There's caution on Wall Street but good news on Main Street about the early summer performance of food retailers.
Supermarket operators around the country told SN they are experiencing strong revenue growth and are expecting more of the same for the rest of the summer.
Among the companies that said they have experienced strong summer sales are K-VA-T Food Stores, Abingdon, Va.; Stater Bros. Markets, Colton, Calif.; and Hy-Vee Food Stores, Des Moines, Iowa.
Nevertheless, analysts sounded more cautious notes, citing a still sluggish economy and mixed performances by the industry's largest companies.
Jack Murphy, equity analyst, Credit Suisse First Boston, New York, said, "The overall environment hasn't been that great. Consumers are being a bit more cautious. We saw that in Safeway's numbers," when the company reported earlier this month that second-quarter, same-store sales rose only 1.1%, compared to Safeway's earlier expectation of a 2.5% to 3% increase.
However, Murphy noted that consumers do not seem to be trading down, replacing steak with hamburger or fresh shrimp with fish sticks. "We're seeing much more of an overall pullback as opposed to shifting down," he told SN. "Consumers are buying the same product mix. It's just that none of the categories are growing as fast. That's a theme you're hearing throughout retail."
Andrew Wolf, senior analyst, BB&T Capital Markets, Richmond, Va., said, "You're seeing a mixed bag. Kroger had a slight acceleration, and Safeway had a disappointing quarter, but nobody's hitting the cover off the ball.
"Meanwhile, Wal-Mart continues to apply lots of pressure. That's a big catalyst for change in this industry.
"The industry stalwarts -- Kroger, Albertson's, Safeway -- have the wherewithal to ride out the bad economy and increasing competitive pressure. The smaller companies that can't withstand the current economic storm will be the net losers."
And yet, the retailers SN spoke with in the last two weeks, midsize regionals for the most part, said they are feeling little fallout from Wall Street's doldrums and rising unemployment rates.
K-VA-T experienced a 4% sales increase over the July Fourth holiday, according to Steve Smith, president and chief executive officer of the 85-store Food City chain, which operates in Kentucky, Virginia and Tennessee. That falls right within the chain's projection of increasing summer sales by 3% to 5% over last year's totals, despite operating one less store, Smith said.
"We expect the increase because we've worked very hard to drive sales. But nothing happens till you sell something, so we're focusing on executing well and having the right items at the right time at the right price," he explained.
That approach worked over the Fourth of July, Smith said, attributing the 4% increase to several factors: The fact the holiday encompassed two shopping weekends, a competitive holiday ad and good execution at store level.
"With the holiday falling on a Wednesday, people shopped the weekend before the Fourth through the week of the Fourth -- and through the weekend that followed -- because a lot of folks planned barbecues and picnics on one weekend or the other, instead of concentrating on just two or three days as in the past," Smith explained.
"That's a good thing because we were able to spread the volume out and make it a longer, holiday-selling opportunity."
In 2000, the holiday fell on a Tuesday, "so a lot of people took Monday off for a four-day weekend. We didn't see that this year, and as a result July 3 was a softer day for us than last year, though the days in front of the holiday and behind it were good ones," Smith said.
K-VA-T ran a competitive ad, he added, "and we had good execution of our selling plan, with good sell-through on produce and the rest of the merchandise. That was a result of picking the right items and selling them at the right price and merchandising them to sell, so execution was important."
Basically K-VA-T did not make any changes from its Independence Day program a year ago, although it continued to expand its general merchandise selection and the space it allocated to holiday merchandising, Smith said.
"With so many of our stores in the Smoky Mountains area, there's a lot of outdoor activity, so we're trying to broaden our general merchandise offerings with sidewalk sales outside the stores and larger floor areas for displays inside for items like coolers and picnic accessories.
"In addition, as our stores have gotten larger over the past three years, we've given the summer category more breadth and signage because we have the room to do that kind of merchandising," Smith added.
The company is also continuing to expand the private-label line it offers under the Food Club label that it buys from Topco, and over the last few years, K-VA-T has doubled the number of stockkeeping units in several corporate brand items, including such summer fare as water and soft drinks, Smith noted.
