Blog post by Dean
Tuesday, September 26, 2017

The supermarket! It’s incredible! The grocery store is the end point of a massive, recently developed and still evolving, network of distribution that does no less than make modern life possible. We are now more than 320 million people in the US, and notwithstanding food deserts, the modern grocery store is staggeringly efficient at getting us what we need and what we want. What changed over the past hundred years that led to this behemoth supply chain?

Packaging. The advent of the tin can and the cardboard box meant that food would last on a shelf longer than it would before. It also meant customers could serve themselves. No more waiting for a clerk to ladle molasses out of a keg or fish crackers out of a barrel.

Variety. Single-product stores began to branch out. If a butcher stocked not only the meat for your dinner but the potatoes too, you saved a trip to a second store, and the butcher made more money. Nowadays a large grocery store like HEB carries about 40,000 items.

Refrigeration, which made possible long distance transport and…

Centralized distribution. Mom-and-pop stores get their goods directly from suppliers; a truck pulls up in the alley and unloads lettuce. In a big operation like a supermarket chain, goods stop first at a distribution hub—a warehouse—and are delivered to grocers from there. Because the chain can store goods, it can buy in quantity at a better price, and it can choose when to sell.

In spite of efficiency of scale and timing of supply, a grocer’s margin of profit is only about 1%. Goods, labor, rent, utilities, insurance, plant maintenance, and transportation take 99 cents of every dollar you spend on groceries. If you hand over $100 at Randalls, net profit to Randalls is $1, give or take four bits.

Grocery stores will tempt you to buy things you don't need, make prices confusing, stock foods chock-full of corn syrup, and produce enormous waste, but there is no denying that they are also spectacular (ask Nikita Khrushchev) and that they are central to the way we live. If you've never given them much thought, check out Grocery by Michael Ruhlman.