New World Order

The 1990s found Walmart taking the industry by storm, forcing grocers to fundamentally alter the way they do business and setting the stage for a stronger breed of regional retailers.

Editor's Note: The 1990s proved to be a pivotal decade in the supermarket industry's evolution. Accordingly, we are presenting the decade profile in two installments; Part 2 will follow in our September issue.

Friedrich Nietzsche certainly wasn't thinking about supermarkets when he penned the famous quote, "That which does not kill us makes us stronger."

But his idea easily applies to retailing during the 1990s, when WalMart Stores Inc. and other nontraditional competitors forced grocers not only to play by some new hard and fast rules, but also to up their game just to stay in it.

Having opened hundreds of supercenters during the 1990s, Walmart, under the deft leadership of David D. Glass, catapulted into its most profitable phase yet. Conventional supermarkets, meanwhile, worked harder than ever to gain sales, and their store count actually decreased.

Among the new rules of the decade, deflation had now become a persistent factor, so gaining "easy sales" from price inflation was no longer an option. As one exec noted in the pages of Progressive Grocer in 1992, "Our customer count is up, but same-store sales are flat." Profit margins were slim to nil, so grocers had to be craftier than ever to turn a buck.

Trade relations during the decade were also in flux, thanks again largely to Walmart's way of shunning extended terms and forgoing food brokers in favor of dealing directly with dedicated representatives from every vendor on its shelves. Walmart's rapid encroachment into the food business during a period of pronounced deflation also shed a megawatt light on the age-old industry practices of forward buying — in which retailers ordered product and held it until the price of food rose — and diverting and slotting allowances.

Instead, the industry was put on abrupt notice by the "Bentonville Behemoth" — an apt moniker Walmart acquired during the decade and that has since become synonymous with the world's largest retailer — that the rules of the game were in the process of being permanently upended by its efficient, and quite literal, march into the food business, which found it at once becoming the most feared, loathed and respected of any retailer on the planet, before or since.

Indeed, the weakest links in the industry — those that ignored or dismissed Walmart's potential impact on their marketing turfs or just refused to evolve to meet new standards — rapidly fell by the wayside in a spate of acquisitions, closures and sell-offs.

Out of the ashes, though, emerged the next generation of regional retailers, chief among them Harris Teeter, Publix, Byerly's, Genuardi's Family Markets, Wegmans, Schnucks and Dominick's, to name a few. These smaller, aggressive, often family-owned chains made the most of innovation and collective wisdom via share groups or keen internal insights, enabling them not only to survive the onslaught of Walmart, but also to become leaders in their respective markets.

Meanwhile, among the big conventional grocery players, a fresh series of mergers at the end of the decade made Albertsons, Safeway and Kroger the three dominant chains by the close of 1998.

A Rough Start

The 1990s, a rough decade economically, started out on shaky ground. From 1990 to 1991, retailers found themselves in the midst of a recession, with mounting concerns such as energy costs, a weak labor market and food safety adding to their list of worries. Ironically, the escalating cost of health care — still a leading concern among executives and a major political hot button today — was also on their minds.

In 1990, real sales declined for only the second time in a decade. Grocery sales increased by 5 percent, but the food-at-home component of the CPI rose even faster, by 6.5 percent. The positive news was that the nation's 30,750 supermarkets outperformed the industry as a whole, reaching $271.7 billion in sales.

As the recession wore on, some in the industry predicted that Americans would cut down on restaurant spending and turn back to supermarkets in an effort to save money, but that didn't happen. Instead, shoppers who remained loyal to the supermarket often traded down and cherry-picked.

In a scramble to achieve sales growth, more grocers turned to everyday low pricing, an emphasis on perishables and more theatrical merchandising ideas, while private label experienced a resurgence, proving that this strategy had more staying power than the popular generics from the decade before.

Part 2 of our 1990s installment continues in PG's September issue, which will recap Walmart's and club stores' evolving momentum, grocers' adoption of sophisticated private label programs, and natural food retailers' foray into the mainstream.

Among the new rules of the decade, deflation had become a persistent factor, so gaining sales from price inflation was no longer an option.