Groceries, General Line

SIC 5141

Companies in this industry

Industry report:

This category covers establishments primarily engaged in the wholesale distribution of general lines of groceries. Specialty establishments--those involved in such activities as roasting coffee, blending tea, or grinding and packaging spices--are not included in this classification. Wholesalers responsible for the distribution of specific grocery classes are classified under specific wholesale distribution areas such as SIC 5142: Packaged Frozen Foods; SIC 5143: Dairy Products, Except Dried or Canned; and SIC 5145: Confectionery.

Industry Snapshot

Wholesale food distributors provide food and related products (health and beauty aids, cleaning products, and other general grocery items) to retail grocery stores, convenience stores, and other retailers that sell food products. Food distributors can provide other services to their retail customers as well--advertising, merchandising, accounting, real estate site location, and financing. Their infrastructure usually includes warehouse facilities, truck fleets, and related information technology systems.

Food wholesalers dealt with a decline in the first decade of the twenty-first century as the trend toward self-distribution grew. Grocery chains were increasingly moving in this direction, particularly with the growth of superstores and warehouse clubs in addition to mergers of grocery chains. Wholesalers have attempted to expand their client base in order to take on more independent grocers, although the number of independents continued to shrink in the late 2000s. In turn, wholesalers themselves turned to mergers to survive.

Throughout the late 2000s and early 2010s, grocery wholesalers were dealing with the growing pressures from the recession, persistent industry consolidation, and increased food and fuel prices. Some food wholesalers were handing out pink slips, while others sought out stressed companies to acquire at below market value.

Organization and Structure

To be profitable, wholesale distribution must operate on a local or regional level. The most successful distributors, therefore, have either located their warehouse near a targeted metropolitan area or have set up a system of branch warehouses to limit the distance their truck fleets must travel to deliver goods to retailers.

As of 2003, there was a variety of wholesale distributors in the United States. The specialty wholesaler provides a limited range of products--gourmet foods, spices, candy, or greeting cards. These wholesalers usually provide a range of services that include point-of-sale merchandising material, display suggestions, and product servicing such as stock rotation and monitoring of product displays. Rack jobbers provide a limited line of products--usually health and beauty aids, house wares, toys, and other types of non-food merchandise with distinctive marketing requirements different from those needed for food items--for which they assume complete responsibility on the in-store level.

Full-service wholesalers offer complete lines of grocery and non-grocery products; they also often provide lines of general merchandise, dairy, bakery, frozen foods, fresh meat, and fresh produce. Besides the food products themselves, full-service wholesalers provide help to the retailer in advertising, merchandising, and procuring products they may not warehouse. For example, a wholesaler may not actually stock fresh meat in its own warehouse, yet it may help retailers in obtaining and marketing fresh meat products. Among the range of merchandising services a full-service wholesaler may provide its retail customers are retail accounting; site selection; store design and interior layout; personnel training; display; promotion; advertising; suggested retail selling prices; and advisory help in projecting and controlling sales, gross margin, expenses, and net profit. In some instances, a full-service wholesaler may make private or controlled brands available to its retail customers.

The retailer-owned wholesaler reflects the efforts of a number of retailers to join forces (sometimes under a common name) to operate their own warehouses and shipping lines. The cooperative effort makes it possible for retailers to obtain merchandise at the lowest possible cost. In addition to providing lines of food products, the retailer-owned wholesaler also supplies group advertising, merchandising, and other services. Among the largest retailer-owned wholesalers are the Wakefern Food Corporation of New Jersey and Certified Grocers of California Ltd.

Background and Development

In the early history of American food merchandising, the functions of retailing, wholesaling, and importing were often carried out by the same organization. It was not until the 1850s that the three activities began to distinguish themselves. Between 1850 and 1900, specialized wholesaling became common as service wholesalers provided a complete line of grocery products, including non-food items and perishables, to independent retail food stores.

During the early twentieth century, the number of service wholesalers grew rapidly. As chain stores developed and flourished, beginning with the founding of the Great Atlantic & Pacific Tea Company in 1912, wholesalers and retailers formed voluntary and retailer-owned groups. As supermarkets flourished between 1930 and 1965, marketing strategies on the retail and the wholesale level began to evolve, and major changes in food distribution took place. Retailer-owned and voluntary group wholesalers grew in number; at the same time, food wholesalers began to streamline and automate their distribution processes to cut costs and boost efficiency.

Among the earliest wholesaling leaders were the Independent Grocers Alliance (IGA Stores), founded in 1926, and Nation-Wide Stores, founded in 1928. These early wholesalers saw themselves as having two roles: stocking retailers' shelves and serving as merchandising experts to help increase profits.

