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United Sta Department i Agriculture Food Marketing Economic Research Review, 1992-93 Service , 1^ Agricultural Economic Report Number 678 v, <.■.•: 1 ^^ A %^ tsr-f^i,, 'í^/u,'<-v- ^^m\ ''tó's.j öica>*^-,\o<'*f ft ^ »fíríjvl iiv.. m»»? ktrt ':■ es^ ,t»'#*' ft %e* V® A*rz^/.^Ä lt«?i,p\tt*'** -^09 n iWiji«*«SL *oe* 2?^ fOt«^* tt>. »»• ,^tU\V; tA\*« |S9 Gar^^ .ess' cwov e<otitv-^ >»>>^ Sv®«*' fÄ\* CoW SN*" .C^tH c^^tSV^ c^v sv\^o^ oso^ \V). fe* C^'o^Ç!u \i>^¿^^^^ oxtt^ 3ft9 Vct^' \v>. \>sÇt (i^Ö P^ci*<.^G^ %<l^ *»-< \t»- CVl»«* \to- -\Ö9 »■ '::í»rot ^^, .««ftvtssi^- |\\>- It's Easy to Order Another Copy! Just dial 1-800-999-6779. Toll-free in the United States and Canada. Other areas please call 1-703-834-0125. Ask for Food Marketing Review, 1992-93 (AER-678). The cost is $15.00 per copy. For non-U.S. addresses (includes Canada), add 25 percent. Charge your purchases to your VISA or MasterCard, or we can bill you. 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Commodity Economics Division, Economic Research Service, U.S. Department of Agriculture. Agricultural Economic Report No. 678. Abstract U.S. grocery sales were over $820 billion in 1993. Profits from operations for food manufac- turers and retailers rose in 1992 and 1993 because of continued wage and producer price sta- bility, a weaker dollar, and lower interest rates. Merger and leveraged buyout transactions fell in 1991, rose in 1992 but fell again in 1993. Debt levels increased. In 1993, aggressive competition for market shares resulted in record new product introductions, intensive cou- poning, strong private label sales, and price weakening. New plant and equipment and re- search and development expenditures reached new highs. Note: Use of brand or firm names in this publication does not imply endorsement by the U.S. Department of Agriculture. Washington, DC 20005-4788 April 1994 Acknowledgments This report was prepared by the following staff members of the Commodity Economics Divi- sion, Economic Research Service, U.S. Department of Agriculture: Anthony E. Gallo Project coordinator 202/219-0868 and food manufacturing Walter B.Epps Food wholesaling Phillip R. Kaufman Food retailing Charlene Price Food service Charles R. Handy Deputy branch chief Dennis Henderson Branch chief Nedra Williams typed the manuscript. Doris Newton assisted with the food retailing chapter. Food Marketing Review /AER - 678 Contents Summary iv Glossary v Introduction 1 Sales 2 Economic Climate 2 Structure and Organization 5 Conduct 6 Performance . 8 Food Manufacturing 13 Size 14 Economic Climate 14 Structure and Organization 16 Market Competition 17 Domestic Performance 19 International Performance 21 Food Wholesaling 23 Sales 24 Structure and Organization 24 Sector Trends 26 Performance 29 Food Retailing 31 Sales and Sales Growth 32 Structure and Organization 34 Foreign Investment 38 Employment and Wages 39 Performance 39 Food Service 41 Sales 42 Structure and Organization 42 Performance 47 References 51 List of Appendix Tables 53 Appen^x Tables 56 Food Marketing Review Seminar Series 152 Food Marketing Review / AER - 678 Summary Retail sales of the food marketing system reached a projected $820 billion in 1993. Food share of disposable income fell to an all-time low of 11.4 percent. Other highhghts include: • The food system added an estimated $614 billion in value to the $126 billion of U.S. farm products, $22 billion in foreign processed food com- modities, and $9 billion in seafood products purchased in 1992. Food manufacturers, retailers, wholesalers, and foodservice firms comprise the Nation's largest sales marketing system, contributing about 10.5 percent to gross domestic product (GDP) in 1992. • Both food processors' and retailers' level of profit from operations rose in 1992, but returns on stockholders' equity fell Food processors' profits rose again in 1993. • Merger and leveraged buyout activity rose in 1992, following 3 years of sharp declines. Recorded mergers and leveraged buyouts (LBO's) amounted to $3 billion m 1991 and $5.7 billion in 1992. There were 356 mergers and LBO's in 1992. Activity declined again in 1993. Debt levels rose in 1992 for food processors and retailers. • Capital expenditures in food manufacturing at the corporate level rose to an estimated $19 billion in both 1992 and 1993. Three hundred seventy-six new plant projects were initiated in fiscal 1992, up from 305 in 1991. Common stock prices of food marketing firms underperformed other sec- tors of the economy for the first time in a decade in 1992 and kept falling in 1993. On the cost side, wages rose modestly in 1992 and 1993. Manufacturers' purchase