Most wholesalers expect their financial fortunes to rise during the balance of the year, even as some anticipate a slowdown in the economy.
An economic slowdown could be beneficial because it could mean more incremental sales at the supermarket as consumers eat in more and out less, wholesale executives told SN.
The most optimism came from Mike Wright, chairman, president and chief executive officer of Supervalu, Minneapolis, who told SN he expects his company to enjoy record sales and profits during the second half of this year.
According to Wright, Supervalu sales should approach $23 billion for the fiscal year that ends next February -- an increase of 13.3% from the $20.3 billion reported last February -- with profits also at record levels.
"There's still a lot of competition out there coming from every possible direction," Wright said, "but our company is performing well, and our customers are performing well, and we are the beneficiary of their good performance."
He also said he expects ongoing benefits from Supervalu's 1999 acquisition of Richfood Holdings and an expanded supply agreement with Kmart Corp., Troy, Mich.
Wright said he is a little less optimistic about the second-half outlook for the food industry in general. "The better companies will continue to put good numbers up and grow and succeed, while the marginal, smaller companies without mass buying power or a strong base to compete with the industry giants will have tougher times," he said.
Accordingly, he said, he anticipates additional industry consolidation that could allow some marginal players to be able to compete more effectively. "It's hard to duplicate what a Wal-Mart, Kroger or Albertson's does, and those marginal companies will be looking for partners to help them compete," Wright said.
Ron Marshall, president and CEO of Nash Finch Co., Minneapolis, said he is "cautiously optimistic" in assessing his company's second-half prospects. "Sales will be cycling on the bubble [following] an artificial ramp-up in spending late last year related to Y2K compliance, and we will be cycling against that in the second half," he explained.
"Excluding that ramp-up, we should see sales up 1.5% to 2.5% among our customer base."
Marshall also said he anticipates additional consolidation among wholesalers and their retail customers.
Jim Meyer, president and CEO of Spartan Stores, Grand Rapids, Mich., said he expects the second half will be the same as the last year and a half, "which means pretty flat [results] for the wholesale business."
According to Jay Cambell, president and CEO at Associated Grocers, Baton Rouge, La., the economy in Louisiana is already less vibrant than in most other parts of the country, "and that's good news for supermarket operators because it forces people out of restaurants and back into the grocery store."
He said the resulting increase in store traffic can be incremental, affecting groceries for as little as two additional meals or less eaten at home each week, "but that's a big deal," Campbell pointed out, "because it represents a mix of product from the grocery store moving back into the home for meal preparation."
Gerald Lestina, president and CEO of Roundy's, Pewaukee, Wis., said a surge in business late last year related to Y2K resulted in softness during the first quarter of this year. "But we're gaining momentum now, and we anticipate the second half will be ahead by about 5%," he said.
At Associated Food Stores, Salt Lake City, Rich Parkinson, president and CEO, also pointed to sales increases of 6% to 6.5% that were sparked by Y2K spending in last year's second half, which he said should result in flat sales for the second half of this year.
However, Associated will try to boost sales by increasing its promotional activity, tying much of that activity to its 60th anniversary celebration. "We're also looking to promote our private-label line, Western Family, more aggressively -- not only to increase sales but also to differentiate ourselves from existing competition and an influx of Wal-Mart supercenters," Parkinson said.
For the industry in general, Parkinson said, he anticipates margin expansions as major chains "try to cover debt from previous acquisitions."
Both Parkinson and Marshall also talked about the challenges of finding adequate labor in a healthy economy. "The ongoing competition for labor will be even more dramatic in the second half than we've seen to date because of the entry of alternative formats, [which] will be going after the same talent," Parkinson said.
Marshall said Nash Finch is experiencing some labor shortages in the Upper Midwest, due in part to a bidding up of wage rates for certain skilled disciplines like information systems.
But he said the company is also coping with new challenges at the distribution-center level, as more Hispanics move into the Midwest, "which has required [warehouse personnel] to become bilingual at some locations," Marshall said.
Wright said the economy "has a tremendous amount of momentum" going into the second half but he anticipates the beginnings of a slowdown later in the year. "Eventually, the business cycle will come into play and we'll see a shrinking of the high growth rates we've seen, especially as the government keeps ratcheting up interest rates slowly," Wright said.
Parkinson also said he expects the economy to flatten out in the second half. "Efforts by Alan Greenspan to throttle back inflation will slow the economy down somewhat," he said, "and while it will still be a good environment, I don't think we'll see the robust growth we've seen in the last little while.
"However, food purchases will probably not be affected as much as other discretionary products."
The wholesalers' complete comments follow:
Rich Parkinson president, CEO Associated Food Stores Salt Lake City
Our sales in the second half will probably be comparable to or a little flatter than last year. Y2K sparked sales last year, and we were up 6% to 6.5% on comps, mostly from Y2K buying. Now same-store sales are flat.
