More than a year has passed since the conclusion of the labor strife that embroiled Southern California, but the fallout continues.
The strike-lockout involving Safeway, Albertsons and Kroger gripped the region from mid-October 2003 to the end of February 2004. Now that annualized financial results from many companies are being issued, the huge distortions the event had on consumer spending are becoming evident.
Let's take a look at it from the micro and the macro perspectives. First, the small view: Arden Group, Los Angeles, reported that its Gelson's Markets units had sales gains during last year's labor dispute that boosted financial results for the year ended Jan. 1. But the post-strike period produced sharply lower sales and earnings for the fourth quarter.
Specifically, sales for the year rose 3.4%, same-store sales also by 3.4%, and net income by 36.7%. So far, so good, but look at the aftermath: Fourth-quarter net income fell 47.8% on a sales decline of 34%. Same-store sales also fell 34% for the quarter. In issuing its financial, the company declared that the strike's aftermath had a "pervasive impact" as "customers have returned to their previous shopping patterns." However, the company "successfully retained some of the new shoppers that experienced the Gelson's format and service during the labor dispute." No doubt that's the case, but it has been a while since we've seen numbers swing like this. (See Page 8 for more.)
Now the larger view: As is to be expected, Gelson's is not alone. Companies smaller than Gelson's also benefited during the strike. A Food Marketing Institute analysis of supermarket financial performance shows that smaller companies (those with less than $100 million in annual sales) chalked up net incomes of 1.45% of sales as compared to 0.67% for companies above that sales mark. Although these data represent national performance, FMI attributed the income disparity to the California labor action. So if income changes were distilled to the area affected by the strike alone, income differences would be far more pronounced. As more data become available, we'll see a sharper decline in small-scale retailing income as sales return to larger operators.
Incidentally, the same study shows that net income for all supermarkets has dropped to a five-year low. For the most recent period, 2003 to 2004, it stood at 0.88% of sales. Here's how each year looked, working backward in annual increments to the 1999 to 2000 reporting period: 0.95%, 1.36%, 1.25% and 1.18%. (Also Page 8.)
Perhaps the fact that customers in Southern California can be swept from one retailer to another to such effect gives further impetus to Wal-Mart Stores' plan to enter that market with numerous stores. Another reason may be the success it has enjoyed in a similar market: Dallas-Fort Worth.
As you'll see in the news feature referenced on Page 1, Wal-Mart exhibited much patience in conquering that market, just as it no doubt will in edging stores into Southern California. From Wal-Mart's perspective, patience pays. In the Texas market cited, Wal-Mart spent some 15 years building a presence of 89 stores, counting three formats, and has captured a 22% market share.