The company has been a Topco member for almost five years, he said, "but a light went on two-and-a-half years ago that we needed to do more private-label merchandising because it gives us a good quality product and a better price range."
K-VA-T's goal is to get corporate brands up to 20% of sales, Smith said, "and we're well on our way, moving up to a 16.5% penetration, compared with just 4% to 5% four years ago."
K-VA-T runs six corporate brand sales a year, including at least two during the summer. "We try to hit the No. 1 items within the category at each sale, such as mustard, pickles and water during the summer, then we build an ad around those key items," Smith said.
The chain's first summer corporate brands promotion ran in late May, with the second scheduled for the end of July, Smith said.
He added that he is not aware of any weakness in the economy that's having an adverse impact of sales. "What is affecting spending habits is the fact gas and energy costs are taking a bigger chunk out of consumers' discretionary income," he said.
With K-VA-T operating 21 fuel outlets, "the increase in gasoline prices has been good for us because as branded gas prices went up over $1.50 a gallon, people became less brand loyal," he said.
Danny O'Malia, president and CEO of O'Malia Food Markets, Carmel, Ind., said July Fourth sales were up about 2% over last year. Some holiday buying had been projected for the days after the Wednesday holiday, but those sales were disappointing because of rainy weather, he said. "Although we had anticipated some drop-off, we didn't anticipate as much as we had," he said.
The factors affecting the sales increase were good weather going into the holiday, plus the closing of nine Cub Foods stores in the Indianapolis area. "Although those stores didn't close until July 5 and merchandise was available at 70% to 80% off, their inventory was way down, particularly on perishables, and that might have helped us," O'Malia told SN.
O'Malia said he expects overall summer sales to be about the same as they were last year.
O'Malia has agreed to sell his eight stores to Marsh Supermarkets, Indianapolis. That deal is pending, with completion expected later this summer, so the company isn't doing anything significantly different than last summer, O'Malia said. "With the sale pending, we're doing all we can to keep things the same," he explained.
One change from last summer, which took effect last January, is the way O'Malia's is advertising, he said. The company reduced the size of its weekly ad in the Indianapolis Star and began sending out a monthly mailer to its 23,000 best customers, who generally account for 90% of volume, O'Malia said.
In addition, the company is e-mailing ads to 2,000 customers weekly, getting an estimated 1,500 hits a week on its Web site and making a weekly ad sheet available at the stores, O'Malia said.
The chain is contemplating some small adjustments later this summer in response to competition, O'Malia said. "With Cub closing stores near some of our locations, we want to see if we pick up some of that business," he said. "If we don't, we may do some micromarketing in those neighborhoods."
In addition, Target plans to open new supercenters late in the summer at locations that compete with O'Malia stores, "so we may do some advertising on local cable TV or special mailings for those locations," O'Malia said.
Jack Brown, chairman, president and CEO of Stater Bros. Markets, Colton, Calif., said July Fourth sales were up about 4% due to strong promotional pricing, an expansion of Stater's general merchandise assortment and the maturing of 43 stores acquired from Albertson's two years ago.
He said he is optimistic about sales for the balance of the summer. Stater operates 155 stores in southern California.
Besides hot ad prices on soda, beer and other summer perennials, Stater's Independence Day ads featured whole seedless watermelons for $1.99 each -- "a tremendous value," Brown noted -- while competitors had the same item at 39 cents and 59 cents a pound. Stater also did very well featuring barbecue ribs in its ads, he said.
Stater built its July Fourth ad around the theme, "Vacation in your backyard -- save money, save time."
Brown pointed out, "With the jump in gas prices and other fuel costs, we thought staying home was a good idea."
That theme coincided with Stater's expansion of general merchandise, "and we promoted a lot of items we never advertised before," he said, including electric fans, nylon camping chairs, boogie boards, plastic table-and-chairs sets, 23-gallon multiuse tubs (useful as barbecue "pits" or for storing cold drinks) and tiki torches, in addition to items the company has featured before, including Coleman jugs and coolers, inflatable balls and rafts, barbecue utensils, and portable containers for beer and soda.
