Ukrop's Super Markets: Grocery Industry Strategy & Pay Analysis

Introduction: The U.S. Grocery Industry and Ukrop's Super Markets

Although Piggly Wiggly was the first self-service grocery store, opening in 1916, the first true supermarket was King Kullen Grocery Company, which opened in New York in 1930 (Food Marketing Institute 2004). Today there are over 69,461 supermarkets competing nationally for a share of the American consumer food dollar. In Central Virginia, Ukrop's Super Markets has achieved a degree of success by focusing on providing busy consumers with a wide range of prepared foods, in-store cafes, full-service pharmacies, and a prohibition on alcohol sales.

This paper provides an overview of Ukrop's Super Markets and the sector within the North American Industry Classification System (NAICS) in which they compete. An analysis of the number of establishments within the sector, the average payroll, and the average number of employees is followed by an assessment of the types of benefits typically provided in this sector. A comparison with other sectors of interest precedes a summary of the research in the conclusion.

Company History and NAICS Classification

Company History and Overview

Ukrop's stores were founded in 1937 by Joe Ukrop and are located throughout Central Virginia. The 26-store grocery chain is best known for its strong emphasis on prepared foods, in-store cafes, full-service pharmacies, small-town hours (the stores close at 10 p.m. and are closed all day on Sundays), and a prohibition on alcohol sales (Fisher 1998). According to Scott Ukrop, the vice president of marketing for the privately held company, "We feel like we've got a strong brand, but the question remains as to how to strengthen it. Not only do we need to get ourselves out to our new markets, but there's enough turnover here [in Richmond] that it's just as important" (Fisher 1998:11).

Ukrop's NAICS Classification

The U.S. Census Bureau (2004) reports that the Standard Industrial Classification (SIC) system has been replaced by the North American Industry Classification System (NAICS); however, several data sets are still available with SIC-based data. Regardless of which approach is used, both SIC and NAICS classify establishments by their primary type of activity (Zeisset & Wallace 1998). In Ukrop's case, the chain would be classified under SIC 514 — Groceries and Related Products, a component of SIC Major Group 51 — Wholesale Trade: Non-Durable Goods (U.S. Department of Labor 2002). The corresponding NAICS classification for this sector is: Grocery Stores 445110 — Supermarkets and Other Grocery (except Convenience) Stores (North American Industry Classification System 2004).

According to the U.S. Census Bureau's 2002 NAICS Definitions, this industry comprises establishments generally known as supermarkets and grocery stores that are primarily engaged in retailing a general line of food, such as canned and frozen foods; fresh fruits and vegetables; and fresh and prepared meats, fish, and poultry. Also included in this industry are delicatessen-type establishments primarily engaged in retailing a general line of food (North American Industry Classification System 2004). The data published under NAICS code 445110 are drawn from the following SIC industry components:

1) 5411 (pt) — Delicatessens, primarily selling meats and a range of grocery items; and 2) 5411 (pt) — Supermarkets and grocery stores (North American Industry Classification System 2004).

Number of Establishments, Payroll, and Employment in the Sector

Number of Establishments in the Sector

Nationally, there were 69,461 establishments in the United States that fell within the 445110 hierarchy (Economic Census: NAICS); however, as of 2002, there were 166,135 grocery stores reported nationally (Supermarket Facts — Industry Overview 2002).

Average Payroll in the Sector

The 1997 Economic Census reports an average annual payroll for this sector of $35,827,805,000 across 69,461 establishments, representing an average payroll per establishment of $515,797. As shown in Table 1 below, the median hourly wage reported in this sector as of 2001 was $13.28, and the mean hourly wage was $16.00 (2001 National Industry-Specific Occupational Employment and Wage Estimates, 2002).

Table 1. National Wage Estimates for NAICS 445110.

Wage Estimates — Median Hourly: $13.28 | Mean Hourly: $16.00 | Mean Annual*: calculated at 2,080 hours | Mean RSE**: measure of survey reliability.