To combat that, we will do more promotions this year, much of it tied in with our 60th anniversary. We're also looking to promote our private-label line, Western Family, more aggressively than in the past. That's needful not only to increase sales but also to differentiate ourselves from existing competition and an influx of at least six Wal-mart supercenters in our area.
For the industry, we think the second half will see the continued assimilation of alternative formats, which will continue to threaten the market share we have, though not to the degree it has in the past. We think the industry will continue to see aggressive marketing, and margins will be enhanced or improved as major chains try to cover their debt from previous acquisitions.
One of the biggest industry challenges will be the ongoing competition for labor. That will be even more dramatic in the second half than we've seen to date because of the entry of alternative formats, which means we will be going after the same talent as Wal-Mart when it moves in.
The economy will flatten out in the second half. Efforts by Alan Greenspan to throttle back inflation will slow the economy down somewhat, and while it will still be a good environment, I don't think we'll see the robust growth we've seen in the last little while. However, food purchases will probably not be affected as much as other discretionary products.
Mike Wright chairman, president, CEO Supervalu Minneapolis
We expect the second half to be another record period for Supervalu in terms of sales and profits. Supervalu should approach $23 billion for the fiscal year that will end next February, with record profits.
Our company is performing well, and our customers are performing well, and we are the beneficiary of their good performance. There's still a lot of competition out there coming from every possible direction, but we're enjoying good performance nevertheless. Supervalu is also benefitting from our Richfood acquisition, which was a terrific strategic move and immediatly accretive and which gave us a great customer base and great stores in a growing area of the United States, plus we're picking up significant business from Kmart.
Speaking as a retailer, the retail-food industry remains a very competitive business, but good companies, which include Supervalu, are able to meet competition and continue to grow and prosper, and we feel good about that. And we've been growing the wholesale saide of the business as well -- besides adding business from Richfood and Kmart, we've added many major accounts in the last year, so we're bullish on distribution as well as retail.
For the industry, the second half will be a mixed bag. The better companies will continue to put good numbers up and grow and succeed, while the marginal, smaller companies without mass buying power and a strong base of business to compete with the industry giants will have tougher times. So there needs to be more consolidation in the industry so that some of the marginal players can compete more effectively, because it's hard to duplicate what a Wal-Mart, Kroger or Albertson's does, and those marginal companies will be looking for partners to help them compete.
The economy has a tremendous amount of momentum, but I expect that eventually the business cycle will come into play and we'll see a shrinking of the high growth rates we've seen, especially as the government keeps ratcheting up interest rates slowly. So I think it will slow down somewhat during the second half.
Ron Marshall president, CEO Nash Finch Co. Minneapolis
Looking ahead to the second half, I'm cautiously optimistic for Nash Finch. Sales will be cycling on the bubble because we had an artificial ramp-up in spending late in the fourth quarter of 1999 related to Y2K compliance, so we will be cycling against that in the second half of this year. Excluding that ramp-up, we should see sales up 1.5% to 2.5% among our customer base.
Overall, the industry will face the same issues it's faced the last eight to 10 years -- consolidation among wholesalers and among our customer base.
I see no pulling back of the economy, though energy prices are a concern to everyone right now. We're seeing labor shortages in the Upper Midwest, particularly in Cedar Rapids, Minneapolis and Omaha. In large part, in certain skilled disciplines like information systems, there's been a bidding up of wage rates. And at the distribution-center level, there's been a change in the labor force, with an influx of Hispanic workers, which has required supervisors to become bilingual at some locations.
Gerald Lestina president, CEO Roundy's Pewaukee, Wis.
The first quarter of this year was soft for Roundy's because there seemed to be some panic buying at year's end, prior to Y2K, so our January sales were soft and that hurt the first quarter. But we're gaining momentum now, and we anticipate the second half will be ahead by about 5%.
For the industry, the second half of the year will be pretty much a repeat of 1999, with sales fairly static.
The strong economy is not news. It's been strong the last two years, and it's been impacting the mix more than anything. Center-store sales have been softer than normal because people are eating out more, though that has helped the peripheral departments, particularly the deli, which is benefitting from this economy.
Jim Meyer president, CEO Spartan Stores Grand Rapids, Mich.
We see the second half being the same as the last year and a half, which means pretty flat for the wholesale business.
Jay Cambell president, CEO Associated Grocers Baton Rouge, La.
We anticipate steady growth in our business during the second half. The fact the economy in Louisiana is not as vibrant as it is in other parts of the country is good news for supermarket operators because it forces people out of restaurants and back into the grocery store. As the economy slows down, we're seeing an increase in the number of meals eaten at home. That can be incremental -- as little as one meal or one-and-a-half meals a week -- but that's a big deal because it represents a mix of product from the grocery store moving back into the home for meal preparation.
In the second half the overall industry will still face a lot of challenges because of the diverse universe of consumers, with everyone trying to target who he defines as his customer. What makes it such a challenge is the fact the customer is a moving target. Competition in the industry continues to change, and it's not wise to go after the fickle consumer who's looking for what's trendy but to pursue the real core consumer who's in the supermarket day-in-and-day-out.
