The Grocery Distribution Center Network in North America

The Grocery Distribution Center Network in North America

Background Information

Each year, Supermarket News publishes a list of the top 75 food retailers in the United States and Canada based on sales revenue (The 2010 list can be found here).  To date, little or no information has ever been assembled that describes the distribution strategies and distribution infrastructure in place to support North America’s leading food retailers.  To this end, in 2010, MWPVL International conducted an extensive research effort to develop a database of every distribution center belonging to the top 75 Supermarket News food retailers.

This article discusses the food retail industry distribution network infrastructure within the United States and Canada as at 2010. 

Qualifying Information

Over the past twenty years, the Supermarket News top 75 list has changed quite significantly.

• The North American grocery industry is no longer dominated by national and regional supermarket companies that primarily sell food merchandise.  Since the 1980’s, major retailers that originated from nonfood industry sectors have moved into the food retail sector to capture significant market share including: WalMart; Costco Wholesale Corp.; 7-Eleven; Dollar General Corp.; BJ’s Wholesale Club; Family Dollar Stores; and 99 Cents Only Stores.
• Based on the 2010 Supermarket News sales figures, collectively these companies accounted for $US 381.7 Billion in sales out of a total Top 75 sales revenue of $US 891.2 Billion.
• That’s a whopping 42.8% market share that has shifted away from the traditional supermarket retailer to alternative retail formats over the past 2 decades!  Needless to say this has led to the demise of many traditional grocery retailers during this time period.

It is important to keep in mind that It has become increasingly difficult to develop and publish accurate market data for the grocery industry because of the fact that many companies in the top 75 list generate revenue through extensive nonfood operations such as in-store pharmacies, retail gasoline sales, general merchandise, etc.  Having said this, the SN Top 75 list is still the best data that we have to define the top food retailers in North America today.

Along similar lines, it is very difficult to develop market data that accurately defines the distribution centers that are currently deployed to service the top 75 North American food retailers.  At first glance, one may wonder why this is so difficult.

• For starters, the majority of companies are not interested in sharing data about their distribution strategy and infrastructure for fear of revealing a perceived competitive advantage.
• There are numerous outsourcing agreements in place whereby retailers have entered into relationships with third party entities to take over the inventory assets and/or the physical distribution infrastructure (warehouses and trucking operations).
• Some of the top 75 companies have distribution centers that are primarily in place to service stores with nonfood merchandise whereby these facilities also service some dry grocery volume to the stores.  A good example of this is WalMart which operates 61 nonfood distribution centers within North America totaling approximately 70.8 Million square feet.  We have excluded these non-food distribution centers from our database because these facilities are primarily regional general merchandise distribution centers, import centers, apparel facilities, tire warehouses, or returns processing facilities.  A good many of these buildings do distribute some dry grocery volume in full case and/or full pallet quantities, but we exclude these facilities because their primary role is to support nonfood distribution.  Similarly for a company like Costco, the issue is further complicated by the fact that their facilities are not strictly food distribution centers.
• For the most part, obtaining documentation on the size of the distribution center, site acreage, labor associates, technologies, etc. is available on the public record but requires significant manpower to uncover this data.  For some companies (e.g. 7-11), we were not able to gather data as they have completely outsourced their distribution operations to numerous 3rd party companies with little or no public information available in this regard.

The Grocery Distribution Network in the United States and Canada

The following table provides details on the distribution infrastructure to support the Supermarket News top 75 food retailers in North America as at the start of 2010.

Notes

• Source: 2010 Top 75 Food Retailers listing provided courtesy of Supermarket News.
• The following companies have fully outsourced their distribution requirements to a third party service provider or are members of a co-operative service arrangement: A&P; BI-LO; Saker Shop Rite; Village Super Market; Inserra Supermarkets; King Kullen Grocery Co.; Woodman’s Markets.
• Save Mart Supermarkets and Raley’s Supermarket’s co-own SSI which is excluded from their distribution square feet totals.
• Distribution network data for 7-Eleven is unavailable as the company outsources all of its distribution operations to a number of different third party service providers.  As well, distribution network data on Houchens Industries was unavailable at the time of this study.
• Walmart’s distribution network figure is related to those facilities that have a primary role to service stores with food merchandise and excludes their nonfood distribution centers.

Map

For the sake of interest we publish below a map which depicts the above 533 facilities and how they are geographically positioned within the Canadian and U.S. market place.  From these maps we can see that the food distribution network in North America is a mirror image of the continent’s population distribution.  This is not surprising since grocery distribution facilities are often situated within 250 miles in the more populous areas of the country. 

The map below shows the same information pertaining to the U.S. retail grocery distribution network but with a weighting based on the total square feet of distribution center space in each geographical area.

Learnings

We can draw upon the data gathered from this research to make some interesting conclusions as to the current state of retail grocery distribution in North America.

• Few grocery retailers with sales below $1 Billion have been able to cost justify self distribution and have tended to use the company’s working capital to invest into increasing the store base rather than in establishing a distribution infrastructure.
• Only one retailer (Safeway) has crossed over from the U.S. market into the Canadian market and no Canadian Grocery retailers have moved into the U.S. market place to date.
• Walmart is the largest Grocery retailer in the U.S. today both in terms of dollar sales and in distribution center square feet.  With over 38 Million square feet dedicated to food distribution centers, the company has approximately 13.7% of the distribution center square footage from the top 75 food retailers.  This is an astounding figure given that the company did not distribute grocery merchandise until as recently as 1988.
• Companies with a high ratio of sales dollar per distribution center square feet are in the position of either::
• Enjoy a significant structural cost advantage because they utilize a low distribution infrastructure to support retail sales (a good example of this is Costco); or
• Have divested much of their distribution infrastructure to a wholesale distributor or some other type of third party entity (a good example of this is Ahold USA).  For this reason, it is important to take caution when benchmarking this data because these companies do not necessarily enjoy a cost advantage simply because they have outsourced their distribution facilities to another firm.
• From the maps above, food manufacturers seeking to optimize their distribution networks can clearly see that the four main epi-centers of logistics within the U.S. are positioned in Los Angeles, Atlanta, Chicago and somewhere around Northern New Jersey or Eastern Pennsylvania.  In Canada, the primary logistics hubs are positioned in Toronto (e.g. Brampton, Mississauga) and Calgary.

For the past 23 years, I have visited many of the facilities that are included in this research and much has changed over this time period.  The traditional grocery retailer has lost major market share to companies that have moved into this industry from other retail sectors.  The demise of many regional supermarket firms has resulted in a landscape littered with empty grocery distribution centers across the nation.  Clearly, this was an industry that had developed enough complacency to enable an onslaught that few could have predicted back in the 1980’s.

Ultimately, the consumer determines where their dollars are spent and their voice has been heard.  Fortunately, not every supermarket company has languished over the past three decades and in fact, some companies like H.E. Butt, Publix, Wegman’s Food Markets and others have consistently grown and prospered over this time. 

Anyone care to look into the crystal ball and predict what the retail grocery distribution landscape will look like in 2030?

Marc Wulfraat is the President of MWPVL International Inc.  He can be reached at +(1) (514) 482-3572 Extension 100 or by clicking here.  MWPVL International provides consulting services to grocery distribution companies. Our services include: distribution network strategy; distribution center design; material handling and automation systems;  supply chain technology consulting; product sourcing and purchasing; transportation consulting; and operational assessments.