Grocery and Supermarket

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Until the Great Depression, the retail grocery business in the U.S. was essentially a storefront proposition. The stores, wedged in among other retail establishments along the main roads and neighborhood streets of cities and hamlets alike, were small, offered little or no off-street parking and lacked any self-service component. The grocer, usually positioned behind a counter, took items off the shelves as requested by the customer. Although the mom-and-pop stores, as they were commonly known, dominated, grocery chains existed even in that era. The largest was the Great Atlantic & Pacific Tea Co., which had been founded in 1859. During the pre-supermarket era, A&P had about 15,000 stores nationwide, almost all of them of the neighborhood variety.

The first truly self-service grocery store, one of the Piggly Wiggly chain, opened in Memphis in 1916; customers passed through turnstiles and were issued wooden baskets. (The wheeled grocery cart would not be introduced until 1937.) But like so many other American innovations, the supermarket first saw light in a major way in California. Those earliest West Coast stores, opened in the 1920s, were rudimentary by current standards, with little attention given to decor or display.

By the early 1930s, the big-store concept had moved east; in 1930, Michael Cullen, a former A&P employee, opened a supermarket in Queens. Within a few years, he had a chain of King Kullen supermarkets in the borough, many of them in converted garages, factories and warehouses. Just west of New York in Elizabeth, N.J., another large supermarket, called Big Bear, opened in a former auto manufacturing plant. In their newspaper ads, both King Kullen and Big Bear stressed cost savings. An early King Kullen ad read, "Tell your friends and neighbors about this great price-wrecker. Tell 'em it's the lowest price grocery in all America. Tell 'em our prices are not for a day or a week, they are our regular everyday prices. Save 10% to 50%."

Rise of supermarkets

By the late 1930s, the big grocery chains began responding by developing their own supermarkets. New York-based A&P started by opening 100 of the big stores in 1936. Two years later, A&P was operating more than 1,100 supermarkets and had closed many of its smaller stores. Other chains, including Kroger and National Tea, followed, although the growth of the supermarket concept was stifled by the onset of World War II and did not regain momentum again until after the war.

Grocery advertising in the pre-supermarket era was low profile and primarily confined to newspapers. Although the Great Atlantic & Pacific Tea Co. had been advertising in newspapers as early as the 1880s, it generally bought few ads and those were invariably small fractions of a page. The larger food ads in the 1920s and 1930s—and even these were less than a full page—were bought by manufacturers, usually for a specific product, such as a brand of coffee, tea, canned fruit or the like. In 1937, for example, General Foods spent $1.4 million for magazine ads and $2.9 million for radio advertising. By comparison, in the same year, A&P spent only $275,000, Kroger $235,000 and Safeway, a relatively new West Coast-based chain, $8,600—all on radio advertising.

Through its agency Paris & Peart, A&P sponsored an early soap opera during 1932-33 and the singer Kate Smith in 1936-37, mainly to build awareness for its Ann Page and Jane Parker house brands. Kroger, through the Ralph Jones Agency, sponsored a syndicated serial, "Linda's First Love," in the mid-1930s to cover its regional markets. Other radio efforts were sporadic.

After World War II, supermarket expansion picked up. Over the next two decades, thousands of small independent grocers were driven out of business by the onslaught of the big stores, as the chains steadily increased their share of the market. In 1946, supermarkets accounted for only about 3% of the grocery stores in the U.S., although their sales were 28% of the total volume. By the mid-1950s these big stores, now averaging about 18,000 square feet, still accounted for only about 5% of all outlets, but they accounted for almost half the sales volume. The tremendous sales growth came at the expense of small stores, many of which closed during this period.

In 1962, the top 10 food retailers by sales volume were A&P, Safeway, Kroger, National Tea, Acme, Winn-Dixie, Food Fair, First National, Grand Union and Jewel Tea. These chains operated 12,445 supermarkets and had combined sales of $5.3 billion.

As the supermarket chains grew, so did their advertising and their influence. In the 1950s and 1960s, page ads from the marketers began appearing with increasing frequency in newspapers. Soon the larger metropolitan newspapers introduced a weekly food section, usually appearing on Thursday or Friday when most housewives shopped for the weekend; the food section featured recipes and other food-related stories and bulged with supermarket and other food advertising.

Growing competition

In the early postwar years, competition among the chains heated up. In the 1950s, as an incentive to attract customers, most of the big food retailers introduced trading stamps, which could be redeemed for household items, furniture, sporting goods and a wide variety of other products. The trading stamp frenzy reached its peak in 1960, when about 75% of all supermarkets issued them. But by the 1970s the fad had run its course and the stores switched to promoting discount prices.

Though price competition had long been a major factor in grocery retailing, it reached a new level of intensity when many stores began offering unbranded generic goods among the most basic staple products. Generics underpriced even house labels. Also, in the middle and late 1970s, as inflation in the U.S. soared and economic growth stagnated, no-frills grocery stores began to appear. They rarely promoted sale price items; their consistent promise was that prices were low at all times. As economic conditions improved in the 1980s, generic and no-frills growth stalled and stores began to attract customers by building bigger and better stores and emphasizing quality.

As the big chains came to increasingly dominate the grocery business, consolidation and change ensued. A&P steadily lost market share, yielding to Safeway in the early 1970s. Much of Safeway's strength was attributed to the company's expansion in fast-growing western states, while A&P's greatest concentration was in the East, where population growth was minimal. Later Safeway was overtaken by Kroger with 13 marketing areas in the South and upper Midwest.

In an attempt to brake its slide, A&P and its agency, Gardner Advertising, New York, in 1972 instituted the WEO ("Where Economy Originates") program, in which it converted stores overnight to discount operations. Within six months the company had converted an estimated 3,000 of its then 4,000-plus outlets to WEOs.

