The Motley Fool Discussion Boards

Previous Page

Books & Writing / Book Club (Nonfiction)

URL:  https://boards.fool.com/grocery-the-buying-and-selling-of-food-in-amer-33011578.aspx

Subject:  Grocery: The Buying and Selling of Food in Amer Date:  3/13/2018  2:49 PM
Author:  pauleckler Number:  802 of 995

“Grocery: The Buying and Selling of Food in America,” by Michael Ruhlman, Abrams Press, NYC, 2017. This 308-page hardback tells the inside story of the modern day grocery store. We learn that a typical supermarket stocks 40,000 items in a low margin business. They work constantly to keep up with the latest trends–gluten free, natural, organic, GMO free, antibiotic free, locally grown, etc.

The author selected Heinen’s, a family owned grocery chain in Cleveland, OH, with 22 stores (recently expanded to Chicago by acquisition). He made friends with the owners and gained access to their operations. He spent several years researching. That included traveling with company representatives to food conventions, where new products are offered.
He also visited many suppliers. Even though Cleveland is in the heart of the corn belt where cattle should be plentiful, we are not surprised to learn that Heinen’s grass fed beef comes from Arizona from calves born in California. Similarly seafood is flown in from around the globe. They must keep the customers satisfied or they will take their business elsewhere.

In a brief history, we learn that groceries initially came from general stores, which had barrels of commodities like flour, sugar, pickles, crackers, etc. Clerks took your order and packed what you needed. Canned goods arrived shortly after the Civil War. One of the first grocery stores was A&P, formally The Great Atlantic & Pacific Tea Company. In about 1860, it began to offer branded tea in packages. Branding offered consistent quality and protection from adulteration. Expansion resulted in multiple products and a network of the first chain stores. Others followed also based on the tea business, one of the most profitable products.

In the 1920s, stay at home mom’s needed a grocery within walking distance. Every neighborhood had a grocery, a butcher, a bakery, and a green grocer. Self service was pioneered by Piggly Wiggly in 1916. The addition of refrigeration around 1930 allowed still more offerings. Frozen food arrived after World War II. Until dressed chicken arrived after the war, live chickens were supplied. The supermarket including meat and produce with parking off of main street began in 1930; the shopping cart in 1937. By the 1950s, supermarkets began to displace neighborhood grocery stores. Stores grew larger as more products were added especially the selection of produce and seafood. In recent times, bakery, deli/prepared foods and florists have become standard.

The current trend is increased competition. Groceries are now available at Walmart, drug stores, discount stores, convenience stores, dollar stores, and Costco/BJs/Sams warehouse stores, not to mention Trader Joe’s, Whole Foods, and Aldi’s. Now add Amazon and internet sales. To compete, grocery stores focus on one stop shopping, a wide selection and service.

The store must constantly adapt to customer wants. Finding sources of items like grass fed beef or locally grown organics is a challenge. Once a supplier is identified, can they supply enough. In packaged goods, styles, trends, fads, drive the market. The store will add new products for trial, but that means something must go. Heinen’s does not charge spotting fees, but often negotiates for free shelf fill for its 22 stores, typically worth $5K. They deny placement of dairy to cause you to walk through other aisles. Practical placement of refrigerated cases is the driver.

In a typical store, groceries bring in 27% of sales, produce is 17% (and most profitable), frozen/dairy is 15% (frozen is in decline as consumers are switching to food prepared in store; eggs and dairy are recovering now that they are rated more healthy), deli/prepared food (a money loser due to high labor cost but often hidden by re-allocation), bakery (ditto unprofitable), meat (includes speciality, organic, etc as well as commodity), beer/wine/liquor (must have), and florist (1.4% of sales).

The average profit margin at Heinen’s is 32%, with 24% to labor, and 8% to all other costs. 1.4% goes to credit card fees. A typical store might make 25 to 28%, but Heinens pays 10% over union scale to retain better employees. The result is about 1% net profit. Ruhlman makes no mention of real estate profits. They say, supermarkets often anchor a shopping center owned by the store. Rent from the other tenants is a major source of profits.

The book includes chapters on the nutritious value of foods and junk foods. The high sugar content of breakfast cereals is reviewed. A chapter is based on a shopping trip with a doctor specializing in nutrition. The discussion wanders into GMO foods and glyphosate, but they seem not to understand the advantages of GMO foods. Roundup ready seeds reduce the need for pre-emergent herbicides as they allow spraying after weeds appear. If a given fatty acid or protein is found healthy, GMO has potential to increase production of the desired material. Plants that resist drought, pests and disease are also possible. Wellness products, ie nutrition aids, are a fast growing sector, but the author believes their value is dubious. “Organic” mostly means higher prices; the value over washed produce is theoretical but unproven.

The complexity of the center aisles is illustrated by Oreo cookies. They are available in 40 different varieties covering package size, cookie size, double stuffing, a variety of flavors/colors, and the various combinations of traits (sugar, fat, gluten, etc, etc).

The produce department receives much attention because the product is highly profitable, perishable and the customer has high expectations. Once head lettuce was a major seller. It was shipped covered in ice from California. Today, salad blends are the big seller and head lettuce is in decline. Hydroponically grown greens are coming; locally grown greens look promising. Much produce is seasonal. To keeps shelves full, the product is shipped from Latin America in winter and gradually moves north as crops ripen. Fall apples are stored in a controlled atmosphere and shipped throughout the year. Bananas are shipped green, stored nearby, and gassed with ethylene to cause ripening before delivery to the store.

The book walks us through prepared food methods, soups, salads and meat. The author watches a hog butchered and a chicken kill. Once beef was delivered to stores as hanging quarters, which meat cutters cut up on site for sale. Now beef arrives boxed at Heinen’s processing center for cutting and packing. This reduces waste and allows ordering to meet demand variations. Modern commodity meat processing is not described. The center also makes some of the prepared foods sold by all 22 stores.

This book is must reading for those who plan a career in the grocery business. Grocery shoppers may also find the look behind the scenes informative. The author does include extraneous material such as his recollections of numerous related events as well as descriptions of how people are dressed. He does provide a wealth of details of today’s supermarket and its challenges. The writing style is clear and readable. Many references and a bibliography are included. The book is indexed, but the entries are sparse reducing its reference value.
Copyright 1996-2021 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us