As they look ahead to the balance of the year, chain executives are generally upbeat in assessing the prospects for the industry and their own companies.
Barring any unforeseen upheavals in the economy, they told SN, the rest of 1997 should be pretty similar to the early part of the year.
"In a macro sense, it will be business as usual," Robert A. Mariano, president and chief executive officer of Dominick's Finer Foods, Northlake, Ill., said. "I don't see anything on the horizon to cause any sort of hiccup.
"Consumer incomes are good and continuing to grow, job creation is solid, Washington is reasonably tame and rising interest rates will not necessarily be a negative driver to the industry.
"So while we're not ecstatically optimistic, everything we see bodes well for food retailing, and the balance of the year should be reasonably tame -- unless some unexpected external shock comes along to shift the economy. Otherwise, there's nothing on the horizon to create any real problems for most operators and, more importantly, most customers."
Ron Johnson, president and CEO at Farm Fresh, Norfolk, Va., said he also believes the industry outlook "is very bright, especially in terms of what we're all doing in perishables -- particularly as we head into prepared food and food-to-go from the standpoint of convenience, which is where consumer interest is heading. Therefore, it's a most exciting time in business."
Randall Onstead, president and CEO of Randalls Food Markets, Houston, also expressed optimism about the balance of the year -- now that the chain has received an equity infusion of $225 million from Kohlberg, Kravis, Roberts & Co., New York.
"The balance of 1997 looks very exciting for us," Onstead said. "We're getting a good partner in KKR, and they're getting a good partner in us."
With the equity infusion, Onstead said, Randalls is positioned to grow more quickly than it could have otherwise, "and there's nothing to me more exciting than growth because it creates opportunities."
Tim Kullman, senior vice president and chief financial officer at Delchamps, Mobile, Ala., said he expects the economic climate to remain relatively unchanged, "though we see more negative same-store sales for the industry because of significant growth in competition with little inflation."
However, he said he expects Delchamps to be somewhat of an exception to that pressure "because the influx of competition we've experienced in the past two years is easing up, and we expect to see stronger comparable sales because we'll be going up against weaker numbers."
Even if companies are pressured on the sales line, Kullman said, he expects retailers to fight with new weapons, including preferred-customer cards, "as a way of offering their customers something different and exciting.
"But pricing is not likely to become a battleground because ad markdowns these days don't seem to bring back sales, and you don't get back what you put in."
Sounding the most negative note in SN's survey was Herb Dotterer, chief financial officer for Eagle Food Centers, Milan, Ill., who said the balance of 1997 "looks like a pretty tough year. The last couple of months have been softer than we anticipated, though we're not sure why. Nor do we know if this is temporary or something we'll have to learn to live with." He said Eagle is particularly concerned with the growth of Wal-Mart supercenters in rural northern Illinois, with six supercenters already in operation, and six more due before the end of the year. Eagle is also contending with five Super Kmarts and one Super Target, though neither discounter has expressed plans to expand in the area, Dotterer noted.
"The supercenters as a group have shown some good sales increases in February and March at the same time we and several of our supermarket brethren have been struggling," he said.
Supercenters are attracting customers because of price, Dotterer pointed out, "though no supermarkets are trying to compete with them in that area. Instead, we at Eagle are trying to compete on the basis of service, perishables and private label, all of which we have in place to some degree.
"Service is an attitudinal thing -- we're trying to get our employees to understand the importance of the customer. In addition, we're trying to improve our presentation and pricing of perishables and to stress our Lady Lee private-label lines."
Randalls appears to be much less worried about competition, with Onstead noting that he doesn't anticipate much change in the competitive situation.
"I can't see a whole lot of change for the next six months compared with the last six months," he said. "We've been pleased with our business overall, although Texas continues to be a very competitive market. But the Dallas economy tends to be strong, Houston is fairly strong and Austin is booming economically."
He said he doesn't expect rising interest rates to have any near-term impact.
Johnson of Farm Fresh said he is uncertain what impact a rise in interest rates will have, "but it might be too soon to make that evaluation. The recent rise won't curtail the plans we have in place, and I don't think the increase is enough to change anyone's plans in general. "Interest rates affect companies differently, based on their financial ratings, and each company is able to secure funds at different rates. So if interest rates continue to go up, everyone will have to re-evaluate the pace at which they are investing in the business." Financial ratings at Farm Fresh are currently in flux as the company tries to extricate itself from a high-debt position. "We're working with Donaldson, Lufkin & Jenrette on due diligence to evaluate our options, but it's way too early to tell what we'll ultimately do," Johnson told SN.
"There's no doubt about it -- we have a bullet payment due in April 1998, which means that, whatever the final analysis is, it will have to be completed by then, so we are on a timetable."
Johnson said he expects competition to remain "fierce overall." He also said he anticipates a continuation of industry consolidation, "with the Top-10 companies remaining very aggressive in acquisitions and continuing to look at well-managed regional chains that fit their niche."
Consolidation is having an impact on the outlook in southern California, where it is complicating the competitive picture, Jack Brown, chairman, president and CEO of Stater Bros. Markets, Colton, Calif., told SN.
"The outlook here is a little bit difficult to gauge," Brown said, because of the acquisition of Vons Cos., Arcadia, Calif., by Safeway, Pleasanton, Calif., and the purchase of Hughes Family Markets, Los Angeles, by Quality Food Centers, Bellevue, Wash.
"In the past, we generally knew what Vons and Hughes would do, but with new ownerships there may be some changes in direction, so we're all watching closely. But I think business will be relatively unchanged for a while as the two companies devote their attention to consolidating their operations."
Reflecting his overall optimism, however, Brown said Stater Bros. is accelerating its expansion plans, with three new stores scheduled to open this year, compared with only one new unit in the last two years.
"We slowed expansion because we felt we wanted to concentrate on margins -- to hold the line on prices while unemployment was high so we could continue to deliver the kind of prices customers expected. And with our same-store sales up 7.5% in the last two years, we didn't need new stores to maintain our sales momentum."
One of the Stater Bros. stores due to open later this year -- in Laguna Hills, Calif. -- will be its first site in conjunction with The Home Depot, Atlanta, Brown noted. "It's hard to find another major tenant for a shopping center that doesn't sell the same products, but Home Depot is good at what it does and it generates a lot of traffic," Brown said.
