57th Annual Consumer Expenditures Study

"Weak" is the kindest way to describe last year's performance in the supermarket sector of the grocery industry, but at least the 0.8 percent sales growth was positive. With the way sales have been trending, 2004 could very well see further weakening or even decline.

In a real sense, sales did decline, because the inflation rate for food at home exceeded growth to the extent that there was a 1 percent-plus fall in economic terms. In practical terms, the bottom line is that mass supercenters (Wal-Mart, Target, and Kmart) are cleaning supermarkets' clocks at a rate approaching the shift from analog to digital wristwatches or, more recently, telephones.

It's not that mass supercenters aren't supermarkets—in part, at least, they are, with more than 50 percent of their sales matching supermarket offerings. It's that Wal-Mart isn't releasing data, and the chain comprises more than 90 percent of the mass supercenter business. Enter ACNielsen with supermarket scan data and share projections from the Homescan panel.

With these ACNielsen tools and estimates for nontracked GM, and perishable items from Progressive Grocer research, we're able to present a unified view of each category's share in supermarkets and mass supercenters (effectively, Wal-Mart.)

To get a feel for what the information in the summary table is telling us about the competitive landscape, let's take the grocery department. In alcohol, supermarkets have a 41.9 share of total retail volume, which is about $31.8 billion. Mass supercenters have only a 3.9 share, which happens to be extremely low. All other outlets (mostly liquor stores) make up the majority of alcohol sales.

The picture changes for grocery food, however, which is where much of the overlap in what mass merchants and supermarkets carry resides. Here supers still exert enough influence to hold the majority share (63.8 percent), but the mass supercenter channel is on the move, now up to 10.8 percent. Ten years ago the mass sector's piece of that particular pie was negligible. For grocery nonfood, meanwhile, mass supercenters are holding steady at 11 percent, while the supermarket channel has seen its portion of total volume drop by half, to 33.6 percent.

Supermarkets' performance vs. Wal-Mart et al. is substantially better in all perishables; the sector shines with 77.7 percent, compared to 9.6 percent for mass supercenters.

The competitive picture, by the numbers, is more fragmented in health and beauty care, where mass merchants hold 16.4 percent vs. supermarkets' 22.7 percent. However, the mass class captures this portion of the business in just 1,600 stores, while it takes supermarkets 32,000 units to gain their share of the market.

The Consumer Expenditures Study reveals more of the nuances of the evolving competitive landscape inside the detailed sales tables. There are almost a thousand lines of sales data pointing to the categories where supermarkets are proving to be winners or losers, and where the battle rages fiercely for, in many cases, a flat or shrinking business.

The two biggest dollar gainers: gasoline and pharmacy, which together account for almost the total gain in supermarket sales. Other business segments are showing the results of technological advancements. Digital technology, for example, is erasing film sales and processing, while Blockbuster and e-commerce retailer Netflix are dubbing supermarket video rental volume.

Other categories are obviously feeling the pressure from outside forces such as shifting consumer demand. All bakery items felt the adverse impact of low-carb mania, and the net effect was negative for in-store bakery in particular.

Other trends apparent in the consumer spending patterns reflected here: Obesity is out, and diet chocolates are on fire, but so are fresh doughnuts, indicating that you can always count on some level of contradiction in shopper behavior. Growth continues in water, as well as diet and yogurt drinks, but the heat has died down for coolers. Protein-rich cheese has some stars, including natural Swiss and Muenster, which are aging well.