Foreign Investment in U.S. Food‐Retailing Industry

Abstract

Much of the literature on foreign investment focuses on manufacturing industries. A number of plausible theories have been proposed and to some extent tested concerning foreign investment in manufacturing. However, the body of literature has little to say about foreign investment in retailing. In part, this may reflect the relative unimportance of such investments vis-a-vis those in manufacturing. This paper examines the nature and extent of foreign investment in U.S. food retailing, the characteristics of foreign firms that have invested, the economic forces that appear to have influenced foreign investments, and the impact of these investments on U.S. firms and markets. Foreign direct investment in the U.S. foodretailing sector is largely a phenomenon of the past decade. With the exception of the entrance into the U.S. market by the Canadian firm, George Weston, entry by non-U.S. firms did not occur until the 1970s. In fact, the first three firms to enter the U.S. market were primarily food or tobacco manufacturers (George Weston, Cavenham, British-American Tobacco). It was not until 1974 that foreign firms that were primarily food retailers entered the U.S. food-retailing market. Table 1 gives a breakdown of foreign investments in the U.S. food-retailing industry according to the home country of the investor. The table indicates that the overwhelming majority of sales of foreign-owned food-retailing affiliates is accounted for by five European countries-Germany, the United Kingdom, France, Netherlands and Belgium-plus Canada. The percentage of foreign investment accounted for by Canadian investors dropped sharply from 100% in 1971 to 9% in 1980 as nearly all the investments during the 1970s came from European countries. The recent interest of European firms in forign investments in U.S. food retailing stems i part from the characteristics of European food retailing. The supermarket revolution hit major European countries considerably later than in the U.S. For example, whereas the United States had about 125 supermarkets per million population in 1963, European countries had less than 10 per million. By 1972, the figures were 164 for the United States versus 38 to 55 for major European countries (Commission of the European Communities; Euromonitor Review-1973). Between 1961 and 1971, the number of supermarkets in six European countries (Belgium, Italy, Germany, France, Netherlands, U.K.) increased twenty times; from 1971 to 1975 another 50% increase in numbers occurred. The sales of European retailing firms indicate that growth was brisk throughout the 1970s. In 1971, only two of the ten leading European grocery chains had sales over $500 million. By 1980, the sales of all but one of the ten exceeded $2 billion. On average, their 1980 sales were eight times their 1971 sales (Euromonitor Review 1975; Moody's International Manu l). By comparison, the twentieth largest U.S. grocery chain had sales of $561 millio in 1971 and $1.2 billion in 1980. Whereas in 1971, only two of the ten European chains were comparable in sales volume to the top twenty ,U.S. chains, by 1980 all ten had comparable sales volume (Annual Report of the Grocery Industry 1973, 1982). The substantial increase in the size of these firms may have given them the financial and organizational resources to undertake foreign investments. Five of the ten companies invested in the United States during the 1970s. Because of the size of the U.S. market and Bruce Marion is an agricultural economist, Economic Research Service, U.S. Department of Agriculture and a professor of agricultural economics, University of Wisconsin. Howard Nash is a project assistant in the Department of Agricultural Economics, University of Wisconsin. The views expressed in this paper do not necessarily reflect those of the USDA. An NC117 working paper contains many of the supporting tables and documentation for this paper (Marion and Nash).