*Annual wages were calculated by multiplying the hourly mean wage by 2,080 hours (a "year-round, full-time" figure). For occupations without a published hourly mean wage, the annual wage was calculated directly from the reported survey data.

**The relative standard error (RSE) is a measure of the reliability of a survey statistic; the smaller the relative standard error, the more precise the estimate.

Number of Employees on Average in the Sector

According to the 1997 Economic Census (NAICS 445110), there were 2,489,721 individuals employed in this sector nationally across 69,461 establishments, equating to an average of approximately 35.84 employees per establishment.

Employee Benefits and the Two-Tiered Wage System

Large "multiple" stores have proliferated across the nation because their economies of scale allow them to stock a wide range of products at reasonable prices. Reflecting this trend on a national level, grocery managers have been under significant pressure to reduce labor costs because of razor-thin profit margins, which has in turn adversely affected employee benefits in this sector.

In her article "Grocery Contract a 2-Tiered Omen," Stacey Hirsch reports that employee benefits in supermarket chains nationally are eroding as more consumers shift their shopping to big-box stores and nonunion grocers such as Walmart. In response, unionized grocers have become increasingly concerned that their market share is slipping and insist that they need labor concessions to remain viable. As a result, a two-tiered employee system has been introduced on both coasts that adversely affects newer employees by providing them with fewer benefits. It may also have a negative effect on long-term employees, as they are forced out by grocery managers looking to achieve further cost savings by hiring lower-tiered employees.

Officials with the United Food and Commercial Workers noted that although they were able to preserve existing benefits for their 29,000 current members, new supermarket workers will face higher co-payments than existing workers and will face longer waiting periods before becoming eligible for the same health care benefits as current workers. "Some labor analysts contend such a system creates division in the ranks as employees work side-by-side with colleagues who earn more or have better health benefits" (Hirsch 2004:3). Union officials pointed out that under the new contract, new workers will eventually receive the same benefits as more tenured workers — they will simply have to wait longer. Allowing the benefits of new workers to eventually "snap back" to correspond with those of longer-tenured employees provides supermarkets with the cost relief they need through turnover, while ultimately rewarding faithful employees who remain.

Conclusion

The research showed that Ukrop's Super Markets has pursued a specific niche in this market by creating a sense of value-added in its merchandise and in the consumers' overall shopping experience. "A lot of what's out there now is fairly pedestrian, and most people consider grocery chains to be parity products, and they're not. But these stores really stand out and do business differently from their competitors" (Fisher 1998:12). The strategy appears to have achieved meaningful inroads in this market segment, with Ukrop's leading the Richmond area with a market share of 23.6% and posting $508.8 million in sales between April 1, 1997 and March 31, 1998, according to Food World magazine (Fisher 1998).

Works Cited

About Ukrop's. (2003). Ukrop's Super Markets. Available: http://www.ukrops.com/about/about_ukrops.asp.

Byers, S. (October 10, 2000). Press Summary of Competition Commission Report on Supermarkets. Department of Trade & Industry. Available: http://www.kamcity.com/Library/articles/ccreport.htm.

Economic Census: NAICS 445110. (1997). U.S. Census Bureau. Available:

Fisher, E. (October 26, 1998). Ukrop's Chain Plans Statewide Campaign. The Washington Times, 11.

Hirsch, Stacey. (April 1, 2004). Grocery contract a 2-tiered omen. BaltimoreSun.com. Available:

North American Industry Classification System. (2004). U.S. Census Bureau. Available:

Supermarket Facts — Industry Overview. (2002). Food Marketing Institute. Available:

2001 National Industry-Specific Occupational Employment and Wage Estimates: SIC 514 — Groceries and Related Products. (2002). U.S. Department of Labor: Bureau of Labor Statistics. Available: http://www.bls.gov/oes/2001/oesi3_514.htm.

Zeisset, Paul T. and Mark E. Wallace. (1998). How NAICS Will Affect Data Users. Available: http://www.census.gov/.