The farm share for fruits and vegetables tends to be much lower and does not differ much between fresh and processed fruits and vegetables.The second major measure of food marketing costs in the U.S. is the marketing bill, which is calculated as the difference between what consumers spend for domestically produced farm foods and what farmers receive. In 2001 the farm share of the food marketing bill was 19 percent. This measure of the farm share has also been declining steadily over time, falling from 41 percent in 1950 to 31 percent in 1980 and then to 24 percent in 1990. The marketing bill takes account of food expenditures both at home and in restaurants. The proportion of the U.S. food dollar spent outside the home has been rising rapidly. In 2002, such expenditures accounted for 46 percent of the food budget compared to 37 percent in 1990 and 32 percent in 1980.While the overall U.S. food market is characterized by slow growth, eating habits are becoming more diverse. Demographic and psychographic trends, such as ethnic diversity and new attitudes about food consumption as it relates to self-identity and well-being, have contributed to a much more segmented market. Food marketers must increasingly target specific consumer segments rather than employing mass marketing strategies. More retailers are looking to their suppliers to assist them in understanding and better serving different types of consumer segments. In response, many suppliers are becoming involved in new types of marketing services, including consumer research and category management. The latter is designed to help retailers improve net profitability for a category of products through efficient assortment, pricing, promotion and shelf-space management. For suppliers the aim is to focus on identifying and servicing the evolving needs of specific accounts as a preferred supplier,nft channel rather than marketing more homogeneous products with fewer support services on a spot market basis. The U.S. retail industry is dominated by chain stores. In 2002, retail chains accounted for 83 percent of supermarket industry sales vs. 58 percent in 1954 .
The remainder of sales is by independent stores, although the vast majority of these stores are affiliated to buying groups, either voluntary chains such as Supervalu or to a lesser extent retailer cooperatives such as Associated Wholesale Grocers. In 2002 there were 32,981 supermarkets including all format types. Firms in the U.S. food-marketing sector often view a large market share, including, if possible, the position of market leader, as a key requisite to success. Pursuit of market share has led to a dramatic consolidation in the U.S. food chain at all levels, ranging from the farm through food retailing. Due to the difficulty of capturing sizable market share from rival firms, many U.S. food marketers have pursued share growth through mergers and acquisition of rivals. Mergers and acquisitions in the food sector occurred at a rapid pace in the 1980s, temporarily peaked in 1988 at 573 mergers, declined and then reached an all-time high of 813 in 1998, since declining to 415 in 2003 . Although the growth in merger activity has temporarily abated, cumulative activity in recent decades has likely had important implications for the structure of competition in the U.S. food sector.About 16,000 food and tobacco processing companies operate in the U.S., but in 1997 about 75 percent of sales were by the 100 largest of these firms. The largest sales growth, fueled mostly by mergers and acquisitions, has been recorded by the top 20 of these 100 firms, which in 1997 were estimated to account for about 50 percent of value added in food manufacturing . Most of the 53 food and tobacco industries surveyed in the U.S. Census of Manufacturing have experienced increasing concentration over time. The average market share held by the four largest firms in these industries has risen from 43.9 percent in 1967 to 53.3 percent in 1992, the most recent year for which data are available. In contrast to the food manufacturing sector, over the decade 1987-97 retail concentration ratios were quite stable with the share of U.S. food sales accounted for by the top 4, 8 and 20 retailers at about 20, 30, and 40 percent, respectively. During this decade new players were emerging in the U.S. food system, including value oriented retailers such as Wal-Mart with its fast expanding super center and club store formats, specialty food retailers like Trader Joe’s, European entrants into U.S. food retailing, and other mass and drug store merchandisers entering the food business.
This phenomenon is called channel blurring and continues with the recent emergence of “Dollar Stores,” on-line food shopping and the on-going competition from the food service sector for the consumer food dollar. This challenging marketplace motivated many conventional retailers to become larger in hopes of improving their competitiveness. From 1997-1999, in particular, mergers occurred between several already large retail chains, beginning to induce important and still unfolding changes in relationships between buyers and suppliers. By 2002 the estimated share of U.S. food sales accounted for by the top 4, 8 and 20 retailers had reached 31, 45, and 57 percent, respectively. This means that in 2002 suppliers faced a market where only 20 retail firms sold at least $276 billion in food. Despite the mergers, the United States has no truly national supermarket chains. In 2002 only eight chains had over 1,000 stores, and only one of these has over 2,000 outlets. Given the large geographic size of the United States, chains tend to be regional in focus. However, the recent high merger activity has contributed to much larger chains than ever before, with five surpassing $25 billion in sales in 2002, and four with stores in over half of the country. Still, many local and regional chains remain quite competitive by staying in close contact with their customers and implementing highly targeted marketing strategies. The regional,hydroponic nft ethnic and demographic diversity of U.S. consumers leads some to predict that small to mid-size chains may have an important role to play for some time to come. Within the retail channel the super center concept has emerged as a major industry force, which further concentrates buying power in the hands of a few very large new players. Super centers are a type of mass merchandising format combining a full-line supermarket with a full-line discount department store and range up to 24,400 square meters in size , compared to 4,900 square meters for the average supermarket. Total 2002 grocery-equivalent sales of super centers were estimated at $45.5 to $50.3 billion with total super center sales reaching $116.7 billion . The largest entrant to this format is Wal-Mart, with an estimated $29.3 billion in U.S. grocery-equivalent 2002 food sales, a 75 percent share of national super center sales and 1,333 super centers as of mid-2003. Already the largest retailer in the world, operating in ten countries, Wal-Mart is opening over 200 new super centers per year in the U.S. alone, and is fast becoming the dominant global player in grocery retailing with $244.5 billion in 2002 global sales among all its store formats, including large discount stores and warehouse club stores .
