Understanding the 

Dynamics of Produce

Markets

United States

Department of

Agriculture

Economic 

Research

Service

Agriculture

Information

Bulletin

Number 758

Phil R. Kaufman 

Charles R. Handy 

Edward W. McLaughlin

Kristen Park 

Geoffrey M. Green

Consumption and 

Consolidation Grow
Understanding the Dynamics of Produce Markets: Consumption and

Consolidation Grow. By Phil R. Kaufman, Charles R. Handy, Edward W.

McLaughlin, Kristen Park, and Geoffrey M. Green, Food and Rural Economics

Division, Economic Research Service, U.S. Department of Agriculture.

Agriculture Information Bulletin No. 758.

Abstract

Mergers, acquisitions, and internal growth among grocery retailers, largely since

1996, have increased the share of grocery store sales accounted for by the largest

4, 8, and 20 food retailers nationwide. Similar consolidation is occurring among

food wholesalers. At the same time, new packaged and branded produce items are

gaining acceptance with consumers and vying for shelf space in the supermarket

produce department. Growers, shippers, and their trade associations fear the possibility of fewer buyers for their products, particularly if new marketing and trade

practices such as volume incentive rebates and slotting fees become widespread.

This report uses data from the Censuses of Wholesale Trade and Retail Trade and

industry sources to examine changes in produce markets and market channels from

1987 to 1997 in the United States. It is the first in a series of reports that will

examine competitive behavior in the produce industry. 

Keywords: produce, market channels, fresh fruit and vegetables, consumption,

foodstores, foodservice, food-at-home, food-away-from-home, wholesalers, supermarkets, consolidation.

Note: Use of brand or firm names in this publication does not imply endorsement

by the U.S. Department of Agriculture.

Acknowledgments

Edward W. McLaughlin, Kristen Park, and Geoffrey M. Green are with Cornell

University. The authors wish to thank Dr. David Eastwood, University of

Tennessee, Knoxville, and Dr. Mark Jekanowski, Economic Research Service, for

serving as reviewers of this report.

1800 M. Street, N.W.

Washington, DC 20005-4788 August 2000
ii • Understanding the Dynamics of Produce Markets / AIB-758 Economic Research Service/USDA

Contents

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iv

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vi

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Industry Sales and Consumption Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Trends in Supermarket Produce Departments, 1987 and 1997 . . . . . . . . . . . . . . .2

Changing Produce Distribution and Market Channels . . . . . . . . . . . . . . . . . . . . .4

Changing Structure of Produce Buyers—Food Retailing and Wholesaling . . . . . .9

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Economic Research Service/USDA Understanding the Dynamics of Produce Markets / AIB-758 • iii

Preface

This is the first in a series of reports assessing the changing nature of produce markets and market channels and their implications for competitive behavior. Such an

assessment requires an objective understanding of the increasingly complex relationships among buyers and sellers along the marketing chain. The Economic

Research Service is working with industry experts to undertake descriptive and analytical research studies and will publish a series of reports over the coming year.

This project has three major objectives. 

• Develop a comprehensive overview of the produce industry, including consumption and retail sales trends, markets and market channels, and the changing structure of produce buyers.

• Identify and characterize the types of trade practices used in the produce industry, including trade allowances, services provided by suppliers, forward contracting, and marketing strategies. 

• Empirically analyze supplier-to-retail price margin behavior to investigate the

presence of market power.

This report addresses the first of the three major objectives. The remaining objectives will be addressed in subsequent ERS reports. The latter reports will focus on

trade practices for selected commodities using firm-level data. Taken together,

these reports will inform industry participants, researchers, and policymakers about

the forces affecting competition and change in the produce industry.

Mark Denbaly, Barry Krissoff

ERS Produce Study Co-Directors
iv • Understanding the Dynamics of Produce Markets / AIB-758 Economic Research Service/USDA

Summary

Mergers, acquisitions, and internal growth among grocery retailers, largely since

1996, have increased the share of grocery store sales accounted for by the top 4, 8,

and 20 food retailers nationwide. Similar consolidation is occurring among food

wholesalers. At the same time, new packaged and branded produce items are gaining acceptance with consumers and vying for shelf space in the supermarket produce department. These are among several dynamic forces that are affecting

change in produce markets and market channels.

Consolidation and structural change is taking place over a wide range of agricultural and food industries and has implications for both producers and consumers.

This report uses data from the Censuses of Wholesale Trade and Retail Trade and

industry sources to focus on changes in produce markets from 1987 to 1997 in the

United States. 

Technological innovations, changes in consumer preferences, and globalization of

the produce industry have affected the volume of sales, price, and quality of many

fresh fruits and vegetables. Electronic commerce and vertically integrated computer networks have allowed grower-shippers and retailers to improve communications in marketing produce, saving on inventory control and reducing shrinkage.

Atmosphere-controlled cargo and remote monitoring systems have extended the

shelf life and quality of perishable products. As a result, the supermarket produce

department has made way for year-round varieties, pre-cut produce, and more

packaged and branded items. These changes are likely to have profound effects on

the way the produce industry is organized and the way it conducts business.

Per capita consumption of fresh produce increased 12 percent during 1987-97.

Consumers, responding in part to increased health concerns, are demanding yearround supplies of fresh produce such as grapes and strawberries. Rising incomes

and time demands have spurred consumer acceptance of fresh-cut, quick-to-prepare products. And a growing share of consumer expenditures for fresh produce is

occurring in foodservice outlets rather than in traditional foodstores. 

Traditional retailers are responding by expanding the size of their produce

departments. The average produce department in today's supermarket carries 335

produce items, almost twice the number carried 10 years ago. The proportion of

sales accounted for by prepackaged salads has doubled. Fresh-cut produce is

growing rapidly and the number of nationally branded products (including

bananas) is expanding.

Most produce today still moves from grower-shippers through merchant wholesalers to retail outlets (food stores and foodservice establishments). But, between

1987 and 1997, the share of produce moving through merchant wholesalers,

including wholesale produce markets, declined while the share of shipments to

large self-distributing grocery retailers increased. Merchant wholesalers have survived by becoming larger, performing more functions and consumer services, and

handling a larger array of specialty produce items. 
Economic Research Service/USDA Understanding the Dynamics of Produce Markets / AIB-758 • v

As food retailers consolidate and expand to take advantage of economies of size,

more firms are introducing supply chain management practices such as firmwide

purchasing and the use of information technologies to provide for continuous

inventory replenishment and individual store oversight. These practices may lower

marketing and distribution costs of produce as well.

Industry consolidation, the introduction of new technologies, changing consumption

patterns, and new marketing and trade practices are important dynamic forces that

are likely to continue to shape produce markets and market channels in the future.
vi • Understanding the Dynamics of Produce Markets / AIB-758 Economic Research Service/USDA

Glossary

Aggregate concentration. The share of sales in a sector (food retailing, for example) that is controlled by the largest firms.

Broker. Agent in the marketing chain who negotiates contracts between buyers

(retailers) and sellers (shippers) without taking title to the merchandise or physically handling inventory.

Buying office/Headquarters. Central offices where a company’s buying decisions are made.

Chain. A food retailer or foodservice operator owning 10 or more stores or outlets. 

Convenience store. A small foodstore (usually 1,000 to 3,200 square feet) selling

a limited variety of food and nonfood products, typically open extended hours.

Cooperative advertising. Joint advertising by the retailer and shipper directed

toward the consumer. Retailers advertise the shipper’s products periodically in

exchange for a cash payment or discount.

Cost of sales. The total amount of money paid by retailers or wholesalers for

goods that were sold to customers during a specified period. Cost of sales is

sometimes called cost of goods sold.

Cross-docking facility. A physical distribution facility that provides for the transfer

of single-load shipments from suppliers to mixed-load shipments for delivery to

retail stores. An open platform is used in place of a warehouse, eliminating storage

and labor costs.

Direct buying. Purchasing from a shipper or manufacturer directly rather than

from a wholesaler or other middle-marketing agent.

Distribution center. Wholesale facility (warehouse) of a chain store company or

general-line wholesaler.

