As manufacturers and retailers become more involved in distribution, demand for the industry stagnates
New York, NY (PRWEB) December 07, 2014
Growth in the grocery wholesaling industry has been patchy as intense competition and rising production costs drive food manufacturers and supermarkets to cut out the middleman. This strategy, known as wholesale bypass, has become more prevalent after high production costs and slow recessionary demand forced both ends of the grocery supply chain to cut costs. IBISWorld Economic Analyst Farrell McKenna says in the updated report, "As manufacturers and retailers become more involved in distribution, demand for the grocery wholesaling industry stagnates; however, industry revenue is expected to grow in the five years to 2014, with several years of growing product prices masking the negative effects of wholesale bypass." In 2014, revenue is expected to grow.
The effects of the recession shifted the mix of items purchased, which helps determine which products grocery wholesalers stock. Due to a weak labor market, minimal income growth and poor consumer sentiment in the five years to 2014, households switched to lower-cost, lower-margin foods and reduced purchases. Some consumers, especially those who remain unemployed, have continued this behavior. The slump in sales hurt profit margins in 2010 when crude oil prices (and therefore transportation costs) were high and demand for groceries was still low due to the recession. Since then, margins have returned to prerecession levels. Furthermore, the weak economic climate caused the number of establishments to drop during the recession as many businesses left the industry. However, establishments have rebounded in the five years to 2014, and are still recovering from the industry's low. The reduced number of establishments further indicates that upstream and downstream industries are continuing to bypass wholesalers.
The challenging environment has forced unprofitable wholesalers out of the market, illustrated by falling company numbers. As a result, some wholesalers that remain in the industry are growing their market share by claiming business from operators that have exited the industry. "This trend is reflected in industry mergers and acquisitions, which have increased major players' market shares," McKenna says in the updated report. Moving forward, consolidation will likely increase as competition intensifies. Still, as consumer spending continues to increase, the industry will experience modest growth. In the five years to 2019, IBISWorld forecasts that total revenue will grow.
For more information, visit IBISWorld’s Grocery Wholesaling in the US industry report page.
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IBISWorld industry Report Key Topics
Grocery wholesalers act as the middlemen between food producers and retailers. They do little to transform products and are intermediaries in merchandise distribution. Wholesalers sell and distribute all general-line grocery products, and industry establishments generally do not specialize. Distributed products usually include dry groceries, perishable food and nonfood products found in grocery stores.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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