Imagine a world without grocery stores. I can’t even imagine how difficult my life would be. Where would I buy groceries from? Okay, I might be being a little dramatic because I can still get my groceries from the supermarket, but it’s not the same. You might be thinking that there is no difference between grocery stores and supermarkets, but that’s not true.
Grocery stores and supermarkets are interchangeable terms. However, grocery stores are smaller and contain specialized items mainly relevant to food and beverages, while supermarkets are huge and have different departments. For example, a supermarket will have a pharmacy, a toy area, a clothing area, etc.
Supermarkets make shopping easy. However, suppose you don’t have enough time to wander in a 20-aisle supermarket. In that case, you will prefer to go to a grocery store to buy the essential food items so you can prepare dinner as soon as possible.
Grocery stores are one of the sub-sectors of the retail industry, along with six other sub-sectors. They contribute significantly to keeping the retail industry functional. Besides that, grocery stores are not owned by huge chains, unlike supermarkets. Instead, they are owned by small sole proprietors.
In this way, grocery stores are essential for the economy. Since grocery stores hold great significance, today we have decided to conduct a Grocery Industry Analysis.
There are almost 40,000 stores in the US that sell groceries. Out of these 40,000 stores, more than 26,000 are simple grocery stores. These stores specialize in food items. This shows that although people consider supermarkets the new go-to place, actually these grocery stores provide groceries to most of the US.
Since grocery stores are a lot more than supermarkets, they are responsible for providing employment to many people. Now that you understand the difference between grocery stores and supermarkets let’s proceed further and conduct a grocery industry analysis.
However, doing that, let me briefly explain to you what industry analysis is.
Industry analysis provides complete insight into an industry.
To conduct an industry analysis, first, you must conduct an industry life cycle. Then you have to assess the competition in that industry. Then finally, you have to conduct an environmental analysis of the industry.
Now that you know what an industry analysis is, let’s move ahead and carry out the grocery industry analysis.
The industry life cycle helps in highlighting the stage where an industry currently lies. There are multiple stages in the life cycle of any industry.
The startup stage is the very first stage of the industry life cycle. After that, the growth stage arrives. Then, an industry goes through the shakeout stage. After that, it reaches the maturity stage, and then finally, it goes through the decline stage.
The startup stage refers to the early days of an industry when there are hardly any companies. Hence, no competition exists at that time. Moreover, people are also unaware of the industry at this time, so companies try hard to attract customers.
The grocery industry experienced the startup stage between the 11th and 14th centuries. That’s when shops began to establish. Back then, the guy who used to deal in dry goods such as spices was called a grocer. Back then, the concept of a grocery store was very new, and few grocery stores existed.
This stage of the industry life cycle represents growth in the industry when more people begin to join. As more people join, the competition in the industry increases. Besides that, in the growth phase, consumers have many alternatives.
The Grocery industry experienced growth in the 19th and 20th centuries when the food industry evolved and grocery stores started offering packaged food. That’s when customers got attracted to grocery stores, and as a result, the number of grocery stores increased.
After the growth stage, an industry undergoes the shakeout stage. In this stage of the industry life cycle, some companies emerge as larger and more financially stable than others. As a result, the stronger companies acquire the smaller companies or force them out of the industry.
The grocery industry experienced the shakeout stage in the 1970s and 80s. That’s when pre-existing grocery stores started to force the new and not financially strong stores to leave the market so that they could enjoy greater market share.
The shakeout stage is followed by the maturity stage. At this stage, the industry is booming and has reached its peak. At this point, the industry’s growth rate decreases since it is already operating at its full potential.
The grocery industry hit its maturity stage in the early 1990s. Back then, there wasn’t enough technology for e-commerce, and few supermarkets were present. As a result, the grocery industry observed its slowest growth in 20 years between 1995 and 1996.
The maturity stage leads to the decline stage. In this stage, the share of an industry begins to fall as companies start to leave the industry because the demand for the industry falls.
The grocery industry currently seems to be in a decline stage since now the demand for the grocery industry has fallen as people have different alternatives such as e-stores and supermarkets.
Assessing the Competition: Porter’s Five Forces Model
Now that we are done discussing the life cycle of the grocery industry let’s proceed to the second step of the Industry analysis to see the level of competition that exists in the industry with the help of Porter’s five forces model.
Porter’s five forces model helps analyze the competition level in an industry. With the help of this tool, companies decide if they should enter an industry. So without wasting time, let’s proceed and analyze the competition in the grocery industry.
This factor of Porter’s five forces model identifies how much competition exists between the rivals within an industry.
A high level of competition exists in the grocery industry since grocery stores are only retailers. They aren’t producing anything on their own. Hence their products are identical. So naturally, this causes rivalry among grocery stores.
