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A BROADER LOOK AT RETAILING ADMITS TO SOME OPTIMISM

Well, we may as well face it. The financial performance of the nation's 10 largest supermarket retailers with publically held equity or debt was decidedly lackluster during the first half.More than that, a number of financial analysts predicted that there are no workable financial-enhancement solutions within the grasp of supermarket operators. So performance measures may continue to sink as time

Well, we may as well face it. The financial performance of the nation's 10 largest supermarket retailers with publically held equity or debt was decidedly lackluster during the first half.

More than that, a number of financial analysts predicted that there are no workable financial-enhancement solutions within the grasp of supermarket operators. So performance measures may continue to sink as time goes on.

That, at least, is the majority view of the analysis queried in connection with the front-page news feature in this week's issue concerning industry financials. Here's what one analyst said: "This is the worst time ever for supermarkets because the solutions that solved problems in the past are no longer working. Food inflation didn't help, private-label sales are approaching saturation, and health care costs increased rapidly."

Regrettably, it is a little difficult to find much reason for optimism, but is the situation really that dire? Maybe so, maybe not. Let's consider that matter further, but first, let's summarize the findings of the news feature. We'll cite the performance of the largest operator, Kroger Co., as a proxy for retailing. That company's sales rose 4.4%, but operating income dropped 25.5%. (Also, see the update on Page 28 concerning troubles at Kroger's Ralphs Grocery Co. unit.) You'll see more about Kroger and the nine other companies as you read the news feature.

Now let's turn our attention to a few reasons that permit us to entertain a little optimism: PUBLIC VS. PRIVATE: It's an unfortunate truth that publically held companies tend to do less well than many private companies owing to Wall Street's demands for improved performance each quarter. So the focus on the top 10 public companies may distort total-industry reality. Publix Super Markets, for instance, saw sales increase by 10%, to $4.5 billion, in its second quarter, with net income growing by 23.5%, to nearly $200 million. (Publix has no publically traded stock, but issues stock to employees and directors.)

NOT ALL BAD: Among the largest 10 companies, there are a few upside performances. Delhaize America, operator of banners including Food Lion and Hannaford Bros., saw first-half sales rise by 6.6% and operating income go up by nearly 33%. It doesn't seem too long ago that Food Lion was limping badly, so this is stellar. Other winners on the list of 10 are Stater Bros. Markets and Whole Foods Market. See the news feature for more on these financial lifts.

INNOVATION: There's seldom a week that goes by without the mention of innovative entrepreneurship in these pages. This week, you'll see about a couple of former Kohl's executives who are forming a company based on the heritage values of the industry. They have a store, and plan more, that stresses service, local product, bulk candy and the like. See Page 30. The point is not that their success is a certainty, but that the industry continues to attract innovative thinking, which bodes well for the future.

Finally, then, there's little doubt that the industry is under severe challenge, but there's also reason to believe that when the industry is viewed as a macro-organism, there are areas of growth and ample evidence of new thinking being brought to the challenge.

TAGS: Kroger