There's one little bit of good news we may as well mention right away: if you're reading these words, the New Year has arrived and the world is still functioning. But how will it function -- in the narrower sense of industry events -- as the year goes on? In a bid to plumb the depths of that unknown, SN has polled a number of industry experts, so take a look at the front page if you want to know what they see for this year.
But before we foreclose on the past entirely, let's take one more look at how the world changed for food retailers last year. Indeed, last year was neatly bracketed by two major events that will no doubt prove portentous for this year. Last year was inaugurated by a January speech from Steve Burd, Safeway's chief officer, at the annual Food Marketing Institute Midwinter Executive Conference. One of his points was that the nation's economic model has shifted away from favoring the local-marketing expertise of regional chains toward favoring megachains. That's the case, he maintained, because technology-based expertise such as category management, loyalty cards, neighborhood marketing, and so on, can be executed better by larger players, and in so doing give them and their customers the better end of advantages that used to be the sole domain of regionals. More than a few observers were of the opinion that this thesis is one intended for the ears of the Federal Trade Commission, and for retail consolidators. Be that as it may, the year wasn't too kind to Safeway. It's stock started last year above $60 a share and is at about half that now.
Last year ended with the December debacle of Ahold backing off its proposed buyout of Pathmark Stores. Ahold cited difficulties with obtaining the type of acquiescence it wanted from the FTC to do the deal. FTC did not forbid the deal. Ahold's American-traded equity is about $12 or so off its level of a year ago.
Between those defining events was the closing of Albertson's buyout of American Stores Co. That transaction closed only after the FTC required the divestiture of 145 stores, a number much higher than had been anticipated going in. Albertson's stock shed more than half its value last year.
What's happening? It appears as though the FTC is unimpressed with any localized marketing expertise aggregated retailers may be able to achieve, and is increasingly disenchanted with doing a microanalysis of store locations. Instead, the FTC may be leaning toward doing an analysis of an entire market with a renewed zeal for ensuring robust, marketwide competition in instances where a retailer seeks to enlarge an intramarket stake.
Should that prove to be the case, big retailers will be driven to consider buyouts only in regions where they have little or no current presence. This bodes poorly for retailers who may want to achieve a mass of stores large enough to justify new efficiencies in distribution, logistics, technology, marketing and so on.
And, it may mean that equity values that were propped up by the expectation that such efficiencies would be possible -- or that are up on the expectation of a buyout in the offing -- may slip more.