Distribution channel. Route in the marketing system that goods follow from

grower-shipper to consumer. 

Distributor. See Merchant wholesaler.

Foodstore. A retail outlet with at least 50 percent of sales in food products

intended for off-premise consumption. Foodstores include supermarkets, superettes, grocery stores, and delicatessens, and specialized foodstores such as produce

markets and bakeries.

General-line foodservice wholesaler. A wholesaler serving foodservice establishments such as restaurants, hospitals, schools, and hotels, and handling products

specifically for foodservice use.
Economic Research Service/USDA Understanding the Dynamics of Produce Markets / AIB-758 • vii

General-line grocery wholesaler. A wholesaler who procures grocery products,

both food and nonfood, for distribution to retailers that lack their own warehousing

and store delivery services.

Green grocer. A foodstore having fresh fruit and vegetable sales accounting for

50 percent or more of total sales 

Grocery store. A foodstore that sells a variety of food products, including fresh

meat, produce, packaged and canned foods, frozen foods, and nonfood products.

Gross margin. The profit gained from the difference between the cost of merchandise bought from a supplier and the price for which it is sold to the customer.

Also referred to as gross profit.

Grower-Shipper. Fresh fruit and vegetable firms that grow, pack, and ship produce, or pack and ship produce for other growers. 

Independent. Independently owned retail store, or small chain company consisting of 9 or fewer stores.

Jobber. An independent, small to medium-size wholesaler, that provides various

services to retail stores, including warehousing, delivery, pricing, order-taking,

stocking retail shelves, and handling returns.

Merchandise performance agreement. Allowances (product discounts) given by

shippers to retailers or wholesalers based on some extra activity such as placing

their products in special displays or locations.

Merchant wholesaler. Firms engaged in the purchase, assembly, transportation,

storage, and distribution of food and nonfood products for sale to other wholesalers, retailers and foodservice firms.

Minimum order requirement. A minimum quantity of goods (set by the supplier) that the retailer or wholesaler must order at one time in order to qualify for a

price or discount privilege.

Net profit. The ultimate profit or gain that results after overhead and operating

costs are subtracted from the gross profit. It is commonly expressed as a percentage of total sales.

Off-invoice allowance. A predetermined allowance that is deducted from a bill

when specified conditions are met, such as advertising or promotional participation.

Repacker. A specialized produce wholesaler who ripens and packs or repacks

bulk produce according to specific needs of buyers.

Specialized produce wholesalers. Merchant wholesalers who buy and sell fresh

fruit and vegetables on their own account. Produce accounts for over 50 percent

of sales.
viii • Understanding the Dynamics of Produce Markets / AIB-758 Economic Research Service/USDA

Stockkeeping unit (SKU). A unit of measurement of items in a warehouse or

store. SKU numbers are assigned to unique products according to characteristics

such as brand, type, size, color, or origin, for example. The average supermarket

carried about 400 unique items (SKU’s) in the produce department in 1997.

Supercenter. A large general merchandise store that also includes a self-contained supermarket within it. Supercenters are typically 100,000 to 200,000

square feet in size. Grocery food and nonfood items account for about 40 percent

of total sales. 

Supermarket. A full-line, full-service grocery store that occupies at least 6,000

square feet and annually sells $2 million or more worth of products.

Warehouse club. A hybrid wholesale-retail establishment selling food, grocery,

appliances, hardware, office supplies, and similar products to consumers and

small-business members.
Economic Research Service/USDA Understanding the Dynamics of Produce Markets / AIB-758 • 1

Introduction

The produce marketing industry underwent considerable change from 1987 to 1997, the most recent retail

census year. Changes in the distribution of produce

from the farmgate to consumer are a direct outcome of

both the demand for produce by consumers and the

nature of transactions and coordination between produce buyers and sellers. Prior to 1987, buyers and

sellers were more fragmented; most sales were

between produce suppliers and grocery and specialized

produce wholesalers. In the decade since 1987, large,

self-distributing food retailers have accounted for an

increasing share of fresh fruit and vegetable sales by

grower-shippers, bypassing produce wholesalers. 

The nature of produce transactions was changing as

well. In 1993, a third of all produce buyers used some

form of contractual agreement (McLaughlin and

Perosio, 1994). Other emerging methods of coordination between buyers and sellers include the formation

of strategic alliances, new market and trade practices,

and the sharing of sales data to support retail store displays and promotions.

These changes coincide with a number of new developments in produce marketing, such as 

• the growth of value-added and consumer-branded

products,

• the increasing array of produce varieties,

• consolidation of food wholesalers and retailers,

• the expansion of the foodservice sector, and

• and the greater role of imports. 

Industry Sales and 

Consumption Trends 

Consumption of fresh fruits and vegetables increased

by over 12 percent from 1987 to 1997. Several factors

account for this. First, Federal agencies, the private

sector, and voluntary organizations stepped up efforts

to improve the nutritional health of Americans through

informed food choices. For example, to reduce the

risk of cancer, the Food Guide Pyramid advises 5-9

daily servings of fruits and vegetables. The Produce

for Better Health Foundation’s 5-A-Day program has

raised consumer awareness of produce’s benefits

(Kennedy et al.). Improved quality, increased variety,

and year-round availability via world trade have also

boosted consumption of fresh fruits and vegetables.

Americans consumed 133.2 pounds of fresh fruit, per

capita, in 1997, up from 121.6 pounds in 1987 (table

1). Leading consumption in both years were bananas,

apples, and watermelons. Per capita consumption of

fresh vegetables jumped even more, from 162.4

pounds in 1987 to 185.6 pounds in 1997. Potatoes,

lettuce, and tomatoes led in 1987, while in 1997,

onions replaced tomatoes. 

Understanding the Dynamics 

of Produce Markets

Consumption and Consolidation Grow

Phil R. Kaufman, Charles R. Handy,

Edward W. McLaughlin, Kristen Park, and Geoffrey M. Green

Table 1—U.S. per capita consumption of fresh

fruits and vegetables, 1987 and 1997

Item 1987 1997 1987-97

Pounds Percent

increase

Fresh fruits 121.6 133.2 9.5

Fresh vegetables 162.4 185.6 14.3

Total fresh fruits 

and vegetables 284.0 318.8 12.3

Source: USDA, Fruit and Tree Nuts Situation and Outlook Yearbook,

1999 and Vegetables and Specialties Situation and Outlook

Yearbook, 1999.
2 • Understanding the Dynamics of Produce Markets / AIB-758 Economic Research Service/USDA

As fresh consumption has increased, the product mix

has changed. With the introduction of fresh-cut carrots, per capita consumption of fresh-market carrots

increased from 8.3 pounds in 1987 to 14.4 pounds in

1997 (USDA, 1999d). Traditional varieties of some

commodities have lost market share to specialty varieties. For example, per capita consumption of iceberg

lettuce fell by 1.4 pounds between 1987 and 1997,

while romaine and leaf lettuces grew by 3.6 pounds. 

A second factor in produce consumption is the growing importance of convenience. Packaged salads and

fresh-cut vegetables/fruits are occupying more shelf

space as consumers strive to reduce meal preparation

time (Progressive Grocer, 1998). Restaurants, fastfood outlets, and institutional foodservice operators are

seeking to reduce labor costs by buying more prepared, trimmed, and cut produce that is ready to use.

Locally grown items and exotic produce have made

inroads since the late 1980’s. Rising incomes have

enabled consumers to purchase higher quality and

greater variety. Foodservice and restaurants introduce

consumers to even more new produce varieties and

methods of preparation. For many consumers, meals

eaten out provide their first exposure to new flavors

later found in retail produce departments. In response,

the supermarket produce department carried nearly

twice as many items in 1997 as 10 years earlier

(Litwak, 1988 and 1998).

Trends in Supermarket Produce

Departments, 1987 and 1997

U.S. consumers purchased $30.9 billion of produce

through supermarkets and supercenter stores in 1997.