Wal-Mart has also entered the conventional grocery-retailing sector in the U.S. with 52 neighborhood markets in 2002, and growing. Wal-Mart’s immense buying power combined with its approach of driving non value-adding costs out of the food system appears to have raised the competitive benchmark for conventional retailers. It emphasizes supply chain management via covendor managed automatic inventory replenishment procurement systems. Vendors have shared responsibility for growing the category and have real-time access to data on sales of their products via Wal-Mart stores. In exchange, they provide special services, packs and support, such as category management, tailored to the needs of the Wal-Mart account. Even for volatile fresh produce items Wal-Mart tends to operate on a seasonal or annual contract basis with a small number of preferred suppliers per product or category. Other retailers are also developing closer linkages with preferred suppliers, gradually causing a shift away from the spot market, the traditional modus operandi in fresh produce procurement. Another factor contributing to greater food retailer market power is the intensifying battle for their limited shelf-space by food marketing firms. During 2003, food-marketing firms introduced 11,574 new food products . Since the average supermarket carries about 30,000 product codes, competition among firms introducing new products has led to the common practice of retailers charging fees known as “slotting allowances” for allocating shelf space to new products. Supermarket space allocations and the competition for display areas are critically important to California marketing firms. Until recently, fresh produce was exempt from slotting allowances, but these fees entered the produce department in the latter half of the 1990s with the introduction of branded fresh-cut produce. These items, like other consumer packaged goods commonly subject to slotting allowances, require dedicated shelf-space year-round. While bulk produce items are still not usually subject to slotting allowances, payment of other types of fees has increased marketing costs for growers and shippers . Increased retail buying power is influencing supplier strategies and inducing marketing alliances and joint ventures at the shipper level. Shippers have increasingly sought to come closer to matching the scale of the fewer, larger buyers. Marketing alliances between shippers appear to be the mechanism of choice as they allow each party to maintain its own growing, packing and cooling operations. This seems important for fresh produce shippers, most of which are family-owned and not publicly traded even if their businesses are structured as corporations. The larger scale obtained from marketing alliances helps firms to make greater investments in marketing systems and services, since they can be spread over a higher sales volume. Each year more suppliers are offering category management services, broadening their product lines, and becoming year-round, either via domestic or international diversification of supply sources. This greater vertical coordination can enable both suppliers and retailers to plan more effectively and reduce transaction costs, thereby improving the horizontal competitiveness of each party.U.S. food demand trends reflect the preferences of an older, wealthier, more ethnically diverse and more educated population today than 20 years ago. The entrance of more women into the workforce, in conjunction with higher incomes, has led to an increased demand for convenience in food preparation and consumption. In general, lifestyle and demographic trends have stimulated demand for eating out as well as for more value added, higher-quality, specialty and convenient food products sold in retail establishments. In response to decades of market share erosion to food service, food retailers increasingly seek to compete by providing ready-to-eat home meal replacement offerings. This implies greater retail recognition that their offerings have traditionally been “ingredients to prepare” while consumers have increasingly sought“meals to eat.” Food suppliers are actively assisting retailers in launching these more convenient new products. More and more, differentiated, specialty food products may also be organically grown, as both growers and marketers seek points of difference to compete in a saturated food marketing system. Organic foods are estimated to account for around 2 percent of U.S. retail food sales, about $9-9.5 billion in 2001 . As the nation’s largest producer of organically grown commodities California producers are major participants in the growth of this sector . Fruits and vegetables have benefited from many demographic and lifestyle trends occurring over the last 25 years, a plus for California’s horticultural-reliant agriculture. For example, higher-income households on average consume more fresh produce than do lower-income households; in 2000 households earning more than $70,000 per year on average spent $496 dollars on fresh produce annually, compared to $302 for households in the $15,000 to $29,999 range . Hispanic households, the most rapidly growing segment of the population, consume more fresh produce than do non-Hispanic Whites or African Americans . Hispanics currently represent around 13 percent of the population and are projected to reach 18 percent by 2020. However, despite the forces favoring healthful diets, U.S. consumers have become more overweight, with two-thirds of adults estimated by USDA to be overweight in 2000, including one-third obese. According to ERS’s loss-adjusted annual per capita food supply series, average daily calorie consumption was 12 percent, or roughly 300 calories, above the 1985 level .