.-■:^^i^ United States An Economic Research Service Report jL^J}) Department of Food Marketing Agricultural Review, 1994-95 Economic Report Number 743 389 8« -\09 ,1« X »• uso»; cw' Itt) ^w ^.oHiV^^^fe O 1 3 Note from the authors Please take a moment to respond to the survey at the end of this report. Your response is important for improving this publica- tion. The survey contains the options being considered for im- proving the Food Marketing Review. An important goal of the publication is to provide the information you need in a timely and easily accessible manner. We need your help. Please invest the 10 minutes needed to complete the survey. Thank you. It's Easy To Order Another Copy! Just dial 1-800-999-6779. Toll free in the United States and Canada. Ask for Food Marketing Review, 1994-95 (AER-743). Cost is $15.00 per copy ($18.75 for non-U.S. addresses). Charge to VISA or MasterCard. 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Food Marketing Review, 1994-95. Food and Consumer Economics Division, Economic Research Service, U.S. Department of Agriculture. Agricultural Economic Report No. 743. Abstract The value of food marketing merger transactions rose sharply in both 1994 and 1995. U.S. food marketing sales reached an estimated $860 billion in 1995. Profits from operations for food manufacturers and retailers rose because of continued wage and producer price stability. In 1994 and 1995, aggressive competition for market shares resulted in record new product introductions, advertising, and strong private label sales. Keywords: Food marketing, manufacturing, retailing, foodservice. Note: Use of brand or firm names in this publication does not imply endorsement by the U.S. Department of Agriculture. Acknowledgments This report was prepared by the following staff members of the Food and Consumer Economics Division, Economic Research Service, U.S. Department of Agriculture: Project coordinator Anthony E. Gallo, 202/219-1260 Food manufacturing Anthony E. Gallo Food wholesaling Steve W. Martinez Food retailing Phillip R. Kaufman Food service Charlene Price Advisors Charles R. Handy, Alden Manchester Branch chief Mark Denbaly Wanda Reed-Rose prepared the text, tables, and charts. Matt Falasak assisted with the food retailing section. Michael Harris prepared the foreign trade tables. Washington, DC 20005-4788 September 1996 Contents Summary , . iii Glossary iv Introduction 1 Sales 1 Economic Climate . 2 Structure and Organization 3 Conduct 4 Performance 6 Global Participation 8 Food Manufacturing 11 Size 11 Economic Climate 11 Increase in Establishments 13 Structure and Organization . 13 Market Competition 13 Domestic Performance 15 International Performance 17 Food Wholesaling 18 Sales 18 Structure and Organization 18 Sector Trends , 20 Performance 23 Profits 24 Food Retailing . 25 Sales and Sales Growth 25 Structure and Organization 26 Foreign Investment 28 Employment and Wages 29 Performance 30 Food Service 32 Sales . ... 32 Structure and Organization 32 Performance . 38 References 44 List of Appendix Tables . 46 Appendix Tables 49 ii ERS/USDA Food Marketing Review, 1994/95 / AER-743 Summary Aggressive competition for U.S. food industry market shares in 1994 and 1995 resulted in record high product introductions and advertising, as well as strong private label sales. In 1995, nearly 17,000 new food products were introduced, total U.S. food marketing sales were approximately $860 billion, and an estimated 240,000 different packaged food products were produced by U.S. food manufacturers. This report examines many aspects of the U.S. food marketing system, and covers manufacturing, wholesaling, retailing, and foodservice industries. The data come from Federal agencies, trade associations and publications, academic researchers, and consulting firms. Food manufacturers, retailers, wholesalers, and foodservice firms make up the largest sales marketing system in the United States. U.S. farm products worth $110 bilUon were purchased by the food system in 1994. Average retail food prices in grocery stores rose 2.4 percent m 1994. Americans spent 11.4 percent of their disposable income on food in 1995, the same as in the previous year. Profits for food manufacturers and retailers increased in 1995 because of continued wage and producer price stability. The value of food marketing merger transactions rose sharply in both 1994 and 1995. Food manufacturers spent nearly $10 billion in consumer advertising in 1994. Competition for the limited amount of retail shelf space was intense. The United States is the world's largest importer and exporter of processed food. In 1994, the U.S. food processing industry showed a positive trade balance for the fourth consecutive year. U.S. food processing industry exports, valued at $25.8 billion in 1994, exceeded imports by $2.6 billion. The surplus in food processing was $8 billion excluding seafood and beverages. Meat products showed a trade surplus of $3.8 billion, and fats and oils showed a surplus of $1.7 billion. Grain mill products had a surplus of $2.9 billion. Beverages and miscellaneous food products showed a $5.4-billion deficit. U.S. food processors also have extensive foreign investments, and foreign firms have sizable investments in U.S. processing firms. The foreign food processing affiliates of U.S. firms had estimated sales of $100 biUion in 1994. The U.S. affiliates of foreign firms had estimated sales of $53 billion in 1994. Common stock prices of food marketing firms outperformed other sectors of the economy in 1994. Capital spending by U.S. food manufacturers was an estimated $17.7 billion in 1994 and $18.6 billion in 1995. In 1995, sales by the food processing sector rose nearly 4 percent to $430 billion. Sales by the wholesale food sector were estimated at $517 biUion for 1994, up only slightly from the previous year. Food retailing sales rose 3.6 percent to nearly $400 billion in 1994. There is some double counting in these sales categories. Americans spent about $337 billion on food purchased in retail foodstores in 1994 and about $303 billion on food purchased in foodservice establishments. Food Marketing Review, 1994/95 / AER-743 ERS/USDA Glossary Aggregate concentration. The share of output in a • Lodging places. Establishments that provide both sector (food manufacturing, for example) that is lodging and food service to the general public. produced 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 • Recreation/entertainment Foodservice operations owning 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 stadiums); membership golf or country clubs; public individuals retain after they have deducted taxes. golf courses; and miscellaneous commercial amuse- ment and recreational establishments (tennis clubs, Divestiture. The sale of a unit (a factory, a division, camps, athletic clubs, and amusement parks). or a subsidiary) of a firm, either to another firm, to management of the unit, or to independent investors. • Retail hosts. Foodservice operations that operate in conjunction with or as part of retail establishments, Food manufacturing. Activities that typically use such as department stores, limited-price variety power-driven machines and materials-handling stores, drugstores, and miscellaneous retailers. equipment to mechanically or chemically transform raw materials into foods and beverages for human Noncommercial establishments. Establishments consumption. Certain related industrial products, where meals and snacks are prepared and served as such as feeds and vegetables and animal fats and oils, an adjunct, supportive service to the primary purpose are also produced here. of the establishment. These include schools, colleges, hospitals and extended care facilities, vending areas, Food service. The dispensing of prepared meals and plants and offices, correctional facilities, military snacks intended for on premise or immediate feeding, and transportation (trains, cruise ships, and consumption. The following products qualify as food airplanes). service when other foods are not available: candies, popcorn, pretzels, nuts, and drinks. Vended foods Foodstore. A retail outlet with at least 50 percent of qualify as food service only when tables or counters sales in food products intended for off-premise are available in the immediate area and