Supermarkets captured 88 percent of retail produce

sales, supercenters 10 percent, and other retail stores

(convenience stores, etc.) 2 percent. Even though

supermarkets handle the bulk of retail produce sales,

other retail formats such as convenience stores and

mass merchandisers are adding food and grocery

items, including produce. A variety of specialized

foodstores, natural and health food stores, and farmers’

markets also sell fresh fruits and vegetables.

The supercenter format, a mass-merchandise store

with a self-contained supermarket, has grown in

importance since its introduction in 1988. By 1997,

produce sold in supercenters accounted for estimated

sales of $700 million. Because the supercenter produce department is similar in size, product variety,

and marketing practices to supermarket produce

departments, we combined the two store formats for

reporting purposes.

In 1997, a total of 24,102 U.S. supermarkets generated

$308 billion in sales. Produce contributed 9.7 percent

to that total (McLaughlin et al., 1998). Because of its

importance to retail sales, the supermarket produce

department is an appropriate model for understanding

key trends and developments in the produce industry.

Supermarket buyers must stay abreast of changing

trade practices, promotions, and technological

advances. These, in turn, are reflected in many produce department operations, such as merchandising,

product assortment, and consumer promotions. 

Supermarket and Supercenter 

Produce Sales

Produce department sales accounted for 8.8 percent of

total supermarket sales in 1987 (Litwak, 1988). By

1997, the produce department share of supermarket

and supercenter sales had grown to 9.5 percent

(McLaughlin et al., 1998). (This sample of retailers

includes the produce sales of supercenter stores as a

percentage of supermarket-related food and nonfood

sales, in order to be compatible with supermarkets.)

The number of supercenter stores has risen dramatically since their introduction in 1988. Underscoring

the importance of fresh fruits and vegetables to supermarket and supercenter performance, the produce

department accounts for a disproportionately greater

share of overall profits, relative to its share of sales. In

1987, the department’s share of profits was 16.8 percent—nearly twice its share of sales—and grew to

17.2 percent in 1997 (fig. 1).

Supermarkets are able to set a gross margin that adequately covers produce department expenses, though

reports of gross margin vary somewhat. A survey of

retail produce executives showed average gross margin, as percentage of sales, at 33.2 percent in 1997

(McLaughlin et al., 1998) (fig. 1). Produce gross margins are higher than the overall store margin, which

averaged 26 percent in 1997 (FMI, 1998), but comparable to other perishable products such as fresh meat,

seafood, and deli/prepared foods. Perishable food

margins must account for greater costs due to high

spoilage and waste (shrinkage) as well as the higher
Economic Research Service/USDA Understanding the Dynamics of Produce Markets / AIB-758 • 3

labor costs associated with product preparation and

more costly refrigerated display cases.

During the 1980’s and 1990’s, the produce department’s size (square feet of floor area) has expanded at

a slightly greater rate than that of the overall store.

Between 1987 and 1997, the produce department

increased from 4,817 to 5,140 square feet in floor area,

an increase of 6.7 percent (Litwak, 1988 and 1998).

Litwak also reported, in Supermarket Business, that

the produce department covered 12.3 percent of the

store, on average, in 1987; by 1997, the share had

increased to 12.7 percent (fig. 1). This growth took

place even as supermarkets were becoming larger to

accommodate additional departments such as service

meat and seafood, prepared foods, and deli items.

The number of stockkeeping units (SKU’s) sold in the

produce department in 1987 was 173; by 1997, it was

335 (Litwak, 1988 and 1998). This jump in variety

was primarily to meet consumers’ demands for added

convenience, healthy diets, and gourmet and ethnic

items. Despite its catering to convenience, the department actually increased the proportion of fresh versus

nonfresh items it stocked. Fresh items accounted for

88.5 percent of total produce department SKU’s in

1997, versus 83.8 percent in 1993.

Several new produce items—packaged salads, organic

items, expanded ethnic foods, additions to branded

produce, and newly packaged staples—have emerged

since the 1980’s to bring a new look to the produce

department. Though many of these items had no

reported sales in 1987, by 1997 demand had increased

sufficiently that supermarket firms kept tabs.

Packaged salads, for instance, constituted 9.7 percent

of total department sales (McLaughlin et al., 1998).

Organic fruits and vegetables, once considered suitable

only for small-scale food cooperatives or specialty

markets, accounted for 1.7 percent of produce department sales in 1997 (table 2).

Nationally branded produce reached 19 percent of

department sales in 1997, compared with 7 percent of

sales in 1987. Much of the increase in national brand

sales is likely due to the introduction of new packaged

and fresh-cut products, in contrast to earlier commodity branding such as Dole and Chiquita bananas and

Sunkist oranges. Well-known brand names in canned

and frozen vegetables have entered the fresh arena

Share of sales Share of profits Gross margin Share of store size

0

5

10

15

20

25

30

35

1997

Figure 1. 

Performance of supermarket and supercenter produce departments

All measures of produce performance increased by 1997

1987

9.7

33.2

17.2

12.7

8.8

32.0

16.8

12.3

Percent

Source: Census of Wholesale Trade, 1987 and 1997
4 • Understanding the Dynamics of Produce Markets / AIB-758 Economic Research Service/USDA

with varying success. Dole, for instance, has become a

market leader in packaged salads because the packaging allows for more consistent quality and sizes.

Shipper and packer labels such as Grimmway carrots

or Andy Boy lettuce, though not generally recognized

as consumer brands, are promoted to trade buyers. 

Changing Produce Distribution

and Market Channels

Because produce spoils quickly, the produce wholesaling system has evolved in order to move product

quickly and efficiently from the major production

areas to the retail markets. A number of different,

often competing industries form the produce distribution system that procures, packs, ships, warehouses,

facilitates transactions between buyers and sellers, and

distributes to local retailers and foodservice outlets.

Figure 2 illustrates produce markets, the channels of

distribution, and their sales at each stage of the vertical

marketing system in 1987 and 1997, for the major

industries: grower-shippers, wholesalers, retail stores,

and foodservice operators. In addition, produce

moved through export and import channels, through

direct markets (which include farmstands, farmers’

markets, and mail-order sales), and through intermediate brokers. Not all fresh fruits and vegetables move

through each successive vertical sector, however. For

example, some imported fruits and vegetables are

shipped directly to wholesalers, bypassing U.S.

grower-shippers altogether.

Grower-Shippers

After being harvested, fresh produce is handled and

packed either by a shipper or by the grower. For

instance, bulk lettuce is often washed and packaged in

the field. Grapes are pre-cooled and shipped.

Exports

1987 - $1.2

1997 - $3.1

Imports

1987 - $2.0

1997 - $4.1

 

 

 

Retail 

1987 - $22.0

1997 - $34.3

Foodservice

establishments

1987 - $12.0

1997 - $35.4

Consumers 

1987 - $34.6

1997 - $70.8

Direct

markets

1987 - $0.6

1997 - $1.1

Brokers

1987 - $7.0

1997 - $6.8

Sources: Census of Wholesale Trade Census of Retail Trade;

Blue Book, 1997; McLaughlin et al., 1998.

Note: All values are in $ billion (current, not adjusted).

Figure 2. 

Fresh fruit and vegetable marketing channels 1987 and 1997

Grower/

shippers

1987 - $11.2

1997 - $17.8

General-line 

grocery wholesalers

1987 - $3.6

1997 - $6.4

Specialized produce

wholesalers

1987 - $20.0

1997 - $33.0

General-line foodservice

wholesalers

1987 - $3.8

1997 - $7.1

Table 2—Produce department products 

Product 1987 1997

Percent of produce sales 

Packaged salads -- 9.72

Organic -- 1.72

Fresh-cut -- 5.23

Nationally branded 7.2 18.93

Private label -- 6.43

Packaged, bagged, 

and tray-wrapped 35.01 26.23

-- = No reported sales in 1987.

