By Jake Rossen
By Jesse Marx
By Michelle LeBow
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By CP Staff
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But the meal that made headlines was from Whole Foods, where Pollan dropped $6 on organic produce. "My jet-setting Argentine asparagus tasted like damp cardboard," he wrote. "After the first spear or two no one touched it." Pollan went on to question whether flying in off-season produce was really true to the ecologically pure aesthetic Whole Foods espouses.
Mackay quickly responded in an open letter he posted to his blog. (He also sent Pollan a $25 gift card to make up for the asparagus.) Pollan wrote back, and following a few weeks of highly publicized debate, Whole Foods announced a number of changes. Chief among them: individual Whole Foods stores will buy more locally produced goods.
While it's a step in the right direction, Pollan says, Whole Foods has a ways to go before its reality lives up to its rhetoric.
"As I take my measure of these guys, I think there is some conviction, but also a good business reason to go in this direction," he says. "Their whole business model is predicated on getting people to spend a lot of money on food because of the notion that it's special."
If Whole Foods is the runaway success story at the high end of the market, Wal-Mart is the trendsetter for everyone else. It's the largest food retailer in the country, with sales at its 1,900 stores topping $155 billion. The second-largest, Kroger, has some 3,300 stores and sales of $57 billion. Following the acquisition last year of Albertson's, Twin Cities-based SuperValu became the third-largest supermarket chain in the nation, with 2,500 stores and $44 billion in revenue annually.
Virtually all retailers now sell food, but the top five food retailers own about a third of the U.S. market. Theoretically, the success of mega-grocers should have made it even easier for consumers to get what they wanted. But Ben Senauer, a professor of applied economics at the University of Minnesota and co-director of its Food Industry Center, discovered the opposite when he polled price-conscious women.
"I was shocked by how burned they felt about the whole thing, how budget-conscious they had to be, how much they disliked buying and preparing food," says Senauer.
Small wonder. The middle-class family's weekend trip to Cub Foods is an exercise in frustration. Despite the fact that the stores are cavernous, they offer surprisingly little in the way of variety. And while it's true that stores stock products that sell, they also have an array of incentives to sell goods popular with the suppliers—consumers be damned.
Grocery store shelves are quite possibly the most valuable real estate in the country. According to the Food Marketing Institute, there are at least 100,000 products available in the United States today, but a conventional supermarket carries about 15,000 items, and a superstore some 50,000. Thousands of new products are introduced each year, and up to 80 percent fail, the think tank reports.
Want to woo the public with a pizza with new toppings? A larger vat of fabric softener? The grocer will have to enter the SKU or "stock keeping unit" into his computers and evict a product that's presumably selling. And if the experiment fails, he'll have to do it all again in reverse.
So if a food company wants to bring something new to market, it must pay for its shelf space, a premium called a "slotting fee." The fees, which have only been in existence for the last 25 years, can range from a few hundred dollars for space in a single market to tens of thousands per store for frontage in a mega-chain like Target. Sometimes it's paid in cash, other times as a discount on the wholesale cost.
This ante isn't the last time the manufacturer is asked to chip in. There are fees to secure a prime position on the shelves, and ongoing payments referred to in the industry as "pay-to-stay." No one knows how much is spent on the fees, but Akshay Rao, professor of marketing and logistics management at the University of Minnesota's Carlson School of Management, says the most believable figure he's heard is $19 billion a year—three times the revenue generated by Hollywood.
A large producer can take advantage of the fee structure to keep its competitors out. To accomplish this, the company will offer a constant stream of variations to crowd out other products. A manufacturer of yogurt will offer not just vanilla, but low-fat vanilla, fat-free vanilla, French vanilla, and enough vanilla crèmes, custards, and swirls to fill the Metrodome.
"I have an incentive to keep introducing new products to get more and more shelf space," says Rao. "I'm expanding choices, but within my own umbrella."
Officials in several federal and state agencies have launched probes into the practice over the years, to little avail. When Congress asked its investigators to study the issue in 2000, industry representatives refused to answer questions—a move more audacious than anything airlines, banks, or military contractors ever tried. Two small-business owners who testified before the Senate were so afraid of retaliation that they appeared shrouded in black hoods, speaking with electronically disguised voices.
Most histories of the grocery industry agree that the first self-service market was a Piggly Wiggly that opened in Memphis in 1916, but the first so-called "supermarket" was King Kullen Grocery Co., which opened in New York in 1930.