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Supermarket consolidation has changed the grocery retail landscape in the U.S. and beyond. Originally, supermarkets rose to prominence by selling numerous types of goods under one roof, largely replacing small grocery stores and other retailers that only sold one particular type of product. Smaller supermarkets have since been increasingly supplanted by even larger supermarkets, the cavernous stores that now dot the retail landscape. In order to increase efficiency and maintain competitiveness, supermarket chains began consolidating, a trend that has led to the dominance of the grocery retail industry by a shrinking number of giant companies.
The effects of this trend have been widespread. Not surprisingly, smaller chains have suffered as supermarkets' low prices and large variety have attracted an increasing number of customers. As the largest supermarkets grow, they're accounting for a larger and larger percentage of their suppliers' sales. Manufacturers are becoming increasingly dependent on a small number of retailers for sales volume, which gives these retailers significant leverage to bargain for lower prices. This can negatively impact any firm whose goods are sold in supermarkets.
As with any industry trend, supermarket consolidation can only happen with customers' permission. If customers were opposed to consolidation, they could voice their discontent by not shopping at the large supermarket chains. As we've seen, however, they do patronize these "hypermarkets". The reason for this is that larger, consolidated supermarkets can offer customers several benefits that smaller grocery stores generally cannot.
Large, consolidated retailers are able to use their size and purchasing power to lower their customers' prices, often by a significant amount. As the grocery retail landscape becomes dominated by a few massive players, these companies are accounting for larger and larger percentages of food and beverage manufacturers' total sales. Manufacturers are growing increasingly dependent on huge supermarkets for business, giving these retailers considerable leverage over their suppliers' prices. Though this trend can harm any firm whose goods are sold in supermarkets, the resulting prices are typically lower than those of smaller retailers. These lower prices, combined with the sheer variety of goods sold in today's supermarkets, have been primary drivers of the shift from small, local grocery stores to cavernous "hypermarkets".
Though stores in different locations don't have identical inventories, large retailers do generally offer some degree of standardization in terms of the types of goods sold. Smaller retailers, whose inventories often vary widely, cannot offer the same degree of predictability and standardization as large retail chains, which can be an argument both for and against supermarket consolidation; while some consumers appreciate the familiarity that large supermarkets provide, others enjoy the variety and specialization of inventory that smaller supermarkets can offer. This leaves small retailers with the option to specialize in a certain niche that is neglected by larger chains, which can help insulate a retailer against the effects of supermarket consolidation.
Supermarket consolidation has also spurred the increased penetration of private label goods. Private label goods, often called "store brands", are products sold at just one retailer. They are often designed to compete against branded products, offering customers a cheaper alternative to national brands. Though the public generally used to see them as low-cost imitations of branded products, private labels have overcome this reputation and achieved significant growth in recent years. Large retailers like Wal-Mart and Target are particularly fond of private labels and have greatly expanded their offerings in the segment. In addition to appealing to customers' frugality, private labels provide higher margins than national brands and can increase a retailer's customer loyalty to the store as a whole. While this trend has led to lower prices and increased variety for customers, it can substantially harm the manufacturers of branded goods.