The economic recovery is under way — but whether or not supermarkets are on board remains a matter of debate.

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The early signs of a thaw in consumer spending haven't given food retailers much cause for optimism yet, according to projections by retailers in a survey conducted by SN.

More than two-thirds — about 68% — said they think consumer spending will be about the same in 2010 as it was in 2009. Most of the other respondents said they think spending will be marginally better than last year, and only 1.8% expect spending to improve significantly.

The economy also remains retailers' biggest fear in terms of a threat to their business in 2010, with 60.6% selecting reduced spending from high unemployment and weak consumer confidence as a bigger threat than competition from non-traditional operators. Only 28.4% cited non-traditional food retailers as a bigger threat than weak consumer spending, and only 7.3% said deflation was the biggest threat.

Although economists are projecting that the retail industry — hit hard by the economy in 2009 — began to rebound in the fourth quarter and will continue to do so in the year ahead, some also seem to agree with the somewhat pessimistic outlook by supermarket operators that the impact will be minimal for the food-retailing industry.

“One of the things we expected to see was a return in spending for small-ticket discretionary items such as apparel, and this is indeed what has happened,” Frank Badillo, senior economist for Retail Forward, Columbus, Ohio, told SN. “In fact, some of that bounce-back has even been a little stronger in some areas than we expected. However, I don't expect some of the food categories will bounce back that quickly or that strongly compared with some of these other categories, where people have cut back the most, and postponed purchases the most, in discretionary categories such as apparel.”

He said consumers have indicated that they have some pent-up demand for buying things like apparel and some home furnishings, and that they expect to spend money on those in the next six months.

“That will be far less the case in some of these non-discretionary categories, the basic categories like food and staples. The bounce-back that will emerge and play out over the year will be much more modest in some of those categories, particularly as shoppers have learned how to cut back in the last few years, and they want to maintain those frugal shopping habits.”

Overall, however, Badillo said he projects that the improvement in total retail sales that occurred during the holiday season “will be sustained over the first half of the year and then pick up steam in the second half of the year.”

“We don't see a big sustained pickup, but some modest growth persisting in the initial months of the year,” he said, projecting retail growth — excluding auto and gasoline sales — of about 1.5% to 2% in the first half of the year, and then accelerating to 3% to 4% growth in the second half of the year.

“We see job and income growth resume by mid-year, helping to drive some second-half growth,” he said. “Clearly, the key to a continued pickup in confidence will have to be from the job market, and we are seeing some good trends there, not only in unemployment claims, but in new jobs, particularly in service jobs, which tend to be the leading indicator.”

He pointed out that service-job growth turned positive in two of the last three months.

“If we see those job trends sustained, we should see overall job growth by mid-year, and income growth will follow,” he said.

Ongoing Frugality

Humphrey Taylor, chairman of the Harris Poll, a division of Harris Interactive, New York, told SN last week that based on the most recent consumer survey, retailers have good reason to be pessimistic.

“There is absolutely no sign of consumers increasing spending in the short term,” he said, noting that businesses focused on low prices stand the best chance of reaping gains in this environment. “Consumers are definitely focused on cost. Obviously, value is also an important issue, but in this environment, we believe cost will trump value in a lot of cases.”