FMI Report: Economy, price wars remain top concerns for supermarkets

Arlington, Va. According to a Tuesday report by the Food Marketing Institute, supermarket sales grew just 0.12% in 2009, and same-store sales decreased 0.82%. When adjusted for inflation, the 2010 Food Retailing Industry Speaks: Annual State of the Industry Review found that the industry lost ground for the second year in a row.

“Shoppers’ overwhelming focus on price and value has led to fierce price competition among food retailers,” said Leslie G. Sarasin, FMI president and CEO. “As a result, supermarkets are focused on trying to distinguish themselves from the competition by fine tuning their private-label strategies, SKU reduction and price differentiation in order to retain their current customers and attract new ones.”

The industry experienced a median loss for same-store sales of 0.82%, down 4.3 percentage points from 2008 when food-at-home inflation stood at more than 5%, compared with virtually flat food prices in 2009. More than half (56.9%) of retailers reported negative same-store sales growth, compared with just 16.9% in 2008. An even higher 61.1% reported growth numbers below the rate of food-at-home inflation. Independent retailers (companies with 1-10 stores) were the most likely to grow sales and profits during the recession with overall sales increasing by 1.39%; and same-store sales increased 1.62%.

“Our research shows that as shoppers altered their grocery shopping behavior, some formats benefited from this change and others have struggled to grow sales, same-store sales and profits,” said Sarasin.

The tough sales climate resulted in a drop in net profit among retailers from 1.43% in 2008, to 1.22% in 2009. According to the report, 12.1% of stores posted net losses.

Retailers also experienced a drop in net income before taxes and extraordinary items at 1.62% of total 2009 sales, down from 1.80% in 2008.

In both 2009 and 2010, retailers reported record-level anxiety about the impact of the local and national economy on their businesses. On a scale of 1 to 10, with 10 being the highest, retailers rated the economy 8.7 out of 10. Retailers pointed to the recession and its far-reaching effects as being the greatest barrier to grow sales and profits.

The level of worry increased for nearly every other issue and for the first time since the question was asked in 2004, three issues exceeded the 8.0 mark -- the economy, competition and healthcare costs -- reflecting their extreme impact on food retail operations.

Competition is the second greatest worry for retailers, scoring an average of 8.1. Retailers name supercenters and other full-service supermarkets in their immediate market areas as the top two formats impacting their business, but the impact of nearly every format increased worry levels from 2009 to 2010. In fact, only 33% of retailers believe store loyalty is at least as strong in 2010 as it was in 2009, a year when store loyalty took a considerable large hit.

The survey found that price differentiation is used by 86.9% of retailers to attract shoppers away from the competition.

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