Intense competition marked the 1970s and 1980s. The high inflation rates of the 1970s, coupled with the energy crisis, contributed to a general downturn in the industry. The industry profile also was in flux during this period because of changes in the retail food industry. Small retailers began expansion into multiple stores, sometimes also increasing their geographical dispersion. As chains spread out, the costs of moving goods to them from warehouses increased; some of the multiple-store owners turned to new distributors closer to their branch stores, while others began their own warehouse operations. The 1980s saw the consolidation of many food chains and the subsequent closing of warehouses that proved to be redundant.

The U.S. wholesale food distribution industry reflects the ups and downs of the retail food industry, which was subject to slow or even negative growth during the late 1980s and 1990s. Historic low levels of food inflation, weak consumer spending, and the rapidly changing face of the retail grocery industry (including the growth of so-called "wholesale club" stores and the decreasing influence of the independent grocer) all took their toll on the retail and wholesale food industries.

Retail grocers--and the wholesalers that depend upon them--have also seen a growing portion of their sales being taken away by restaurants. In the 1990s, restaurants emphasized value and convenience to lure new customers, and an increasingly time-stressed public has responded in increasing numbers by eating out or buying takeout food. In 1955, consumers spent approximately 25 percent of their food money at restaurants. By the turn of the century, an average of four out of every ten people frequented eating establishments each day, and the total portion of the American food dollar spent eating out had grown to 45 percent. To counter this trend, as early as the mid-1980s, a number of retail grocers began offering prepared food. They began with salad bars and soon were offering sandwiches, microwaveable dinners, pizza, and soups. By 2002, more than 80 percent of supermarkets offered some sort of prepared food, and providing a selection of prepared foods was listed among the top 10 trends.

Wholesalers continued to serve as the primary supply source for more than 15,000 supermarkets. Ninety-eight percent of independents (those with fewer than 11 stores) and 18 percent of chain supermarkets depend on wholesalers to stock their shelves. In total, wholesalers provide goods for nearly one-third of the national supermarket sales.

However, the trend toward self-distribution, which began in the 1980s, continued to be one of the most serious threats facing the wholesale grocery industry. Wholesalers historically have made their biggest profits from servicing small regional independents, many of which were non-unionized and therefore able to save in labor costs. As the small independents consolidated into regional chains, the few remaining independents lost their labor cost advantage, since the chains gained labor concessions from their unions.

The strength of regional chains allowed them to negotiate price concessions from wholesalers and reduce their use of the supplementary services for which the wholesalers previously charged. Many of the remaining small independents were unable to compete against new formats such as combination stores and wholesale clubs. Consequently, competition for the wholesalers increased, as did margin pressure, and wholesalers have had to deal with the growing clout of surviving customers and the threat of self-distribution.

As of 2003, the bulk of wholesaler business was derived from small-volume independents and relatively small chains. Regional chains and such nontraditional food retailers as "deep discount" drug stores and "club" stores forced wholesalers to invest more heavily in the weaker companies they supply to maintain their volume.

The largest wholesalers responded to these pressures not only by acquiring other wholesalers but also by significantly increasing their presence on the retail side of the grocery industry. Essentially, these wholesalers were creating their own self-distributing chains through their acquisitions of retail chains and by encroaching upon retail territory, just as retailers have been encroaching upon wholesaler turf. However, poor sales prompted Fleming to file for Chapter 11 bankruptcy in April 2003. After the demise and redistribution of this major competitor, Supervalu and C & S Wholesale exchanged assets. Supervalu got C & S's Midwest operations, which C & S had acquired from Fleming, and C & S acquired the New England-based operations of Supervalu.

Another major source of competition for the industry was the proliferation of alternative format stores, including warehouse clubs, deep discount drugstores, mass merchandisers, and supercenters. Analysts expected these alternatives to capture a greater market share from traditional retail outlets as alternative outlets offer more food and food-related products. By 2002, Wal-Mart had become the nation's largest grocer, a spot it continued to hold tightly. Other discounters, including Costco and Target, were gaining ground in the grocery business. Costco became third in the mid-2000s, behind Wal-Mart and Kroger.

McLane Co., Inc., of Temple, Texas, aligned itself with Wal-Mart to help it keep company with Supervalu and C & S Wholesale as leading grocery wholesalers. Wal-Mart accounted for about one-third of the sales in 2005 for McLane, which had almost 40 distribution centers that served more than 50,000 customers.

Meanwhile, C & S Wholesale held steady even as it awaited the ramifications of a merger between two of its largest customers in the Northeast, A&P and Pathmark, in 2007. C & S Wholesale delivers to some 5,000 independent supermarkets, major supermarket chains, mass marketers, and wholesale clubs through more than 70 distribution centers.

