Change Comes to Italy’s Grocery Sector

Seasoned travelers know that Italy is about options: tour the Colosseum or ski in the Alps, take a ride in a gondola or cruise along the Mediterranean coast in a Ferrari.

Similarly, there are an increasing number of options available to the Italian consumer, although the grocery sector still clings to its traditions.

No one knows it better than the corner grocer, who’s proud to tally up exactly how many generations his family’s been in the business at the same location.

In the last few years, Italy’s food and grocery sector has felt pressure from both internal and global forces, and in response has developed, consolidated and changed. The sector continues to be dominated by small family-owned outlets, many just "hanging in there" as the impact of economic change spreads across Italy’s grocery sector.

In the United States, you might call them "delis" or "superettes," these traditional small grocery stores, which represent about 60 percent of the existing selling space in Italy.

Compare that 60 percent to 35 percent of German retailers, 20 percent of French, and 40 percent of Spanish, and you have a picture of how much sales clout the tiny Italian grocery has!

Characteristically, Italians take broad advantage of their many shopping options, as reflected by a very large number of points of sale per person (47 points of sale per 10,000 inhabitants, as opposed to 21 in Spain, 13 in the United Kingdom, and 19 each in Germany and France.) But those options are each rather limited, since the stores they visit are usually small and rather cramped.

As things stand now, there’s a sea of small- to medium-sized stores, with relatively few supermarkets and even fewer discount and hypermarket venues.

Behind the scenes, the picture is one of, well, underdevelopment. A low concentration of distributing companies invoices a substantially smaller amount, compared to the multinationals in the rest of Europe.

In 1996, the leading Italian distributing company invoiced 13,300 billion lire, whereas the leading European powerhouse took in 91,972 billion lire.

To compete with the rest of the European markets, it would be in Italy’s interest to base distribution policy on consumer advantages and interests of national economy. Quixotically, current policy impedes economies of scale, resulting in high prices.

Meanwhile, other countries in Europe demonstrate better efficiency and organization, so that prices are more competitive and retailers get a better return on capital. The result: more resources to finance expansion and a better offering to the consumer.

Given Italy’s protectionist policies, it’s surprising to discover that things are not entirely rosy for the small grocer. But the numbers indicate that times are getting increasingly tough.

Since 1991, over 30 percent of the traditional food and grocery stores have closed. Of those who remain in business, many participate in recently-created voluntary buyer and distribution associations for centralized services in the interests of more efficiency and leveraged services and prices.

But then he considers how his son and daughter-in-law rush home from work every day. It seems like they perpetually grab something out of the freezer for dinner, or purchase a hot meal already prepared to take home from the local deli.

Clearly, Stressed people with little time on their hands are less likely to visit the local corner grocer on a daily basis and banter with the grocer as he hand-slices the prosciutto. In Italy as elsewhere, the rise of the two-income family is driving changes in the marketplace.

These more affluent working families, who reside chiefly in the north of Italy, shop at supermarkets and hypermarkets for a weekly stock-up, visiting the smaller neighborhood stores occasionally when their pantries fall short.

Thus, slowly but inexorably, the mass food distribution system in Italy is modernizing, increasing its volume of sales. Alongside arrives an infusion of European know-how.

Mergers between Italian and foreign corporations (e.g., the merger of Italian Rinascente with French Auchan) bring about changes in business practices and innovative retail protocols. The foreign share of the Italian supermarket system is now estimated at almost 24 percent.

For the next few years, expect sales in Italy to continue to increase in both value and volume as U.S. exports of high-value, prepared and pre-packaged foods are expected to increase $200 to $400 million.

Primarily because of lifestyle changes, expect new mixes of products to appear in the market basket of the typical consumer. The health food trend bears scrutiny, too.

But the most recent trend is toward exotic foods and food products–that is, anything that is non-traditional to Italy. Where once such ethnic specialties as Tex-Mex, Chinese and Indian foods were crammed together on one or two shelves, Italy’s supermarkets now carry whole stands of each.

Discount and private-label brands have grown in importance over the past few years. Private-label pricing varies by product and store. For some products, private labels are as high-priced as premium products, whereas others compete with discount product prices.

In-store promotion is believed to be the best way to communicate with the consumer. In large stores, sales are stimulated by sampling and cooking demonstrations.

In the past few years, large retailers have made mighty efforts to develop store loyalty via direct mailing of booklets, coupons, discounts, gifts and rewards for regular customers.

Italy’s Low on Artichokes? Hmmm...

An unusually cold winter and early spring resulted in a poor supply of artichokes, and those that were available commanded premium prices.

The spiny delicacies were reportedly wholesaling at up to $1.10 per kilogram for the favored Romano variety.

High prices and lack of supply also spell trouble for the Italian canning industry, which normally buys artichokes from growers in the southern region of Apulia.

Italian importers are currently discussing trade possibilities with U.S. exporters. The import duty for vegetables prepared or preserved in vinegar or acetic acid is usually 18 percent, but varies by season.

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The author is director of the Agricultural Trade Office in Milan, Italy. Tel.: (39-02) 290-35260; Fax: (39-02) 659-9641; E-mail: atomilan@fas.usda.gov