Transforming the Corporate Landscape of US Food Retailing: Market Power, Financial Re‐engineering and Regulation

Abstract

A dramatic wave of consolidation swept through the US food retail industry during the late 1990s, transforming its corporate geography. This paper considers the causes of that consolidation wave, placing emphasis on the regulatory history of the industry, the holding back of consolidation by financial re‐engineering during the 1980s, and the subsequent release, following a critical period of deleveraging during the early 1990s, of the scale‐related pricing power/operating margin advantages of the major multiregional operators. It also considers the response of the leading firms in the industry to the rapid incursion of an unusually powerful new market entrant – Wal‐Mart, the world’s largest retailer – and assesses the link between Wal‐Mart’s entry into the industry and the consolidation wave. Finally, the paper debates the extent to which a shift in regulatory policy and practice by the Federal Trade Commission at the very end of the decade may have altered the pattern and scale of consolidation in the industry, and the consequences of regulatory tightening for the future landscape of US food retail.