The combination of several notable trends has led to a situation in which, in one analyst’s words, “Everybody is getting into the grocery business.” Such expanded supply means that the fierce competition in this sector is growing even more pressing, and the end result might be a radical reorganization of the market.

Multiple notable trends have led to this glut of supply. In the years following the global economic recession, many supermarket chains aggressively pursued growth by opening new stores. As a result, there are 4.15 square feet of food retail space for every person in the United States today—a record level.

Even as conventional supermarkets were opening new stores, other stores also were adding food options to their shelves, in their attempt to enhance their sales. Retailers such as pharmacy chains, dollar stores, gas stations, and convenience stores inserted fresh food options in their stores, thus increasing the number of places consumers could pick up groceries. Similarly, the expanded presence of club stores meant that shoppers could visit a warehouse to get virtually all their shopping done.

Yet as these supply trends were increasing, customers were exhibiting an opposite trend, toward more quick and convenient meal options. Rather than purchasing expansive fresh foods, spices, and accouterments to create full, multicourse meals, they sought prepackaged and ready-to-eat items that they could grab and consume quickly.

In the meantime, competition among grocery store brands continues to increase, especially with the arrival of relatively newer options from other countries and from online. In particular, Aldi and Lidl, two chains that originated in Europe, are expanding their low-cost shopping options throughout the United States. Simultaneously, Amazon just keeps increasing its grocery options, enabling consumers to shift much of their spending to the online channel, without requiring any shelf space in a local store.

For traditional grocery retailers, pressured by all these trends, the outcome is likely to be painful. Their supply of space is excessive, beyond what consumer demand can support. Thus these chains face the prospect of slowing down their new store openings, which can harm their revenue standing. Even more critically, they may need to consolidate or close some stores, a process that is expensive, difficult, and unpleasant for everyone involved. But if the market is oversaturated, someone or something has to get wrung out at some point.

Discussion Question:

1. What are the trends in the U.S. food retail industry?

Source: Heather Haddon and Julie Jargon, The Wall Street Journal, July 31, 2017