Analysts Pessimistic on Supermarket Sales Growth

Consumer Pressures

Heinbockel estimated that consumers’ household incomes could realize negative impacts of $54 billion to $180 billion from the lapsing of the payroll tax holiday and unemployment benefits during 2012. The tax holiday provided consumers with around $126 billion in tax money normally withheld for Social Security benefits in 2011. If Congress fails to extend the credit, 120 million households would feel the impact. Retailers in the meantime would see no new benefit if the tax is extended.

Another 6.5 million people are expected to lose unemployment benefits during the year, which will also challenge consumer spending, Heinbockel said.

The aging U.S. population in the meantime has the country on the brink of a “boom” in the subset of Americans aged 65 and over. That group’s growth will jump from 2% to more than 3% in 2012 a trend that will continue for more than a dozen years, Heinbockel noted.

This group by definition earns less than their juniors, and should have less money to spend as a result of what Heinbockel called an “unsustainable” level of saving.

Implications for Retail Despite the grim conditions, some retailers could benefit, Heinbockel said. In particular, he said opportunities for dollar stores, specialty food stores and warehouse clubs should remain strong. “The dollar store format is the most compelling in consumables retail,” Heinbockel said. According to his figures, the channel has the opportunity to nearly double the number of stores operating today before reaching saturation, with a vehicle that is cheaper to build and operate — and more profitable — than competing sellers of consumable goods. The channel’s share of the consumables market — around 1.9% today — could double to 3.7% by 2020, he said, gaining as a result of comp increases, new stores and a growing base of shoppers. “A large number of households will be becoming older and/or financially constrained, thus dramatically increasing the potential pool of customers seeking smaller, cheaper stores,” he said. “There is little that can prevent this growth, in the aggregate, though investors may worry whether the market will become unduly crowded sooner rather than later.” Heinbockel said specialty retailers like Whole Foods and The Fresh Market as well as warehouse clubs and drug stores also have potential to grow their consumable share; and will do so by taking share away conventional supermarkets, convenience stores and supercenters.