1 Litwak (1988).

2 McLaughlin et al. (1998).

3 Food Marketing Institute (1998).
Economic Research Service/USDA Understanding the Dynamics of Produce Markets / AIB-758 • 5

Potatoes are stored, packed, shipped, and often

repacked near the point of harvest. To estimate the

value of fresh fruits and vegetables at the production

level, these handling and packing costs are added to

growing costs to derive the total value of fresh produce

before it is shipped to market. Because the production

of fresh produce is highly integrated with the harvesting, packing, and shipping systems, production values

are estimated using the shipping point, or f.o.b. (freeon-board), values. 

The value of U.S. production of fresh fruits and vegetables by grower-shippers reached $16.8 billion in

1997, up from $10.7 billion in 1987, a 57-percent

increase (table 3). Fresh fruit production rose from

$6.0 billion to $7.1 billion, while fresh vegetables

jumped from $4.7 billion to $9.7 billion.

To arrive at the total value of grower-shipper shipments (sales) to the U.S. domestic food marketing system, we must account for imports and exports.

Imports of fresh fruits and vegetables equaled $4.1 billion in 1997, a 105-percent increase over 1987’s total

of $2.0 billion (fig. 2). Both grower-shippers ($2.6

billion) and merchant wholesalers ($1.5 billion) took

delivery of 1997’s produce imports.

Exports by both grower-shippers ($1.6 billion) and

merchant wholesalers reached $3.1 billion in 1997, up

158 percent over 1987. Thus, the net value of produce

imports minus exports in 1997 by grower-shippers is

$1.0 billion, which, when added to domestic production of $16.8 billion, gives total shipments to the U.S.

distribution system of $17.8 billion. One decade earlier, the total value of produce entering the U.S. distribution system from grower-shippers was $11.2 billion.

Although shipments of both fruits and vegetables

increased between 1987 and 1997, vegetable shipments jumped 102 percent, versus 19 percent for

fruits. The top three vegetables shipped for fresh use

were lettuce, tomatoes, and potatoes (USDA, 1999d).

These accounted for 52.9 percent of total shipments in

1987, but for only 33.4 percent in 1997. This is partially due to the reporting of more vegetable items

beginning in 1997.

Among fresh fruit shipments, those with the highest

value in 1987 and 1997 were apples, oranges, and

strawberries (USDA, 1999b). The leading fruits

accounted for 48.4 percent of shipments in 1987 and

51.8 percent in 1997.

Grower-shippers serve a number of domestic produce

customers, including wholesalers, self-distributing

retailers, foodservice firms, and direct markets. The

share of fresh vegetable purchases by wholesalers was

estimated to vary from 35 to 55 percent in 1994, by

retailers 20 to 40 percent, and by foodservice establishments 25 to 45 percent (Powers, 1994). 

Direct Markets

Some fresh produce sales occur directly between the

producer and consumer. Farm stands and stores, pickyour-own operations, roadside stands, farmers’ markets, and mail-order sales are used by growers to market their produce. Farmers markets’ have become

increasingly important as a direct market for growers.

According to USDA’s Agricultural Marketing Service,

the number of farmers’ markets grew from about 100

in 1974 to 1,755 in 1994, and to 2,812 in 1998. 

Table 3—Value of production and grower-shipper sales, 1987 and 1997

1987 1997 

Product Value of Grower-shipper Domestic Value of Grower-shipper Domestic

production1 imports2 exports2 sales production1 imports2 exports2 sales 

$ billion (current, not adjusted) 

Fresh fruits 6.0 0.6 0.3 6.3 7.1 1.5 1.1 7.5 

Fresh vegetables 4.7 0.3 0.1 4.9 9.7 1.1 0.5 10.3 

Fresh fruits 

and vegetables 10.7 0.9 0.4 11.2 16.8 2.6 1.6 17.8 

1 Value of shipments of domestic production only based on fob prices.

2 Estimates of total imports and exports to grower-shippers and wholesalers derived from Blue Book, Red Book and McLaughlin et al., 1998.

Sources: USDA, Agricultural Prices, various years; USDA, Citrus Fruits, Final Estimates, various years; USDA, Foreign Agricultural Trade of the

United States, Calendar Year Supplement, various years; USDA, Noncitrus Fruits, Final Estimates, various years; USDA, Vegetables and

Specialties Situation and Outlook Yearbook, 1999.
6 • Understanding the Dynamics of Produce Markets / AIB-758 Economic Research Service/USDA

Direct sales benefit many smaller grower-shippers near

population centers. These direct sales are usually on a

cash basis and are therefore extremely difficult to estimate. Still, based on survey data (McLaughlin and

Perosio, 1994), estimated sales through direct marketing channels reached $1.1 billion in 1997, compared

with $0.6 billion in 1987 (fig. 2). 

Wholesalers

Wholesalers buy produce from grower-shippers and

importers. Some smaller wholesalers, such as jobbers,

often buy produce from larger wholesalers. Most

wholesalers are merchant wholesalers who take title to

the product, which they handle. Brokers do not take

ownership of the product but rather mediate on behalf

of either a grower-shipper or a buyer of produce. 

Wholesalers sold $34.5 billion of produce in 1987;

merchant wholesalers sold $27.4 billion and brokers

negotiated $7.0 billion in sales (table 4, fig. 2). In

1997, sales reached an estimated $53.3 billion, an

increase of 64.7 percent. Merchant wholesalers

increased sales by 69.5 percent over 1987, while broker sales dipped 1.6 percent.

General-line grocery wholesalers procure grocery

products, both food and nonfood, for retailers that lack

their own warehousing and store delivery services.

For example, Supervalu (Eden Prairie, MN), the

largest general-line grocery wholesaler in the United

States, sells a complete line of products to 4,400 retail

foodstores. These retailers are often individual store

retailers or smaller retail chains that are too small to

own and operate produce buying offices, warehouses,

and trucking fleets. General-line grocery wholesalers

shipped $6.4 billion worth of produce in 1997, up

from $3.6 billion in 1987. 

In 1997, produce sales averaged 5 percent of total general-line grocery wholesaler sales. A number of these

wholesalers also own and operate retail stores. In

1999, Supervalu owned 431 stores representing $5 billion in retail sales and approximately 22 percent of the

company’s total sales (Hoover’s Online, 1999).

General-line foodservice wholesalers serve restaurants,

hospitals, schools, and hotels, and handle products

specifically for foodservice use. Some of the largest

foodservice wholesalers, like Sysco and Alliant, carry

a broad range of products including paper supplies and

equipment. Still, Sysco reports that produce accounts

for 6 percent of its total sales. For all general-line

foodservice wholesalers, produce sales reached $7.1

billion in 1997 (fig. 3).

Specialized produce wholesalers are classified by the

Census of Wholesale Trade as establishments primarily engaged in the wholesale distribution of fresh

fruits and vegetables. These wholesalers procure and

deliver to retail stores, foodservice operators, and

repackers, who buy in bulk and pack or repack produce for resale to other retailers and wholesalers. For

example, Standard Produce (Houston, TX) purchases

and receives produce from growers and shippers and

then sells to a number of retail and foodservice

accounts. Standard now has division offices and warehouses in urban centers throughout the South and

Southwest. 

Specialized produce wholesalers also include truckers

and jobbers who purchase produce from the large

wholesalers to sell and distribute to smaller retailers

and foodservice operators such as produce stores, specialty markets, small grocery stores, and restaurants

that may not require a general-line wholesaler.

Specialized produce wholesalers continue to supply

the majority of produce to both retail stores and foodservice firms, accounting for $33.0 billion in produce

sales in 1997.

Brokers serve either buyers or sellers of produce by

locating supplies and negotiating their sale. Brokers

may negotiate sales between importers and growershippers or between grower-shippers and retailers or

foodservice buyers. Although brokers still figure in

Table 4—Produce sales by wholesaler type, 1987

and 1997 

Wholesaler type 1987 1997

$ billion 

All wholesale establishments selling 

fresh fruits and vegetables1 34.5 53.32

Merchant wholesalers (total) 27.4 46.52

General-line grocery3 3.6 6.4

General-line foodservice3 3.8 7.1

Specialized produce3 20.0 33.0

Brokers 7.0 6.82

1 Numbers may not add to totals due to rounding error.

2 Cornell estimates.

3 ERS estimates.

Source: Compiled from U.S. Census Bureau, various years.
Economic Research Service/USDA Understanding the Dynamics of Produce Markets / AIB-758 • 7

the produce market channels, their numbers have

dropped as has their share of sales.

