

Gross Margin % 29.39 29.53 30.06 29.69 29.27

Operating Margin % 6.25 7.49 6.32 5.64 5.45

Net Profit Margin % -2.25 4.56 3.89 4.01 3.90

Profit Markup % 41.62 41.90 42.99 42.23 41.38

PBT Margin (Profit Before Tax) % 5.03 6.67 5.64 4.99 4.88

Return on Equity % -11.69 25.96 24.96 25.01 26.00

Return on Capital Employed % 15.41 20.01 17.97 15.05 15.64

Return on Assets % -3.82 8.26 7.04 7.50 7.20

Return on Working Capital % 240.20 366.71

Operating Costs (% of Sales) % 93.75 92.51 93.68 94.36 94.55

Administration Costs (% of Sales) % 20.21 19.88 20.17 20.70 20.74

Liquidity Ratios

Current Ratio Absolute 1.16 1.12 0.94 0.96 0.83

Quick Ratio Absolute 0.46 0.44 0.29 0.30 0.20

Cash Ratio Absolute 0.19 0.32 0.20 0.20 0.10

Leverage Ratios

Debt to Equity Ratio Absolute 0.91 0.98 1.16 0.98 1.00

Net Debt to Equity Absolute 0.86 0.90 1.04 0.92 0.93

Debt to Capital Ratio Absolute 0.48 0.50 0.54 0.49 0.50

Efficiency Ratios

Asset Turnover Absolute 1.69 1.81 1.81 1.87 1.85

Fixed Asset Turnover Absolute 2.77 2.88 2.82 2.85 2.80

Inventory Turnover Absolute 6.19 6.16 5.81 6.05 5.89

Current Asset Turnover Absolute 5.76 5.32 5.38 5.93 6.01

Capital Employed Turnover Absolute 2.47 2.67 2.84 2.67 2.87

Working Capital Turnover Absolute 38.46 48.93

SOURCE: COMPANY FILINGS M A R K E T L I N E

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Industry Profiles

Table 20: Target Corp: Key Employees

Name Job Title Board

Ann Gugino Senior Vice President Financial Planning

Analysis Senior Management

Arthur Valdez Chief Supply Chain and Logistics Officer Senior Management

Arthur Valdez Executive Vice President Senior Management

Brad Taylor-White Senior Vice President Stores Human

Resources Senior Management

Brett Craig Senior Vice President Merchandising

Capabilities Senior Management

Brian C. Cornell Chairman Executive Board

Brian C. Cornell Chief Executive Officer Executive Board

Calvin Darden Director Non Executive Board

Cara Sylvester Senior Vice President Home Senior Management

Carolyn Sakstrup Senior Vice President Marketing Senior Management

Christina Hennington General Merchandise Manager - Essentials,

Beauty, Hardlines, and Services Senior Management

Christina Hennington Senior Vice President Essentials and Beauty,

Hardlines, and Services Senior Management

Corey Haaland Senior Vice President Senior Management

Corey Haaland Treasurer Senior Management

Cynthia Ho Senior Vice President Global Sourcing Senior Management

David Best Senior Vice President Merchandising

Planning, Hardlines and Essentials Senior Management

Dawn Block Senior Vice President Digital Senior Management

Dmitri L. Stockton Director Non Executive Board

Don H. Liu Chief Legal and Risk Officer Senior Management

Don H. Liu Executive Vice President Senior Management

Don H. Liu Secretary Senior Management

Donald R. Knauss Director Non Executive Board

Douglas M. Baker, Jr. Director Non Executive Board

Frank Bruni Senior Vice President Food and Beverage,

Supply Chain Senior Management

Gemma Kubat Senior Vice President Supply Chain

Engineering and Activation Senior Management

George S. Barrett Director Non Executive Board

Hari Govind Senior Vice President Infrastructure and

Operations Senior Management

Henrique De Castro Director Non Executive Board

Janna A. Potts Chief Stores Officer Senior Management

Janna A. Potts Executive Vice President Senior Management