Shuffling retail grocery chains continued to put pressure on wholesalers to find new customers in the late 2000s. For example, the merger between A&P and Pathmark could have a major impact on Wakefern Food Corp., which served ShopRite stores in the Northeast. In case the merger strengthened the presence of A&P and subsequently C & S Wholesale, Wakefern planned to buy ten stores in New York and New Jersey from Stop & Shop. Likewise, Associated Wholesale Grocers (AWG) was aggressive in making acquisitions in Texas, which include a 1.1 million-square-foot distribution center in Fort Worth that would allow AWG to better serve its customers in other parts of Texas.

Current Conditions

In 2009, C&S Wholesale Grocers planned to shed an estimated 235 employees, a reflection of the stagnant economy, at its Fresno facility in California. The company had catered to the smaller independent grocers that ultimately lost revenues to the larger discounted retailers such as Wal-Mart as consumers sought deals when the economy worsened. In addition, warehouse clubs such as Costco saw profit margins swell as the economy went south and price competition started to heat up, leaving wholesalers struggling.

During a time when wholesale grocers' bottom lines were far from stellar, one industry leader, Nash Finch, was thriving and looking for acquisitions. In January 2009, Nash Finch acquired three military distribution centers and set its sights on additional acquisitions, namely a Supervalu location that had been struggling since its acquisition of Albertson's Inc. in 2006.

Despite grocery stores enjoying the shift brought about by the recession, from consumers eating out to preparing meals at home, positive growth was not the case for the wholesalers that depend on restaurant sales. Unfortunately, wholesalers were left with an over supply of grocery items and worked diligently to bring supply back in sync with demand.

Industry Leaders

In 2008, according to Supermarket News, the top 10 wholesale grocers, in descending order, were Supervalu Inc. with sales of $34.3 billion; C & S Wholesale Grocers, $19.4 billion; Wakefern Food Corp., $9.9 billion; Associated Wholesale Grocers, $5.7 billion; Nash Finch Co., $4.2 billion; Unified Grocers, $4.1 million; Roundy's Supermarkets, $3.9 million; United Natural Foods, $3.7 million; Alex Lee Inc., $2.9 million; and Associated Wholesalers Inc., $1.1 billion.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

News and information about Groceries, General Line

DJ. CFA Retail:Insider Review For Week Ended Aug. 15.
FWN Select; August 18, 2003; 700+ words
...Groceries $ 29 (1,066) (1,037) | 0 0 0 Groceries, General Line $ 10 (2,403) (2,393) | 0 0 0 Misc. Food Stores $ 0 (809) (809) | 0 0 0...
DJ. CFA Retail:Insider Review For Week Ended Sep. 5.
FWN Select; September 8, 2003; 700+ words
...----------------------- Groceries, General Line $ 0 (942) (942) | 0 0 0 Misc. Food Stores $ 0 (581) (581) | 0 (474) (474...
DJ. CFA Retail:Insider Review For Week Ended Oct. 10.
FWN Select; October 13, 2003; 700+ words
...Groceries $ 0 (1,235) (1,235) | 0 (5,385) (5,385) Groceries, General Line $ 0 (1,158) (1,158) | 0 (1,744) (1,744) Misc. Food Stores $ 0 (4,915) (4,915) | 0 0...
DJ. CFA Retail:Insider Review For Week Ended Dec. 26.
FWN Select; December 29, 2003; 700+ words
...Groceries $ 0 (402) (402) | 0 (3,882) (3,882) Groceries, General Line $ 0 (2,211) (2,211) | 0 (2,388) (2,388) Misc. Food Stores $ 0 0 0 | 0 (767) (767...
DJ. CFA Retail:Insider Review For Week Ended Feb. 6.
FWN Select; February 9, 2004; 700+ words
...Groceries $ 0 (699) (699) | 0 (439) (439) Groceries, General Line $ 0 (4,551) (4,551) | 0 (1,476) (1,476) Misc. Food Stores $ 0 (39,673) (39,673) | 0...
DJ. CFA Retail:Insider Review For Week Ended March 5.
FWN Select; March 8, 2004; 700+ words
...Groceries $ 0 (2,124) (2,124) | 0 (5,528) (5,528) Groceries, General Line $ 0 (4,335) (4,335) | 16 (2,037) (2,021) Misc. Food Stores $ 0 (78) (78) | 0 (123) (123...
DJ. CFA Retail:Insider Review For Week Ended Sep. 12.
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...Groceries $ 0 (1,955) (1,955) | 0 0 0 Groceries, General Line $ 338 (1,286) (948) | 0 (942) (942) Misc. Food Stores $ 0 (3,582) (3,582) | 0 (581) (581...
DJ. CFA Retail:Insider Review For Week Ended Nov. 28.
FWN Select; December 1, 2003; 700+ words
...---- Groceries $ 0 (109) (109) | 0 0 0 Groceries, General Line $ 0 (1,118) (1,118) | 0 (3,504) (3,504) Misc. Food Stores $ 0 0 0 | 0 (597) (597...

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