What grocery store cartel?

<some comments of mine from an email discussion with colleagues>

I must admit I’m pretty puzzled by suggestions there’s a grocery store cartel in the US or by questions about whether there should be a national grocery store chain. By all appearances, the grocery store business is highly competitive, there are few barriers to entry and scale matters. I’ve only lived in the US permanently since 2005 and first moved here in 1999. The grocery store landscape is vastly different today than it was when I arrived in 1999 and promises to be very different in the coming decades. That’s not the sign of an innovation-killing cartel or monopoly, it’s the sign of a competitive market.

Less meaningful choice was the situation 20 years ago, and 20 years before that, and so on. Today not only do most US consumers have more choices across more traditional and non-traditional stores for purchasing groceries, but within those stores we have far more choices than we used to have.

Amazon/Whole Foods barely cracks the top 10 purveyors of groceries, tying with Aldi. I expect they’ll grow, but they’ll need to fiercely compete with much bigger rivals (who are 10X and even 20X bigger) who won’t give up their positions easily. I welcome their innovations and the innovations the others will compete back with. We’ll all benefit from that.

If small grocery stores are unable to outcompete with the larger chains, then that says to me consumers are showing their preference for the service the larger chains are providing. To me that’s a good thing. But I’d note that once smaller businesses like Wegmans out-innovated bigger rivals like Tops (once backed by international mega-retailer Ahold), which was the miserable alternative I had when at business school. It wasn’t surprising to me that they filed for bankruptcy 3 years ago and are struggling to rebuild.

In 1999, one of my New York business school classmates was Colleen Wegman, granddaughter of the founder of the Wegmans grocery chain. It then had perhaps a dozen or so stores in New York and a few in Pennsylvania. She now heads it up and has been steering its continued rapid growth. Today it spans seven states and has 106 stores.

Back in 1999 Wal-Mart was still in the process of expanding groceries to its stores after first experimenting with them in 1988. Target didn’t get going with groceries until 1995. While Kroger is the largest supermarket chain in the country, Wal-Mart outsells it. Let’s also not forget Costco, which is now number three behind Wal-Mart and Kroger.

Of course, Amazon’s purchase of Whole Foods is still relatively recent. It’s already bringing its innovation to bear on it, expanding the number of stores and introducing new formats, including eliminating check-out in both small as well as more recently larger stores. Can any of us predict where they will take the grocery business next?

Even though here in Dallas we’ve got countless grocery store options, Texas’s large and popular HEB chain has only recently entered the area, which many of us are particularly excited about and no doubt all the incumbents are fearful of. Local media is speculating on what we should expect next.

While cartels and monopolies are real, I don’t think the case can be made they exist in the US grocery industry today and there’s no sign that problem is imminent. That’s something worth celebrating.