SOURCE: COMPANY FILINGS M A R K E T L I N E

Food & Grocery Retail in the United States

Industry Profiles

Table 21: Target Corp: Key Employees Continued

Name Job Title Board

Jeff Burt Senior Vice President Grocery, Fresh Food

and Beverage Senior Management

Jill Sando General Merchandise Manager - Apparel and

Accessories and Home Senior Management

Jill Sando Senior Vice President Apparel and

Accessories and Home Senior Management

Joe Contrucci Senior Vice President Stores Senior Management

John Bauer Senior Vice President Global Inventory

Management Senior Management

John J. Mulligan Chief Operating Officer Senior Management

John J. Mulligan Executive Vice President Senior Management

Juan Galarraga Senior Vice President Store Operations Senior Management

Julie Guggemos Senior Vice President Owned Brand

Management and Product Design Senior Management

Justin Burns Senior Vice President Stores Senior Management

Kamau Witherspoon Senior Vice President Operations Senior Management

Katie Boylan Chief Communications Officer Senior Management

Katie Boylan Senior Vice President Senior Management

Kelly Caruso Chief Executive Officer Shipt Senior Management

Kenneth L. Salazar Director Non Executive Board

Kristi Argyilan Senior Vice President Media and Guest

Engagement Senior Management

Laysha L. Ward Chief External Engagement Officer Senior Management

Laysha L. Ward Executive Vice President Senior Management

Mark Schindele Senior Vice President Target Properties Senior Management

Mary E. Minnick Director Non Executive Board

Matt Zabel Senior Vice President Enterprise Risk Senior Management

Melanie Healey Director Non Executive Board

Melissa Kremer Chief Human Resources Officer Senior Management

Melissa Kremer Executive Vice President Senior Management

Michael E. McNamara Chief Information Officer Senior Management

Michael E. McNamara Executive Vice President Senior Management

Michael Fiddelke Chief Financial Officer Senior Management

Michael Fiddelke Executive Vice President Senior Management

Michael O’Neil Senior Vice President Pay and Benefits Senior Management

Michelle Mesenburg Senior Vice President Marketing Senior Management

SOURCE: COMPANY FILINGS M A R K E T L I N E

Food & Grocery Retail in the United States

Industry Profiles

Table 22: Target Corp: Key Employees Continued

Name Job Title Board

Minsok Pak Executive Vice President Senior Management

Monica C. Lozano Director Non Executive Board

Nik Nayar Senior Vice President Hardlines Senior Management

Paritosh Desai Senior Vice President Enterprise Data,

Analytics and Business Intelligence Senior Management

Preston Mosier Senior Vice President Supply Chain Field

Operations Senior Management

Rich Agostino Chief Information Security Officer Senior Management

Rich Agostino Senior Vice President Senior Management

Rick Gomez Chief Marketing and Digital Officer Senior Management

Rick Gomez Executive Vice President Senior Management

Robert Harrison Chief Accounting Officer Senior Management

Robert Harrison Controller Senior Management

Robert Harrison Senior Vice President Senior Management

Robert L. Edwards Director Non Executive Board

Roxanne S. Austin Director Non Executive Board

Samir Shah Senior Vice President Stores Senior Management

Scott Kennedy President Target Financial and Retail Services Senior Management

Stephanie A. McNamara Executive Vice President Food and Beverage Senior Management