Wholesalers’ Customers

Wholesalers serve a variety of produce customers.

However, as produce markets and market channels

have evolved, the relative importance of those customers has changed in the decade since 1987. For

example, while foodservice customers and exporters

gained in importance, the share of sales to other

wholesalers and retailers declined (fig. 4).

In 1987, 38.1 percent of all wholesaler produce sales

went to retail stores. By 1997, this share had declined

to 34.6 percent, reflecting the ascendance of large

supermarket firms that buy produce directly from

grower-shippers. Retail store executives have predicted

that, by 2004, 51 percent of produce would be direct

from grower-shippers (McLaughlin et al., 1999).

Conversely, the proportion of wholesaler sales to

restaurant and institutional customers jumped from 8.4

percent in 1987 to 21.2 percent in 1997. The share

going to the export market also increased, from 4.1

percent to 5.6 percent. A proportionate dip in share of

sales to other wholesalers (from 46.5 percent to 33.0

percent) reflects the decline in the relative market

share of small produce wholesalers, who tend to purchase produce from larger wholesalers rather than

direct from grower-shippers. 

The increase in export and import activity has provided additional marketing opportunities for the

wholesaler. It is still difficult for chains to source produce overseas, so imports and exports enter and exit

the system at the grower-shipper and wholesaler level.

According to some of the larger wholesalers, imports

account for about a third of their inventory at any one

point in time (McLaughlin et al., 1997). 

The continued growth in nontraditional produce such

as organic, ethnic/gourmet, and specialty items has

also been a boon to wholesalers. These high-margin

products are difficult for supermarket chains to buy

directly from grower-shippers as individual chains do

not have the volume to purchase or organize trailer

loads of these products.

The other significant opportunity for some wholesalers

is the increased foodservice trade. Foodservice operators require frequent and small deliveries of produce

0

5

10

15

20

25

30

35

Grocery Food service Specialized Brokers

6.4

33.0

7.1 6.8

3.6

20.0

3.8

7.0

Percent

Figure 3. 

Wholesalers' sales by wholesaler type, 1987 and 1997

Specialized produce wholesalers have the largest share 

Source: Census of Wholesale Trade, 1987 and 1997

1997

1987
8 • Understanding the Dynamics of Produce Markets / AIB-758 Economic Research Service/USDA

due to its perishability. Therefore, specialized produce

wholesalers are often better able to provide this service

than general-line wholesalers.

Retail Stores

Produce sales through retail stores reached $34.3 billion in 1997, compared with $22.0 billion in 1987 (fig.

2). Foodstores accounted for 96.2 percent of all retail

produce sales in 1997, while other retail stores—

including supercenters and warehouse club stores—

made up the remaining 3.8 percent (table 5). The

Census of Retail Trade reports on grocery stores—

including supermarkets, other general-line grocery

stores, convenience stores, and delicatessens—that

make up the bulk of retail produce sales. Specialized

foodstores include produce markets, butcher shops,

bakeries, dairies, and health food stores. Despite their

greater number, these specialized foodstores accounted

for only $1.8 billion or 5.3 percent of retail produce

sales in 1997.

In 1987, when warehouse clubs like Sam’s were just

emerging, they carried little produce or other perishable

food, instead discounting bulk, dry groceries. Nor had

the mass merchandise retailers like Wal-Mart built their

supercenter formats. Supermarkets and other generalline grocery stores dominated food sales and sold 91.8

percent of all produce sold through retail outlets (table

5). Remaining sales were through convenience stores

(0.9 percent), specialized produce stores (6.8 percent),

and “other” foodstores (0.5 percent).

By 1997, however, warehouse clubs had introduced

more perishables, including produce, to their mix of

products. Warehouse club stores sold 1.7 percent of

retail produce, while supercenters accounted for

another 2.0 percent. Although foodstore sales of produce grew as well, sales growth through the nontraditional channels outpaced that of traditional foodstores,

increasing their proportion of sales to 3.8 percent.

These nontraditional outlets have become the fastest

growing retail segment in produce, as the number of

new warehouse club and supercenter stores continues

to rise.

Foodservice

Foodservice establishments—from fast food to fine

dining to college cafeterias—generated produce sales

Wholesale

Percent

Source: Census of Wholesale Trade, 1987 and 1997

Retail Foodservice Exports Other

Figure 4. 

Wholesaler sales by customer type

Sales to wholesalers and retailers declined in 1997

0

10

20

30

40

50

46.5

38.1

4.1

2.8

8.4

33.0 34.6

5.6 5.7

21.2

1997

1987
Economic Research Service/USDA Understanding the Dynamics of Produce Markets / AIB-758 • 9

of $35.4 billion in 1997 (fig. 2). Because of the

tremendous diversity of foodservice operations, averages are deceptive. But with ever more food consumed away from home, it is necessary to understand

the importance of produce sales through this channel.

Consumers’ busy lifestyles, more women in the workforce, and rising household incomes have resulted in

less spent on preparing food at home and more spent

on food away from home. In 1997, U.S. consumers

spent $321.4 billion on food consumed away from

home, 61.6 percent above the $198.9 billion spent in

1987 (USDA, 1999c).

When produce is purchased from foodservice, it is

almost always purchased as part of a complete meal,

with individual items cut, primped, and prepared. In

addition, typical margins in foodservice are much

higher than in foodstores, due to the larger services

component of the meal.

Placing a value on that portion of the meal or dish

derived from produce is therefore extremely difficult.

R. Brian How (1988) estimated foodservice sales of

fresh fruits and vegetables in 1987 to be $12.0 billion,

with an initial value of $4.6 billion for cost of produce.

McLaughlin and others (1997) reported that 11 percent

of the total cost of food purchased by the restaurant

industry was for produce. Applying this percentage to

total foodservice sales in 1997 results in produce sales

of $35.4 billion. The wholesale value of this produce,

by How’s formula, is $10.6 billion, an increase of 130

percent since 1987.

Consumer Sales

All told, produce sales to consumers through retail

stores, foodservice, and direct markets reached $70.8

billion in 1997, up from $34.6 billion in 1987 (fig. 2).

Retail stores’ share of total produce sales to consumers

has fallen dramatically, from 63.6 percent in 1987 to

48.4 percent in 1997 (fig. 5). The foodservice share,

meanwhile, rose from 34.7 percent to 50.0 percent.

The share of consumer sales through grower-direct

markets remained nearly constant at 1.6 percent. 

Changing Structure of Produce

Buyers—Food Retailing and

Wholesaling 

Since 1987, mergers and acquisitions among food

retailers and wholesalers have contributed to the rising

share of sales accounted for by the largest 4, 8, and 20

firms. As the leading retailers and wholesalers have

grown, they have become more important as produce

buyers. As such, has their increased buying power

affected prices paid by consumers or those received by

grower-shippers? Are market and trade practices

likely to change as a result of wholesaler and retailer

consolidation? And what forces are motivating firms

to undertake large mergers and acquisitions? Although

Table 5—Produce sales from retail stores, 1987 and 1997

Type 1987 1997 1987 19971

$ billion Percent of total produce sales

Foodstores 22.0 33.0 100.0 96.2

Grocery stores 20.4 31.3 92.7 91.3

Supermarkets2 19.6 30.2 89.1 88.0

Other general-line grocery stores2 0.6 0.8 2.7 2.3

Convenience stores3 0.2 0.3 0.9 0.9

Specialized produce stores 1.5 1.7 6.8 5.0

Other specialized foodstores 0.1 0.1 0.5 0.3

Other retail stores — 1.3 — 3.8

Warehouse clubs2 — 0.6 — 1.7

Supercenters2 — 0.7 — 2.0

Total produce sales4 22.0 34.3 100.0 100.0

— = less than $25 million in (or 0.1 percent of) sales.