prices of farm foods fell slightly in both 1992 and 1993. Food manufacturers produced an estimated 230,000 packaged food prod- ucts in 1991 (fig. 1). Competition among manufacturers and retailers for consumer preference was expressed in small price increases and sharp non- price firm competition. Average retail food prices in grocery stores rose 0.7 percent in 1992. Manufacturers spent nearly $11 billion in consumer advertising and fiercely competed for a greater share of the limited amount of retail shelf space in 1991. Despite the continued economic slowdown, nearly 16,750 new grocery products were introduced in 1992. The international performance of the U.S. food marketing system is meas- ured by its balance of trade, sales from foreign operations, and foreign investment. For the first time in 10 years, the food processing sector showed a positive trade balance. Foreign affiliates of U.S. food marketing firms had estimated sales of $125 billion in 1992, while U.S. food market- ing affiliates of foreign firms had estimated sales of $120 billion. ÍV Food Marketing Review / AER - 678 Glossary Aggregate concentration. The share of output in a • Lodging places. Establishments that provide both sector (food manufacturing, for example) that is pro- lodging and food service to the general public. duced by the largest firms. These establishments include hotels, motels, and tourist courts, but exclude rooming and boarding Acquisition. Purchase of a company. houses and private residences. Chain. A food retailer or foodservice operator own- • Recreation/entertainment. Foodservice operations ing 11 or more stores or outlets. in theaters; bowling alleys or billiard or pool halls; commercial sports establishments (racetracks and Disposable personal income (DPI). Income that indi- stadiums); membership golf or country clubs; pub- viduals retain after they have deducted taxes. lic golf courses; and miscellaneous commercial amusement and recreational establishments (tennis Divestiture. The sale of a unit (a factory, a division, clubs, camps, athletic clubs, and amusement or a subsidiary) of a firm, either to another firm, to parks). management of the unit, or to independent investors. • Retail hosts. Foodservice operations that operate in Food manufacturing. Activities that typically use conjunction with or as part of retail establishments, power-driven machines and materials-handling equip- such as department stores, limited-price variety ment to mechanically or chemically transform raw stores, drugstores, and miscellaneous retailers. materials into foods and beverages for human con- sumption. Certain related industrial products, such as Noncommercial establishments. Establishments feeds and vegetable and animal fats and oils, are also where meals and snacks are prepared and served as produced here. an adjunct, supportive service to the primary purpose of the establishment. These include schools, col- Food service. The dispensing of prepared meals and leges, hospitals and extended care facilities, vending snacks intended for onpremise or immediate consump- areas, plants and offices, correctional facilities, mili- tion. The following products quaUfy as food service tary feeding, and transportation (trains, cruise ships, when other foods are not available: candies, popcorn, and airplanes). pretzels, nuts, and drinks. Vended foods qualify as food service only when tables or counters are avail- Foodstore. A retail outlet with at least 50 percent of able in the immediate area and a person with records sales in food products intended for offpremise con- of food receipts is present at the estabUshment. sumption. Commercial establishments. Public estabhshments Grocery store, A foodstore that sells a variety of (freestanding or part of a host estabUshment) that food products, including fresh meat, produce, pack- prepare, serve, and sell meals and snacks for profit aged and canned foods, frozen foods, other to the general public. processed foods, and nonfood products. • Drinking places. Establishments with food service • Supermarket. A grocery store, primarily self-serv- that do not operate as subordinate facilities of dif- ice in operation, providing a full range of depart- ferent and separately identifiable kinds of busi- ments and having at least $2.5 million in annual nesses and the primary function of which is the sales (1985 dollars). sale of alcoholic beverages for onpremise or imme- diate consumption. These include bars, beer gar- Combination food and drugstore—A supermarket dens, taverns, nightclubs, and saloons. containing a pharmacy, a nonprescription drug de- partment, and a greater variety of health and • Eating places.