Stephanie A. McNamara President Food and Beverage Senior Management

Tammy Redpath President Target India Senior Management

Tim Hotze Senior Vice President Network Planning and

Global Intelligence Senior Management

Todd Waterbury Chief Creative Officer Senior Management

Todd Waterbury Senior Vice President Senior Management

William J. Foudy, Jr. President Target Sourcing Services Senior Management

William White Senior Vice President Marketing Senior Management

Yu-Ping Kao Senior Vice President Stores Senior Management

SOURCE: COMPANY FILINGS M A R K E T L I N E

Food & Grocery Retail in the United States

Industry Profiles

Table 23: Target Corp: Key Employees Continued

Name Job Title Board

SOURCE: COMPANY FILINGS M A R K E T L I N E

Food & Grocery Retail in the United States

Industry Profiles

9. Macroeconomic Indicators

9.1. Country data

Table 24: United States size of population (million), 2014–18

Year Population (million) % Growth

2014 318.9 0.8%

2015 321.4 0.8%

2016 323.8 0.8%

2017 326.3 0.8%

2018 328.9 0.8%

SOURCE: MARKETLINE M A R K E T L I N E

Table 25: United States gdp (constant 2005 prices, $ billion), 2014–18

Year Constant 2005 Prices, $ billion % Growth

2014 14,799.6 2.4%

2015 15,276.3 3.2%

2016 15,739.0 3.0%

2017 16,161.3 2.7%

2018 16,559.0 2.5%

SOURCE: MARKETLINE M A R K E T L I N E

Table 26: United States gdp (current prices, $ billion), 2014–18

Year Current Prices, $ billion % Growth

2014 17,420.2 3.9%

2015 18,313.5 5.1%

2016 19,223.8 5.0%

2017 20,145.1 4.8%

2018 21,077.3 4.6%

SOURCE: MARKETLINE M A R K E T L I N E

Table 27: United States inflation, 2014–18

Food & Grocery Retail in the United States

Industry Profiles

Year Inflation Rate (%)

2014 1.8%

2015 2.0%

2016 2.1%

2017 2.3%

2018 2.3%

SOURCE: MARKETLINE M A R K E T L I N E

Table 28: United States consumer price index (absolute), 2014–18

Year Consumer Price Index (2005 = 100)

2014 121.5

2015 123.9

2016 126.4

2017 129.3

2018 132.2

SOURCE: MARKETLINE M A R K E T L I N E

Table 29: United States exchange rate, 2014–18

Year Exchange rate (€/$)

2014 1.3290

2015 1.1095

2016 1.1068

2017 1.1320

2018 1.1810

SOURCE: MARKETLINE M A R K E T L I N E

Food & Grocery Retail in the United States

Industry Profiles

Appendix

Methodology

MarketLine Industry Profiles draw on extensive primary and secondary research, all aggregated, analyzed, cross- checked and presented in a consistent and accessible style.

Review of in-house databases – Created using 250,000+ industry interviews and consumer surveys and supported by analysis from industry experts using highly complex modeling & forecasting tools, MarketLine’s in-house databases provide the foundation for all related industry profiles

Preparatory research – We also maintain extensive in-house databases of news, analyst commentary, company profiles and macroeconomic & demographic information, which enable our researchers to build an accurate market overview

Definitions – Market definitions are standardized to allow comparison from country to country. The parameters of each definition are carefully reviewed at the start of the research process to ensure they match the requirements of both the market and our clients

Extensive secondary research activities ensure we are always fully up-to-date with the latest industry events and trends

MarketLine aggregates and analyzes a number of secondary information sources, including:

- National/Governmental statistics

- International data (official international sources)

- National and International trade associations

- Broker and analyst reports

- Company Annual Reports

- Business information libraries and databases

Modeling & forecasting tools – MarketLine has developed powerful tools that allow quantitative and qualitative data to be combined with related macroeconomic and demographic drivers to create market models and forecasts, which can then be refined according to specific competitive, regulatory and demand-related factors

Continuous quality control ensures that our processes and profiles remain focused, accurate and up-to-date

Food & Grocery Retail in the United States

Industry Profiles

9.2. Industry associations

9.2.1. Global Food Marketing Institute

655 15th Street, NW, Washington DC, 20005, USA

Tel.: 1 202 452 8444

Fax: 1202 429 4519

www.fmi.org

9.2.2. CIES — The Food Business Forum

7, rue de Madrid 75008 Paris, FRA

Tel.: 33 1 4469 8484

Fax: 33 1 4469 9939

www.ciesnet.com

9.2.3. CNDL - Confederação Nacional de Dirigentes Lojistas

SRTVN Quadra 701 Centro Empresarial Norte - Bloco B, Sala 337 Brasilia, DF 70.710-200, BRA

Tel.: 55 61 3213 2000

Fax: 55 61 3213 2009

www.cndl.org.br

9.3. Related MarketLine research

9.3.1. Industry Profile

Global Food Retail

Food Retail in Europe

Food Retail in Asia-Pacific

Food Retail in Germany

Food Retail in China

Food & Grocery Retail in the United States

Industry Profiles

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