Competitive pressures abound in today’s dynamic food marketing
system. The U.S. food market is essentially saturated, dependent
on a growing population as well as a declining share of consumer
income spent on food. Food companies are using many strategies
to compete for a larger share of the pie, including new ways of
conducting business, mergers and acquisitions, overseas expansion,
and state-of-the-art technology.
To meet consumer preferences and remain competitive, retailers
have introduced a wide variety of new products. Nearly 10,000 new
food and beverage products were introduced in 2002, with convenience
foods and organic and natural foods leading the way. Also, the
number of unique items (according to brand, package size, and type)
stocked by supermarkets, such as Chef Boy-ar-dee Pizza Crust Mix & Sauce
and Kahn’s Honey Cure Deli Ham, rose from 13,000 in 1980
to 37,000 in 2001.
Competitive pressures to deliver specific products to meet consumer
demand have changed the way the products move from farmers to consumers.
Traditional food wholesalers who buy food from manufacturers and
resell to retail food stores are losing ground. Manufacturers such
as Coca Cola, Dreyers/ Edy’s Grand Ice Cream, and Frito-Lay
deliver their products directly to retail stores and usually arrange
them on the shelves. Albertsons, Ahold, and most other large retail
chains buy products directly from manufacturers and transport them
to retail locations through their own distribution centers. Many
food manufacturers/processors have chosen to contract directly
with farmers to get the preferred quality and quantity of products.
Krogers, Safeway, and other traditional food retailers face mounting
competition from nontraditional retailers, such as Wal-Mart supercenters,
and the food-away-from-home sector. In the 1990s, warehouse clubs
and supercenters made their presence felt in a big way. By adding
massive new stores, these companies increased their share of total
food sales from 1.9 percent in 1990 to 8 percent in 2002. Food-away-from-home
outlets, including McDonalds and Applebee’s, now account
for 46 percent of total food expenditures, up from 33 percent in
1970. In response to these competitive pressures, traditional retailers
are turning to mergers and acquisitions to improve their ability
to compete.
Manufacturers and distributors are experimenting with new technologies
to replenish grocery shelves or out-of-stocks, to quickly serve
and better target prospective customers, and to improve information
flow and inventory management. For example, a system developed
by FreedomPay, Inc., enables customers to make cashless purchases
quickly and efficiently and to receive instantaneous loyalty rewards.
A wand waved over a sensor at the checkout counter automatically
deducts purchase amounts from consumers’ accounts through
FreedomPay’s network. The system’s hardware costs significantly
less than debit card systems. USA Technologies is one of several
companies equipping its vending machines with modems or sensors
that relay instant inventory, sales, and other information to better
target consumer preferences.
As an alternative to competition in a slowly growing domestic
food market, many U.S. food companies are competing globally, choosing
to expand by targeting customers (or investing in operations) outside
the United States. The U.S. is the world’s largest exporter
of processed food. Domestic food companies, including Safeway,
Costco, and Krispy Kreme Doughnuts, continue to expand operations
overseas.