1 Estimated by applying CPI for fresh produce to 1992 census figures.

2 Estimated using percentage shares from Cornell University; company annual reports; Progressive Grocer, April 1987 and 1997; ERS, Food 

Marketing Review, 1994-95.

3 Based on special tabulation by U.S. Census Bureau.

4 Numbers may not add to totals due to rounding error.
10 • Understanding the Dynamics of Produce Markets / AIB-758 Economic Research Service/USDA

definitive answers are not currently available, we will

discuss the extent of structural change and its likely

impacts on produce suppliers and consumers. A subsequent report will make use of data collected from

produce suppliers, wholesalers, and retailers to better

assess the impacts of structural change.

Consolidation in Food Retailing

From 1987 to 1998, the largest four food retailers’

share of grocery store sales rose from 17.1 percent to

26.8 percent (fig. 6). The 8 largest retailers’ share

increased from 26.0 percent to 37.3 percent, while the

20 largest retailers’ share reached 48.2 percent of total

grocery store sales in 1998, compared with 36.5 percent in 1987. Most of these gains occurred after 1996,

when a number of consolidations among the 20 largest

retailers were initiated. 

But because food retailers compete within smaller geographic areas, such as cities and towns, national sales

shares are less meaningful than for food processing,

whose largest firms typically serve national markets.

Nevertheless, changes in national shares of the largest

4, 8, and 20 food retailers indicate the net effect of

internal growth, firm consolidation, and divestitures

among the largest food retailers. 

Recent Mergers and Acquisitions in

Grocery Retailing

Consolidation in food retailing has increased significantly since 1996 (table 6). Successive acquisitions by

Yucaipa/Fred Meyer in the Pacific region, by Ahold in

the Northeast, and by Safeway in multiple regions

have rapidly increased their size and contributed to

higher national concentration levels.

Food retailers announced two mergers in 1998 involving the largest ever combined sales. Kroger, the largest

retailer with sales of $26 billion in 1997, merged with

Yucaipa/Fred Meyer to form a multiregional supermarket operator with $43 billion in combined sales. By

1999, the combined firm operated 2,575 supermarkets

in 31 States, with convenience stores in an additional 6

States. Also in 1998, fourth-ranked Albertson’s initiated its merger with second-ranked American Stores,

resulting in 1999 combined sales of $34 billion, from

1,652 supermarkets in 38 States. 

Retail stores Foodservice Direct markets

Figure 5. 

Consumer produce sales share, by major segment: 1987 and 1997

Foodservice had the largest share of produce sales to consumers in 1997

63.6

34.7

1.7

48.4

1.6

50.0

Percent share

Source: Census of Wholesale Trade, 1987 and 1997

1997

1987

0

10

20

30

40

50

60

70
Economic Research Service/USDA Understanding the Dynamics of Produce Markets / AIB-758 • 11

As a result of these mergers and acquisitions, the

largest food retailers such as Kroger and Safeway have

maintained their ranking while growing considerably in

size. Other retailers, including Albertson’s and Ahold,

USA (operator of six supermarket chains), have moved

up in ranking through consolidation (table 7).

What’s Motivating Consolidation? 

Food retailers seek growth through consolidation for

many reasons. Low inflation rates in the general economy have limited the ability of retailers to raise grocery prices and margins. Over 1987-97, inflationadjusted grocery store sales fell 0.3 percent annually.

Despite rising incomes, consumer expenditures for

food at home continue to fall. Over 1987-97, the share

of disposable income devoted to food at home fell

from 7.4 percent to 6.6 percent. Meanwhile, consumers bought more prepared foods and meals away

from home, indicating a preference for more leisure

time. Of total spending for all food, almost 45 percent went to the foodservice sector in 1997, compared

with 43.9 percent in 1987 and 38.2 percent in 1977.

The growth in foodservice spending would have been

greater had sales of similar prepared foods sold in

foodstores been included.

Discount mass-merchandisers (Wal-Mart, K-mart, and

Target) and warehouse club stores (Costco, Sam’s (a

division of Wal-Mart), and BJ’s) are additional sources

of competition for food retailers. They increased their

retail food sales by almost 75 percent since 1992, to

reach $65 billion in 1997. Over the same period, food

sales by traditional retailers grew 15 percent, to $308.8

billion.

Stable food prices, slowing growth in at-home food

spending, the increasing share of the food dollar spent

in restaurants and other foodservice outlets, and the

growth of food sales by nontraditional retailers have

heightened competition among grocery retailers. As a

result, larger food retailers have opted to merge, citing

cost savings and efficiency gains. 

Supply Chain Management Practices

Food retailers often cite the potential for lower operating, procurement, marketing, and distribution costs as

motivating mergers and acquisitions (Wall Street

10

20

30

40

50

1987 1993 1994 1995 1996 1997 1988 1989 1990 1991 1992 1998

Percent

Grocery store sales of the largest 4, 8, and 20 food retailers, 1987-98

The largest 20 firms captured 48 percent of total grocery store sales in 1998

Top 4

Top 8

Top 20

Source: Census of Wholesale Trade, 1987 and 1997

Figure 6.
12 • Understanding the Dynamics of Produce Markets / AIB-758 Economic Research Service/USDA

Journal, The Packer, company press releases). Taken

together, coordinated actions that attempt to realize

efficiency gains through procurement and distribution

constitute supply chain management practices. 

To lower operating costs, retailers are centralizing

management and control at headquarters. New information technologies—such as companywide satellite

and internet communication systems, and store checkout scanner data—enable centralization of many management activities that previously fell to store-level

managers. Timely and detailed information at headquarters also allows for effective control of operations

over wide geographic areas.

Retailers have also cited greater efficiencies in the procurement of retail products, including produce (Wall

Street Journal, The Packer, and company press

releases). By purchasing more volume from suppliers

and distributors, retailers hope to lower the per-unit

cost of goods by negotiating lower wholesale prices.

In return, retailers are able to offer exclusive procurement agreements such as partnering, long-term agreements, and other strategic alliances that can benefit

suppliers and distributors. Retailers gain a more reliable source of supply, and over time can work to

develop a higher quality and more uniform product.

Retailers have also cited reduced marketing and selling costs as a result of strategic alliances with designated suppliers. Suppliers and distributors are being

asked to help retailers with the design and provision of

category management, instore promotion and point-ofpurchase materials, sales event planning and advertising, and special packaging. Retailers may also provide detailed sales data to suppliers and distributors in

order to better evaluate promotions, seasonal differences, price responses, and other characteristics of

Table 6—Recent mergers and acquisitions in 

grocery retailing

Acquiring and Number Sales of

acquired retailer of stores acquired

acquired stores

$ million

Pacific:

Safeway - Vons, 1997 325 5,400

Yucaipa - Fred Meyer, 1997 101 3,124

Quality Foods Centers-Hughes, 1997 57 1,250

Yucaipa - Smiths Food & Drug, 1997 150 3,000

Yucaipa - Quality Foods Centers, 1997 203 1,200

Albertson’s - Lucky (American 

Stores), 1998 448 8,2951

Midwestern:

Giant Eagle - Riser Foods, 1997 56 4,0002

Lund’s - Byerly’s, 1997 11 65

Albertson’s - Jewel/Osco (American 

Stores), 1998 610 3,1661

Northeastern:

Ahold - Stop & Shop, 1996 189 4,400

Ahold - Giant Food, Inc., 1998 176 4,200

Albertson’s - Acme (American 

Stores), 1998 183 3,3881

Food Lion - Hannaford, 1999 150 3,400

Southeastern:

Food Lion - Kash & Karry 

(Florida), 1997 100 1,000

Jitney Jungle - Delchamps, 1997 118 1,300

Kohlberg & Co. – Schwegmann’s, 1997 26 115

Inter-regional:

Safeway - Dominicks, 1998 112 2,300

Kroger - Yucaipa/Fred Meyer, 1998 800 15,000

Safeway - Randalls, 1999 116 2,500

1 Total sales of American Stores (Lucky, Jewel-Osco, and Acme);

includes sales of 773 drugstores.

