It's one thing to know the financial challenges facing food retailers. It's another thing to have the full negative impact revealed in the form of an industrywide performance scorecard.
That scorecard is SN's Top 75 roster of North American food retailers and wholesalers, and the version just unveiled for 2010 is painful. It not only charts reversals of fortune for top revenue-generating companies, but also begs the question of where things are headed from here.
First, consider the big picture captured by our Top 75 results, which examine the latest company fiscal years that most closely approximate the 2009 calendar year. Total revenue for the biggest 75 companies fell a fraction to $891.4 billion from $893.08 billion the prior year. The decline was steeper for the top 10 companies on the list, which fell 1.2% to $609 billion. The only subgroup of the list that showed revenue growth was alternate formats, which included discount-oriented retailers such as Wal-Mart Stores and dollar stores.
The latest results are most dramatic when contrasted with the prior version of Top 75 unveiled in January 2009. On that list, sales for the 75 companies had surged 7.6% from the prior year and the 10 largest distributors advanced 7.5%.
What caused the dramatic change from year to year? In the earlier period, companies benefited both from food inflation of about 5% to 6% and traffic growth. In contrast, the most recent period was marked by deflation and ongoing weakness in the economy.
The bigger question is what happens going forward? Deflation is likely to continue as a challenge in the near term, as is heightened competition. That competition will be spurred by price investments from Wal-Mart, according to a recent report by Deborah Weinswig, an analyst at Citigroup. She also said Wal-Mart's moves will in turn lead to more competitive price moves by conventional retailers.
A silver lining may arrive halfway through the year in the form of a return to modest inflation, Andrew Wolf, an analyst with BB&T Capital Markets, recently told SN. Wolf has also said that an improving economy could drive some alternate format retailers to reemphasize discretionary items at the expense of consumables, which may reduce overall pressure on food retailers.
However, at this point food retailers aren't buying into silver linings, especially not until they see sustained job growth. In a 2010 outlook story earlier this month, retailers took a mostly cautious view of this year, noting that recession-based consumer behavior will be slow to change.
Retailers are wise to take that stance because it means they'll be ready for any challenges that come their way. They can always adjust to changing conditions as needed. Until that time, they don't want to confuse hope with reality.
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