CHICAGO -- Pervasive consumer anxiety constrained supermarket sales growth in 2002 at a time when competition has never been fiercer, Food Marketing Institute told attendees at the annual FMI Show here last week.
In order to succeed, FMI leaders called on supermarket operators to differentiate themselves from the competition and excel within a specific niche. Tim Hammonds, president and chief executive officer, FMI, also called on the industry to rethink its current pricing-and-promotion system.
According to data compiled through FMI's Speaks survey of retailers and its Trends poll of shoppers, food retailers were barely able to eke out sales gains in 2002 as consumers became more frugal amid fears about the economy, the war in Iraq and terrorism.
"When you think about the news that consumers are exposed to week after week it starts to erode their confidence," said Michael Sansolo, senior vice president, FMI.
He described a confluence of events that have created a "perfect storm" for supermarket operators -- intensified competition combined with consumer anxiety and the weak economy.
"What's never happened before is that all these things are occurring at the same time," he said, noting that the situation reflects how "connected" the industry is to world events.
"Whatever happens to the country at large happens to us," he said.
Supermarkets who responded to the Speaks survey reported average same-store sales in 2002 of a meager 0.23%. After subtracting a 1.3% increase for food costs, the figure fell to about a 1% decline, the worst result in the history of FMI's data collection.
The median same-store sales gain -- the number exceeded by 50% of respondents -- was 2.4%, or 1.1% after adjusting for food inflation. That reversed the 1.1% decline in real median same-store sales gains in the year-ago period.
Nearly a third -- 29.9% -- of respondents saw a decline in same-store sales in 2002, and 20.8% saw gains of less than 2.5%. Another 29.9% saw gains of 2.5% to 4.99%, and 19.4% of respondents reported same-store sales gains of more than 5%.
Supermarket companies reported average total sales growth of 1.6% in 2002 and median sales growth of 3.4%. Post-tax net profits were 1.3%.
The survey reinforced one phenomenon that supermarkets had been reporting throughout last year -- consumers are trading down to lower-priced products.
"Our competitive spirit is so strong that it held prices down, but we had an ally in that," Sansolo said. "Consumers found ways to trade down. Consumers found ways to make their market basket, which was the same size, ring up less in 2003."
He described a shift in the consumer mindset toward seeking more value from food retailers.
"The shopper is changing," he said. "The shopper is pushing for value."
In a ranking of the factors consumers consider when choosing a primary supermarket, the Trends survey found that in the last two years, low prices increased in importance by 7 percentage points -- from 77% to 84%. The importance to consumers of having private label or store brands also increased, from 27% to 31%.
Price is also the No. 1 reason consumers switch to a format other than their traditional supermarket to shop for food.
Sansolo identified a convenient location, courteous, friendly employees, high-quality fruits and vegetables and having items on sale or money-saving items as "key drivers" for consumers when they are selecting their food-shopping destination.
Offering better quality products also increased in importance for consumers as a reason to switch stores, indicating that they indeed are seeking good values, and not simply low prices.
Alternative channels showed no signs of losing consumer favor. The proportion of shoppers who regularly shopped at discount stores for groceries increased slightly, to 29% in 2003 from 28% in 2002. In 2000, the figure was 26%. Warehouse stores were regular grocery destinations for 17% of consumers in 2003, about the same as in 2002 and up from 14% in 2000.
"We all look more and more alike to consumers," Sansolo said.
Hammonds said that to succeed, supermarkets need to "be famous" for providing something that customers need, and meet that need better than competitors.
"Pick something that will stand out in the market, and focus, focus, focus," he said.
Supermarket operators also need to be a little less humble, he said, and trumpet the work they do on behalf of their communities.
He also called on the industry to rethink the system of vendor allowances in which supermarkets obtain rebates from suppliers for meeting sales criteria and for providing certain services.