2 Includes wholesale sales to 586 independent grocery retailers.

Sources: Company annual reports, Wall Street Journal (various

issues), Supermarket News (various issues), and Food Institute

Weekly Digest (various issues).

Table 7—Twenty largest food retailer sales, 19991

Rank/Retailer Number of U.S. grocery

grocery stores store sales2

$ billion

1. Kroger Co./Fred Meyer 2,200 43.1

2. Albertson’s/American Stores 1,796 34.0

3. Safeway/Vons/Randall’s 1,435 29.0

4. Ahold U.S.A. 1,294 23.4

5. Wal-Mart Supercenters3 721 15.7

6. Winn-Dixie Stores 1,178 13.9

7. Food Lion/Hannaford Bros. 1,359 13.6

8. Publix Super Markets 587 12.1

9. A & P 908 10.5

10. Meijer Inc. 117 8.6

11. H.E. Butt Grocery Co. 257 6.9

12. Supervalu 345 5.1

13. Shaw’s Supermarkets 179 4.2

14. Giant Eagle 200 4.0

15. Hy-Vee 247 3.2

16. Penn Traffic Co. 241 2.8

17. Raley’s 121 2.5

18. Wegmans Food Markets 57 2.4

19. Aldi 475 2.4

20. Grand Union 221 2.3

1 Post-merger estimated sales.

2 Includes supermarket, convenience store, and other grocery store

sales.

3 Sales exclude nongrocery store items.

Sources: Company annual reports, Wall Street Journal (various

issues), Supermarket News (various issues), and Food Institute

Weekly Digest (various issues).
Economic Research Service/USDA Understanding the Dynamics of Produce Markets / AIB-758 • 13

consumer demand. By working closely with their suppliers and distributors, retailers can reduce marketing

costs while improving the effectiveness of store-level

marketing activities.

Consolidating retailers have also cited potential cost

savings through streamlining of product distribution

functions (Wall Street Journal, The Packer, company

press releases). Large retailers typically are self-distributing; they perform wholesaling activities such as

purchasing goods from suppliers, arranging for shipment to distribution warehouses, and replenishing

store-level inventory. Supply chain management practices such as continuous inventory replenishment, the

use of cross-docking facilities, direct store delivery by

suppliers, and selective use of specialty wholesalers

can reduce the need for large distribution centers and

their associated costs. The number of distribution centers can be reduced, while remaining warehouses can

be used more intensively.

Consolidation in Food Wholesaling

Consolidation is also occurring rapidly among merchant food wholesalers—especially among the general-line grocery wholesalers primarily serving foodstores and supermarkets, and the general-line foodservice wholesalers primarily serving restaurants and

institutional customers such as schools and hospitals.

Acquisitions and mergers continue to reshuffle the

ranks of the leading companies.

Supervalu is the largest grocery wholesaler, with 1999

sales of $22 billion and serving some 4,400 stores

from over 34 distribution centers (table 8). In addition

to serving independents and smaller chains, Supervalu

owns and operates 431 corporate stores. In 1992,

Supervalu acquired Wetterau, then the third largest

wholesaler, for $1.1 billion. Supervalu’s other acquisitions include Sweet Life Foods in 1994, 58 retail foodstores in 1998, and, in 1999, Richfood Holdings.

Richfood—upon purchase the sixth largest wholesaler

with sales of $3.2 billion—had been active in acquiring other wholesalers and retailers. It more than doubled its sales from 1994 to 1999 by internal growth

and by acquiring the supermarket chains Farm Fresh,

Inc., and Shoppers Food Warehouse. 

Fleming Cos., the largest wholesaler until 1996,

acquired Scrivner in 1994 for $6 billion. Fleming’s

sales peaked at that time at $19.3 billion, and have

since declined to $15.1 billion. Fleming has 34 distribution centers, and is reducing its buying centers from

57 to 14. It serves over 5,500 grocery stores, and

owns 279 corporate foodstores. 

C & S Wholesale has become the third largest wholesaler by aggressively seeking to serve medium to large

Table 8—Largest U.S. general-line grocery wholesalers, 1999

General-line wholesaler Stores owned Stores served U.S. sales

$ billion

1. Supervalu/Richfood 431 4,400 22.0 

2. Fleming 279 5,542 15.1 

3. C & S Wholesale 0 630 6.1 

4. Wakefern Food Corp. 22 195 5.2 

5. Nash Finch Co. 108 1,832 4.1 

6. Associated Wholesale Grocers 37 903 3.2 

7. Certified Grocers of Calif./United Grocers 0 3,410 3.1 

8. Roundy’s 19 765 2.6 

9. Spartan Stores 44 420 2.6 

10. Smart & Final 216 216 1.7 

11. Grocers Supply Co. 4 1,425 1.7 

12. Alex Lee Inc. 97 NA 1.5 

13. Purity Wholesale Grocers 0 NA 1.4 

14. White Rose Foods 0 325 1.3 

15. Associated Grocers, Inc. 0 300 1.1 

16. Merchants Distributors, Inc. 0 350 1.0 

17. Associated Food Stores 19 na 0.9 

18. Holiday Companies 0 295 0.85 

19. Associated Wholesalers, Inc. 10 450 0.81 

20. Affiliated Foods (NE)/(KS) 0 870 0.75 

Source: Company annual reports.
14 • Understanding the Dynamics of Produce Markets / AIB-758 Economic Research Service/USDA

chains such as Grand Union. Nash Finch has been

actively acquiring both retail stores and several

regional wholesalers: Military Distributors of Virginia

in 1995, Super Food Services and T.J. Morris in 1996,

and United-A.G. Cooperative in 1997. And in 1999,

two large west coast firms—Certified Grocers of

California (sales of $1.8 billion) and United Grocers

(Oregon, $1.2 billion)—merged to form the seventh

largest grocery wholesaler. 

Foodservice Wholesalers

Foodservice wholesalers completed 26 mergers and

acquisitions in 1997. Still, the foodservice distribution

industry remains relatively fragmented, with the top 50

firms accounting for 28.1 percent of total industry

sales in 1997. The top 10 wholesalers accounted for

25.3 percent of the $147 billion in total industry sales

in 1998, while the top 4 firms had a 21-percent share.

Sysco Corporation is by far the largest foodservice

wholesaler, with sales of $16.2 billion in 1998, up

from $14.8 billion in 1997 (table 9). While Sysco distributes a full line of food and nonfood products, fresh

produce has accounted for 6 percent of its sales over

1997-99. Thus, in 1998 alone, fresh produce

accounted for nearly $1 billion worth of Sysco’s sales.

Alliant Foodservice, formerly known as Kraft

Foodservice, acquired five foodservice distributors

during 1997-98. Its sales increased $900 million in

1998 to $6.1 billion. In 1995, the third largest wholesaler (Rykoff-Sexton) merged with the fourth largest

wholesaler (U.S. Foodservice) under the U.S.

Foodservice name. 

Impact on Consumers

Although recent mergers and acquisitions of large

retailers have increased national concentration, the

extent to which they occur in the same geographic

region has been limited. As a result, their impact on

local market competition—cities and towns—has

varied considerably. 

Following merger guidelines and other criteria,

antitrust agencies (either Federal Trade Commission or

Department of Justice) have required divestiture of

stores in overlapping markets that would otherwise

have the effect of raising market concentration or

reducing competition. The FTC consent agreement for

the Albertson’s - American Stores merger required the

divestiture of 104 Albertson’s supermarkets and 40

American Stores supermarkets operating in 57 cities

and towns common to both retailers. The sale of these

stores provided new opportunities for smaller competitors to enter markets that they otherwise would not

have attempted. The divestiture included 31 stores

sold to a food wholesaler in southern California that

intends to transfer ownership to independent operators,

subject to FTC approval.

In contrast, the merger of Kroger and Yucaipa/Fred

Meyer resulted in very few divestitures, due to the minimal number of overlapping local markets involved.

Similar standards and requirements were imposed by

the FTC to preserve levels of competition for those

stores in cities and towns common to both retailers.

Food prices are not likely to rise as a result of the

recent consolidations among retailers, all else equal,

provided that antitrust agencies remain vigilant against

local market power and elevated concentration levels.