The ability to offer so many nonfood items was linked to the maturing of the stores Stater acquired a couple of years ago, Brown said. "It took about a year to get them remodeled and then to get the staffs trained, so in this, the second year, folks are looking to us for more general merchandise items than we carried in the past."
Stater also offered drawings for tickets to Raging Waters, a southern California theme park, and NASCAR racing events. For the balance of the summer it's participating in "Summer Fun," a Pepsi-sponsored event that's offering customers a chance to win free trucks.
"We'll continue on the same path through the rest of the summer, with an emphasis on general merchandise and a lot of hot prices on soft summer fruits," Brown said. "And we'll keep promoting barbecue-related items for use at home because we believe people are interested in saving money and having fun at home."
Ron Pearson, chairman, president and CEO of Hy-Vee Food Stores, Des Moines, Iowa, said holiday sales were up between 7% and 9%.
"We had two good weeks of sales because the Fourth fell on a Wednesday, so sales were more dramatic than they would be when you have one long weekend," he said. "With the holiday falling in the middle of the week, it made both weeks good, though the days before July Fourth were better than the days after."
Pearson said Hy-Vee's sales have been increasing at a rate of about 7% throughout the year, "and on the Fourth we were a little better than that, though not quite into double digits."
Hy-Vee didn't make any changes from previous years in its merchandising or marketing, he said. "As always, we ran a lot of good ads on picnic and party items, including ground beef, brats [bratwurst], beer and ice -- just the traditional July Fourth ads and promotions."
During the rest of the summer Hy-Vee will continue to promote similar items tied to barbecues and outdoor eating "as we always do in the summer." He also said he expects to run two or three promotions that tie in with Kraft and other manufacturers for meats and specialty items.
"We focus a lot of attention on summer promotions because, in the seven states in which we operate, the summer selling season ends Oct. 1, when the hot weather usually ends -- unlike parts of the South, where it stays warmer longer," Pearson said.
He said he expects comparable-store sales to continue to run around 3.5% or slightly higher through the summer, as they have throughout the year so far.
He said he hasn't seen any significant signs that consumers are making adjustments for a weaker economy. "We monitor that very closely," Pearson said, "and we've been a little surprised at what we've seen, because we know the economy is off and confidence levels are down, yet we're not seeing any of that reflected in consumer buying habits.
"Spending on food is the most flexible part of disposable income people have, and they can make changes if they have to. And although there's been some movement away from restaurants that will benefit supermarkets, we haven't seen any direct jump this summer. But nobody is trading down, which is what we've seen in past economic downturns, and we haven't seen any shifts in buying habits," Pearson said.
Jim Demme, president and CEO of Bruno's, Birmingham, Ala., said sales were mixed for the holiday. "With the holiday falling in the middle of the week, our sales in the early part of the week, before the Fourth, were less than we expected, but they were much better after the holiday.
"We think the reason was, our beach stores [along the Gulf of Mexico] didn't have as good a week as we anticipated because people stayed home rather than taking an extended weekend. But many people took off the holiday and the rest of the week and spent more time partying that second weekend."
Demme said overall sales were "a little better than anticipated for the two weeks," though he declined to put a number on it.
Basically, Bruno's did not do anything different than it has done in previous years, Demme said. However, because of the timing of the holiday, "we followed up the Fourth with a four-day weekend sale in our Food World group, the conventional stores that account for most of our volume, and that was successful," he said.
Demme said he is optimistic that sales the rest of the summer will be good "because things are trending that way. The weather has been mixed, but it's been a lot better than it was last year when we had extended periods of dry, hot weather. It isn't supposed to be that bad this summer, so we think sales will be as good as or better than expectations. "In addition, we have good momentum [as the chain's turnaround continues] and a good marketing plan."
Demme said he has not seen any trading down by consumers. "Interest rates tend to drive that, and with rates coming down, that's been helpful to the situation," he said.