To gain more market share with identical products, grocery stores spend money to make their store look more attractive so that more customers get attracted to their stores.
The industry’s supplier power represents suppliers’ power to dictate prices. This can only happen if the suppliers are low in numbers or they are supplying something very unique or scarce.
The supplier power in the grocery industry is very low. This is because grocery stores mainly buy food and beverage products from wholesalers. Hence all the suppliers have identical products. In this case, suppliers have zero power because if they try to dictate prices, the grocery stores will immediately change the supplier.
Buyer power is similar to supplier power. However, buyer power represents the power of buyers to dictate the prices in the market. Every industry has a different buyer power.
In the grocery industry, buyers have great power. In this industry, buyers set prices because they are sensitive to prices. Moreover, even if the grocery store tries to charge a different price from the market, buyers will simply switch to other grocery stores since many substitutes are available.
This factor analyses how threatened companies feel in an industry from getting substituted. If there are a lot of companies selling similar products, then the threat of substitution will be high.
The threat of substitution is really high in the grocery industry. Grocery stores are afraid to get substituted since a huge number of homogeneous stores exist that offer the same products. Moreover, there are no substitution costs. This is why grocery stores in the industry feel threatened.
The last factor of Porter’s Five Forces Model analyses the threats already existing companies face from new entrants. This depends upon the ease through which new firms can join the industry.
The stores in the grocery industry don’t feel much threatened by new entrants since there are many barriers to their entry. Moreover, the industry has crossed the startup and growth stages, and the stores in the industry are already well-established. Therefore, they won’t let newcomers come and snatch their market share.
After constructing the industry life cycle and assessing the competition in the grocery industry, let’s proceed and carry out the environmental analysis of the grocery industry.
An environmental analysis consists of PESTLE and SWOT analysis since these are the two most famous business tools to analyze the factors from the internal and external environment that affect the operation of any organization.
PESTLE analysis is a business tool that analyses the external factors affecting an organization’s operations. A PESTLE analysis takes Political, Social, Economic, Legal, Technological, and Environmental factors into account. Let’s discuss what external factors impact the grocery industry.
● Political Factors
The grocery industry requires political stability to make a profit. Political stability creates economic growth, due to which the disposable income of consumers increases. Hence, the sales of grocery stores also increase.
● Economic Factors
The sales of grocery stores depend upon inflation directly. Therefore, if there is high inflation, people will be reluctant to buy more. As a result, the revenue of the grocery industry will fall.
● Social Factors
Over the years, the trends have changed. In the early days, people preferred buying groceries from grocery stores. However, now people prefer groceries from supermarkets. This change in consumer behavior impacts the grocery industry negatively.
● Technological Factors
New technologies such as eCommerce have emerged as technological developments have taken place. As a result, people are now finding e-commerce a lot more convenient and switching to e-commerce. This will cause the demand for grocery stores to fall significantly.
● Legal Factors
There are a lot of people working in the grocery industry. Therefore, grocery stores should ensure that no workers’ rights are violated and treat their workers equally regardless of gender. Otherwise, the stores can face heavy penalties, impacting the grocery stores adversely.
● Environmental Factors
Grocery stores mainly keep packaged food items. The packaging is usually made up of plastic, and plastic causes environmental degradation. Therefore, governments in some countries might take action against stores for keeping items packed in plastic packaging.
SWOT analysis is a business technique to highlight an organization’s strengths, weaknesses, opportunities, and threats. So let’s quickly carry out the grocery industry SWOT analysis to see what internal and external factors impact the grocery industry.
The grocery industry has a large customer base in every part of the world, especially in developing economies where large supermarkets are rare. This helps the grocery industry generate high revenue.
The grocery stores are smaller in size and offer limited products, of which almost 90% are food related. This repels customers. Hence, the grocery industry suffered.
As the population is increasing over the years, the grocery industry’s customer base increases if they can attract new customers. By doing so, the grocery industry can generate huge sums of money.
Economists are predicting a global recession. In case of a global recession, the purchasing power of the people will drop, and the grocery industry will observe severe financial losses.
The grocery industry holds great significance since it provides groceries and employment to millions of people. Therefore, grocery stores and supermarkets may sound like synonyms. However, they are quite different.
After we cleared the difference between the two, we conducted the grocery industry analysis. The industry analysis consisted of three stages. In the first stage, we constructed the grocery industry life cycle.
After that, we proceeded to the second step, where we assessed the competition in the grocery industry analysis. Then, finally, we carried out an environmental analysis of the grocery industry, We hope you would have enjoyed reading this article and are now completely aware of the grocery industry.