2008 supermarket net profits dip, sales up: F.M.I.

by Bryan Salvage
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ARLINGTON, VA. — In 2008, U.S. supermarket industry net profits decreased to 1.43% from 1.82% as companies competed more intensely for fewer consumer dollars in a recessionary economy, according to the 2009 Food Retailing Industry Speaks: Annual State of the Industry Review released by the Food Marketing Institute. Increases in the cost of goods, health insurance and credit card interchange fees contributed to this decline, among other expenses.

Independent retailers (companies with 1-10 stores) posted the highest net profits and identical-store sales increases at 1.90% and 5.11%, respectively.

Sales increased 5.2% and identical-store sales rose 4.5%. However, these gains were offset by the 5.7% food-at-home inflation rate last year, Sales, adjusted for inflation, declined 0.5% and identical-store sales 1.2%.

"The industry showed its resilience in the most challenging economy in modern history," said Leslie G. Sarasin, F.M.I. president and chief executive officer. "Retailers aggressively discounted products and increased their lines of private-label brands to help American families lower their grocery bills. At the same time, they continued to control costs by improving efficiency and productivity, a hallmark of this industry."

Retailers relayed increasing concern over the impact of numerous issues — especially the economy, which is having a pervasive impact on the industry. The impact of issues, measured on a 1-to-10 scale with 10 being the highest, increased for nearly every issue, comparing the rating in 2008 with the expected impact in 2009-2010. For the first time in the six years F.M.I. has tracked concern levels, retailers rated the impact of two — competition and the economy — at 8.0 or more. The economy received the highest rating by a large margin at 8.7.

Supermarkets are responding strongly to consumer demand for lower-cost foods. According to research, there was a major increase in companies emphasizing low prices as a competitive strategy — from 69.9% in 2008 to 78.4% this year. They now rate the success of this strategy at 7.3, up from 6.9, on 1-to-10 scale. Retailers are also featuring private-label brands more prominently. Private-label brand products now make up 9.7% of the items carried in a typical store — up from 8.1% in 2008 and 7.5% in 2007. More than nine in 10 retailers (93.3%) plan to increase the number of these products in the coming year.

Private-label brand sales account for 15% of supermarket sales — up from 14% in 2008 and 11.5% in 2007. Private-label brand sales increased 10.8% in the most recent fiscal year — more than twice the industry’s overall growth rate and well above the 2.5 growth rate for manufacturer brands. Nine in 10 retailers are promoting private-label brands as a core competitive strategy and report a success rate of 7.1.

Nearly all (97.3%) supermarkets emphasize perishables to gain a competitive advantage. And 68.4% are focusing on consumer wellness and family health as a competitive strategy, rating its effectiveness at 5.6. These figures decreased from 84.9% and 6.5, respectively.

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