Op-Ed: The grocery chain wars prove that the modern supermarket model isn't sustainable (via latimesopinion)
But it’s not 1944. Which is why my disaster movie reaction doesn’t tell the whole story.Today, with or without this merger, Walmart has already captured a whopping 27% of the market. Costco has another 9%. And Amazon, the small guy for once, is aggressively threatening everyone in the sector. Incredible as it might seem, from Kroger and Albertsons’ perspective, this merger probably feels existential. If they aren’t allowed to grow bigger, they might as well be left for dead.
Fresh produce was scarce. Everything was generic. Customers were not allowed to touch a thing. They would hand a list over the counter and watch as a clerk chiseled dried fruit from a barrel or fished some biscuits from a tin. In 1930, Michael Cullen, a manager at the then midsize Kroger chain, is seized by the most American of visions: He wants to make everything about grocery bigger to make everything about grocery cheaper. He starts with the physical footprint — declaring his stores will be 10 times bigger than the norm — and then relocates them off Main Street. With this, he saves on warehousing, construction and real estate.
Let me quote his original business plan: “The public would not believe their eyes,” he wrote. “Week days would be Saturdays — rainy days would be sunny days. I would have my 5% items surrounded with 15%, 20%, in some cases 25% items. … I would lead [them] out of the high priced houses of bondage into the low prices of the house of the promised land.”His first store, King Kullen, opened in Jamaica, Queens, to immediate success. Lines stretched for blocks.
As stores grew, food prices plummeted. In 1900, with the general store, Americans spent 40% of their budget on food. Today, we spend less than 10%. It is the lowest percentage in the world and in world history. This has been, and will always be, a rickety and unstable path. It creates a route to the top that allows for two or three dominant firms to grow so big they have a real advantage. And it simultaneously creates a race to the bottom for nearly everyone — including those dominants lest they lose their place. This is why Kroger and Albertsons can be both mighty and insecure.