In fact, resulting cost efficiencies may ultimately benefit consumers.

In the 1980’s, new store formats were introduced to

address the needs of specific consumer segments.

Table 9—Largest general-line foodservice 

wholesalers, 1998

Firms Sales

$ billion

1. Sysco Corp. 16.2

2. Alliant Foodservice, Inc.

(formerly Kraft Foodservice) 6.1

3. U.S. Foodservice 

(formerly JP Foodservice, Inc.) 5.8

4. PYA/Monarch, Inc. 2.7

5. Gordon Food Service, Inc. 1.8

6. Performance Food Group 1.6

7. Food Services of America 1.1

8. Shamrock Foods Co. 0.8

9. Reinhart Food Service 0.6

10.Ben E. Keith Foods 0.4

11.Maines Paper & Food Service 0.4

12.U Company 0.3

13.Clark Foodservice, Inc. 0.3

14.Quality Foods, Inc. 0.3

15.Metropolitan Provisions 0.3

16.Mutual Distributors, Inc. 0.3

17.Conco Food Service 0.3

18.Henry Lee Co. 0.2

19.Institutional Distributors 0.2

20.Labatt Food Service 0.2

Source: Institutional Distribution, March 1999, and company annual

reports
Economic Research Service/USDA Understanding the Dynamics of Produce Markets / AIB-758 • 15

Warehouse stores served economy-minded shoppers,

while organic and natural foods supermarkets targeted

less price-conscious but health-oriented consumers.

Mass-merchandise retailers expanded their array of

grocery products, which begat the supercenter store—a

supermarket within a larger general merchandise store.

Warehouse club stores also expanded their grocery and

perishable food offerings.

To address the needs of time-pressured shoppers,

retailers introduced salad bars and prepared foods.

The produce department now features year-round varieties, pre-cut produce, and more packaged and branded

products offering higher quality. And with the advent

of the Internet in the mid-1990’s, home shopping has

been introduced by many food retailers and third-party

service providers. 

These developments show food retailers as responsive to changing consumer tastes and preferences,

despite the often higher costs associated with greater

variety, additional services, and new store formats.

These trends and conditions will likely persist, and

motivate grocery retailers to offset the higher costs of

serving more sophisticated consumers by seeking

efficiency gains.

Impact on Produce Suppliers

Supply chain management practices enable consolidating firms to reap cost savings in store operations, procurement of retail goods, marketing activities, and

product distribution. These new approaches are likely

to cause profound changes among produce suppliers,

especially since very large and consolidating retailers

account for a sizeable share of sales by produce

grower-shippers. 

Although the economic effect of the recent mergers on

produce has not yet been determined, some fear that

competition will be eroded. Grower-shippers may face

fewer but larger buyers of their produce as consolidated food retailers reduce the number of buying

offices and combine orders into larger volumes.

Produce suppliers have also cited new marketing and

trade promotion practices, such as slotting allowances

and fees, as evidence that produce buyers may enjoy

an unfair advantage in bargaining with suppliers.

Produce suppliers will be challenged to meet the

needs of food wholesalers and retailers that adopt

supply chain management practices. Many smaller

grower-shippers may form joint ventures, cooperatives, or other alliances to better serve large retailers.

Other produce suppliers may seek niche markets for

a limited range of produce offerings—such as specialty fruits and vegetables or organically grown

products—in order to meet the procurement needs of

all sizes of retailers.

Conclusions

Consumers more than doubled their purchases of fresh

fruits and vegetables between 1987 and 1997,

responding to increased evidence of their importance

to better health and nutrition. Promotion campaigns,

such as USDA’s Food Guide Pyramid and the 5-ADay For Better Health program, improved produce

quality, increased variety, and year-round availability

have also boosted consumption of fresh fruits and vegetables. Consumption of fresh fruits and vegetables

increased by 12.3 percent over 1987-97, to reach 319

pounds per capita. 

Technology has improved efficiencies in storage and

handling of produce. New and more varied products

reflect the growing importance of convenience, as consumers strive to reduce at-home time spent in meal

preparation. Packaged salads and precut fruits and

vegetables are occupying more shelf space as they

continue to gain acceptance by consumers.

Restaurants, fast-food outlets, and institutional foodservice operators are seeking to reduce labor costs by

buying prepared, trimmed, and cut produce that is

ready to use. 

Consumer choice in supermarket produce has

expanded as well. The number of stockkeeping units

(individual produce items) increased by 94 percent

between 1987 and 1997—reflecting consumers’

demand for convenience, changing tastes, and

increasing ethnic diversity.

As a result of these developments, produce markets

and market channels have evolved. Grower-shippers

have increased both exports and imports of produce.

Shipments to merchant wholesalers have declined as

shipments to self-distributing retailers have increased.

Merchant wholesalers are supplying foodservice customers and exporters more, other wholesalers and

retailers less. This decline in retailers’ share of wholesalers’ produce sales reflects, in part, the increasing

importance of large supermarket firms that buy pro-
16 • Understanding the Dynamics of Produce Markets / AIB-758 Economic Research Service/USDA

duce directly from grower-shippers. Although traditional foodstore retailers—including supermarkets,

convenience stores, and specialized foodstores—

remained the most important outlet for retail produce

sales, the importance of mass-merchandise stores’ produce sales, primarily through supercenters and warehouse club stores, is growing.

The rising share of food spending devoted to prepared

food boosted foodservice sales 61.6 percent between

1987 and 1997. As a result, foodservice produce sales

($35.4 billion) eclipsed retail store sales ($34.3 billion) in 1997. Over the decade, the share of produce

sales by retail stores declined—from 64 percent to 48

percent. Meanwhile, foodservice establishments

accounted for 50 percent of the total in 1997, compared with 35 percent in 1987. Total produce sales to

consumers—$70.8 billion in 1997—included $1.1 billion in grower-direct sales.

While consumer demand for produce shifts and grows,

wholesalers and retailers are consolidating and restructuring in response. The potential for new technology to

extend economies of size to increasingly larger firms

has likely contributed to recent large mergers and

acquisitions. These new entities have become increasingly important produce buyers as a result.

Concurrently, new marketing and trade practices—such

as electronic data interchange and allowances for retail

shelf space—have developed between buyers and sellers, and have raised concerns about fair competition

and practices within produce markets. 

To address these fairness concerns, more detailed

information is needed. The number and size distribution of produce grower-shippers would allow for an

assessment of their structure relative to that of wholesalers/retail buyers. Also needed are data to determine

the relative importance of grower-shipper customers,

such as the share of shipments to self-distributing

chains relative to grocery wholesalers. At the firm

level, information about the degree of specialization

could indicate the structure of grower-shippers by

commodity type. 

The growing share of produce bought by foodservice

establishments (since 1987) has impacts on wholesalers and grower-shippers alike. Although the foodservice industry is highly fragmented overall, a few

fast-food, multi-establishment firms are likely to benefit from the same large-volume purchasing as many

grocery food wholesalers and retailers. 

The use and prevalence of various fees, allowances,

and incentives by produce buyers and sellers need to

be documented and assessed. To what extent are they

pro- or anti-competitive? Does their use vary depending on the disparities in size between buyers and sellers, indicating the potential for market power? Also,

do these market and trade practices vary by class of

produce buyer, such as grocery wholesaler or foodservice firm? Given differences in the characteristics of

produce commodities (storability, frequency of harvest, branding, or value-added processing), how do

trade practices vary? It is also important to learn

whether fees, allowances, and incentives bear some

relationship to actual costs incurred—for example, by

a retailer that incurs stocking costs and/or assumes

some sales risk in order to offer a product. Or rather,

do such payments represent additional profits without

any necessary commitment to the supplier?

This report depicts the structural changes that

occurred over 1987-97. The effects of those structural

changes on producers and consumers are the subject

of a subsequent report on marketing and trade practices, which will use firm-level data collected from

produce market participants. These findings about the

impacts of structural change on produce suppliers and

consumers will inform industry participants,

researchers, and policymakers. 

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