Other marketers retaliated in various ways: Pathmark, which already discounted, took the then-radical step of keeping some of its stores open 24 hours; other chains extended their hours until midnight; and still others began to be open on Sundays, which previously had been unheard of in some areas of the country.

A&P's WEO program, although initially successful in some markets, failed to stop the company's market erosion, which eventually relegated the once mighty chain to the second tier of grocery marketers.

As the grocery companies turned away from trading stamps, they increasingly embraced couponing. In 1976, advertisers distributed a record 45.8 billion cents-off coupons, more than 72% of them carried in newspapers, according to Nielsen Clearing House, a processor of redeemed coupons. The newspapers' share of the coupons distributed in 1976 included 9.5% in Sunday supplements and 7.2% in freestanding inserts. Magazines' coupon share was 15.4%, with most of the balance in direct mail and on-package coupons.

The trend toward couponing was reflected in newspapers and their food sections as they moved into the last decades of the 20th century. Although both chains and manufacturers still placed run-of-press ads, they increasingly relied on FSIs to deliver both their advertising messages and their coupons. These inserts appeared both in the editions containing the food sections and on other days of the week, including Sundays. Similar ads were sent out in mass mailings. Many of the coupons in these FSIs and direct-mail pieces could be redeemed at a chain only when accompanied by that chain's preferred customer card.

The use of in-store coupons increased as well. In 1992 Norwalk, Conn.-based ActMedia introduced its Instant Coupon Machine. The company claimed in its first year that ICMs were responsible for $55 million in sales. ICMs boasted redemption rates of about 17%, which ActMedia said was seven to nine times greater than the rate for FSIs. By 1999, ActMedia, part of News America Marketing (itself a unit of Rupert Murdoch's News Corp.), was operating its in-store coupon dispensers in 27,000 grocery stores. By the mid-1990s, couponing had also moved to the Internet, as a number of companies offered to deliver coupons directly to consumers' printers.

The merger-mania prevalent in almost all categories of business in the late 20th century penetrated the retail food world as well. By the 1980s, Salt Lake City's American Stores had bought the Philadelphia-based Acme Stores, Chicago-based Jewel Cos. and California's Lucky Stores. And in 1999, the Albertson's chain of Boise, Idaho, acquired American Stores, giving the company 2,492 outlets in 37 states. Also in 1999, Safeway bought the Chicago-based Dominick's Finer Food chain, the latest in a string of acquisitions that included the Randall's and Vons stores. And Kroger Co. took over Dillon Cos. in 1983 and Fred Meyer Inc. in 1999.

Specialty formats

As the grocery chains grew, so too did the sizes of their outlets. According to a 1995 report by the Food Institute, by the mid-1990s there were 14 distinct store formats in the food industry. Conventional supermarkets—those stores defined as carrying at least 9,000 items and usually having a service deli and a bakery—accounted for only 26% of the industry's total volume in 1994, compared with more than 50% in 1980.

Other major store formats as defined in the report included:

  • Convenience store—Small, higher-margin grocery store offering a limited selection of staple groceries, nonfoods and other convenience items, including ready-to-heat and ready-to-eat foods as well as gasoline. Approximately two-thirds of traditional convenience stores sell gas. Petroleum-based convenience stores are primarily gas stations with a small convenience store component.
  • Superstore—A larger version of the traditional supermarket, with at least 30,000 square feet and 14,000 items.
  • Super warehouse store—A very large food and general merchandise store of at least 100,000 square feet. The food-to-general merchandise ratio is typically 60-40.
  • Wholesale club—A 90,000-square-foot-plus membership retail/wholesale hybrid with a varied selection and a limited variety of products presented warehouse-style. The grocery portion of the store—30% to 40%—consists of large sizes and bulk sales.
  • Mini-club—About half the size of the wholesale club, it carries about 60% as many items.
  • Supercenter—Food/drug combination store and mass merchandiser with an average size of 150,000 square feet with 40% of its space given over to grocery items.

It was through its supercenters—with a whopping 200,000 square feet of floor space—that Wal-Mart became the largest retailer in the U.S. selling groceries. According to the trade journal Supermarket News, as of 2000 Wal-Mart had 11.1% of U.S. grocery industry sales or about $57.2 billion, at its 800-plus Wal-Mart Superstores. Groceries accounted for about 30% of total sales in these huge stores, or approximately $17.1 billion. Total supercenter sales (grocery and other merchandise) in turn represented about 30% of Wal-Mart corporate sales.

Among the developments of the late 20th century were online grocery services that enabled consumers to order food over the Internet for home delivery. Two companies, California-based Webvan and Peapod, headquartered in a Chicago suburb, dominated the field in its infancy. But in July 2001 Webvan shut down and several smaller competitors also went out of business or were absorbed by larger competitors.

These businesses suffered because they lacked a substantial base of regular customers (i.e., those who placed orders at least weekly). By 2001, their volume had not yet become sufficient to offset the fixed cost of maintaining plant and equipment and their futures remained problematical.

Food advertising at the beginning of the 21st century continued to be led by newspapers. In calendar year 2000, the media-by-media breakdown of the "food stores and supermarkets (chain)" ad category, as tabulated by Competitive Media Reporting, was as follows:

  • Newspapers (including national newspapers and Sunday magazines), $315.1 million (48.1% of the total of $655.4 million).
  • TV (including broadcast, spot and syndicated TV and cable networks), $257.7 million (39.3%).
  • Radio, $63.9 million (9.8%).
  • Outdoor, $14.5 million (2.2%).
  • Magazines, $4.2 million (0.6%).
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