As the column below stipulates, the economy is entering a period of pessimism with the likely result to the food-distribution industry that consumers will trade down to less expensive product in a bid to spruce up household balance sheets.
But, as it also points out, the economic blow delivered by penny-pinching consumers may be softened as consumers eschew costly trips to restaurants in favor of eating at home. Also, it might be pointed out, it's likely that trading-down consumers will reach for more high-margin store-brand product, which also stands to mitigate the situation. Also to the good, it seems as though shoppers are slowly returning to making purchases at a variety of trade channels.
So, with that outlook toward the future in mind, it might be instructive to see how the food-distribution industry was situated just prior to the time it entered the current economic era. To do so, let's take a look at the financial study researched and written for this week's issue by SN managing editor Christina Veiders. The analysis is referenced on Page 1 and begins on Page 22. It examines the status of the Top 10 publically traded food retailers, and contains some commentary about how each is positioned to move into the uncertainties of what remains of the last half.
The top line of the situation is that the group of big retailers didn't do too badly in terms of sales during the first half. Indeed, each of them, save for Winn-Dixie Stores, chalked up some increase. Two of them, Ahold and Delhaize America, registered gains of 40% or more, rising on the wings of acquisitions. (There's more about Winn-Dixie on Page 1 too.)
The situation concerning operating income wasn't so great, although half the companies did register gains. One retailer, A&P, saw its income drop by more than 30%.
Here's a quick tour of what the analyzation disclosed about each of the Top 10 players: Kroger: This retailer is considered to be a solid performer, and one that has made skillful use of an acquisition strategy that played out in recent years.
Albertson's: This chain has been an underperformer for several years, but may be turning a new leaf. It has new topside management, which has been able to at least stabilize the situation, and may soon improve it.
Ahold: This international retailer has continued down the acquisition road by augmenting its considerable retail holdings in this country with food-service companies. Financial results are gratifying.
Safeway: The gold standard in food retailing may be this chain. It is the most successful acquirer and is well positioned to continue growing same-store sales, the key to margin enhancement.
Delhaize America: This Belgian company has folded in its long-held Food Lion chain and completed the acquisition of Hannaford Bros. The latter has benefited the entire chain as its more efficient buying practices were migrated everywhere.
Winn-Dixie: The outlook is not favorable.
A&P: Ditto, as a restructuring plan lacks traction.
Pathmark Stores: A solid turnaround story.
Penn Traffic: This hybrid retailer-wholesaler wins some praise for stabilizing its position. Harris Teeter: This supermarket operator, held by a thread manufacturer, may spin off.
