Viewpoints

Sales Report Is Upbeat, But Caution Still Rules

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Allow yourself to exhale after looking at the latest annual sales rankings for the biggest food distributors. The results should ease pressure, if only momentarily.

Revenues for the Top 75 North American food retailers and wholesalers bounced back in 2010 from a dismal performance the year before (see the 2011 rankings here). The group's cumulative sales advanced 7.7% last year vs. a decline of 0.2% the prior year, when deflation and economic weakness eroded sales. Note that the rankings focus on the latest company fiscal years that most closely approximate the 2010 calendar year.

The results represent good news for the overall industry, but looking at the big picture only gets us so far because there were lots of winners and losers.

The biggest decliners in the rankings were companies facing considerable challenges, including A&P, which entered Chapter 11 bankruptcy late last year, and Winn-Dixie Stores and Raley's Supermarkets, both of which encountered extreme competition in their markets.

Conversely, United Natural Foods jumped a few places in the rankings as its natural, organic and specialty food products gained share in the conventional supermarket channel. The company has been adding business from a number of operators.

Other gainers in the rankings included Weis Markets, which benefited from new distribution efficiencies and marketing efforts, and Tops Friendly Markets, which acquired a large number of Penn Traffic locations.

The top 10 players on the list experienced a lower cumulative sales lift — 2.2% — compared with the full group's gain, impacted by revenue reductions at Supervalu and Delhaize America.

Interestingly, the overall sales share of the top 10 companies edged up slightly to 69% of the combined total of 75 operators, vs. 68% a year ago. If predictions come true about a coming acceleration in retail consolidation, it will be interesting to see how that impacts the share of the top 10 players.

Overall good news on the sales front won't change a predominantly cautious outlook from food retailers. They recognize the economy is improving and food retailers are holding up fairly well, but there are plenty of warning signs that temper enthusiasm, including the following:

• Intense competition from a widening range of retailers selling food.

• A still lackluster employment picture despite signs of pickup.

• Weakness in consumer confidence in the economy.

• Concerns that retailers won't be able to pass along likely higher food inflation costs to customers.

• Financial analyst downgrades of certain supermarket stocks whose prices exceeded targets.

So not to spoil the party, but the industry's sales gains don't mean retailers are out of the woods. Still, most operators are in a better place than a year ago. That piece of positive news will have to hold us for now.

Contributors

David Orgel

David Orgel is executive director, content & user engagement, of Supermarket News (SN) and its website, SupermarketNews.com. Orgel delivers his opinions on industry trends through a bi-weekly...

Jon Springer

Jon Springer has been writing about food, food retailers and food retailing for more than 10 years, and is in his second tour of duty with Supermarket News. His prior experience includes covering the...
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