CHICAGO -- The resilient supermarket industry continues to score well on profit performance despite intense pressure on the sales and inflation fronts.
Operators are driving the bottom line through efficiencies while recognizing the need to plan for future growth through merchandising experiments such as meal programs. But major shifts in the way supermarkets are run may require reassessments of the traditional ways they measure their success.
Those were some key messages last week from the Speaks '98 presentation here at the Food Marketing Institute's Supermarket Industry Convention and Educational Exposition. The annual industry overview pointed to challenges in the arenas of government, technology and merchandising while providing good news on profits.
"Over the past three years, post-tax net profit in our industry has been above the historic 1% level," Michael Sansolo, the FMI senior vice president, told a packed audience of industry executives. "And while in the most recent readings we did for '96-'97 we dropped slightly from where we were the year before, we are still doing a good job on profits despite the pressure on sales."
The industry is managing to overcome these pressures by "using ECR and technology to find new ways of wringing dollars out of our companies."
But constant change "may require us as an industry to find new ways of measuring that change," Sansolo warned.
"One of our most standard measures of success is sales per square foot," he said. "And when you look at this number you see on a real basis it's declining year after year. On a constant basis it's not doing much. Part of the issue is that the store is changing. As we take parts of the store that used to be very productive, high-sell aisles and we convert them to prep areas for some of these important service departments that we need today to meet the needs of today's consumer, well, it changes the economics of the store."
The result, he said, is that "as we move forward we are going to have to find new ways of measuring what happens in our stores. It's an absolute necessity."
Sales growth last year, as over the past five years, has been relatively mild, Sansolo pointed out. Sales growth last year for all food at home was about 3.2%.
"Granted, it's on a base of about $400 billion, so we're talking about some serious money here," he said. "But 3.2% is really nothing to write home about. And when we analyze the number further it gets even trickier. When we look at same-store sales, we see the growth rate was only 2.3%. This again is one of the lowest figures we've had over the last five years. And the last five years have seen some of the lowest growth rates we've had in this industry for a long time."
Inflation was no help to the sales scenario, which has been the case for some time. In 1997 the Consumer Price Index for food at home advanced only 2.5%.
"In a lot of commodity groups people tell us the prices went down," Sansolo said. "And the government bears that out. But here's the rub: Because the prices went up 2.5% and same-store sales went up 2.3%, the differences are real sales, inflation-adjusted sales. And the bottom line on that is that for the fourth time in the last five years, sales on a real basis declined."
Sansolo conceded that the CPI's validity as a measure of inflation has come under question in some sectors. "Even Congress has agreed that the CPI probably overstates price movement and should be adjusted downward, and it is being worked on right now. But what's undeniable about the current situation is that the pressure is on on sales."
Backing that up is a comparison of today's same-store sales and CPI for food at home with the figures from 10 years ago. "We see back in the 1980s that we recorded some major real growth," Sansolo said. "A part of that was that back in the 1980s we were building new stores with new departments and services, we were finding ways to win more money into the industry. And when you do the comparison of the 1990s to the 1980s, you understand why the pressure is so high today, why the trend to consolidation has been picking up. Because it's hard to get any kind of growth unless you do something like that. This is the situation we live with today."
Operators are also burdened by accelerating competition, and "not all the forces that impact our industry come from within our industry," Sansolo said. "We have competition that flows to us from places we see and places we don't see."