The national economy is rebounding and the stock market is surging. But many food retailers aren't getting their share of those benefits. What's a supermarket retailer to do? The first thing is to dismiss the belief that a rising tide will lift all boats. There are some boats that will tip even if the economy continues to improve.
ally changing, and is actually rising." Other food retailers have made similar comments in recent weeks, pointing out that the employment situation is still challenging in many markets. So while executives are cheering improved food sales during the holidays, they aren't yet convinced the growth is sustainable.
The industry's problems are reflected in results of food-retailing stocks. A story in this week's SN (Page 16) reports that the SN Composite Index of 33 industry stocks gained 10.47% in 2003, a poor showing compared to the 25.32% rise in the Dow Jones Index and the 26.38% increase in the S&P 500.
Analysts pinned the underperformance on predictable factors, including competition from alternate formats and the California battles with labor unions.
All of this leads to a reprise of the question, what's a supermarket retailer to do? The best answer is old advice that gains new importance in this environment: Retailers need to count on long-range differentiation strategies rather than relying on an improving economy, which can't really be predicted.
Consider retailers that did well in last year's stock market. These include Supervalu (+73%), which carved out a distinct niche for its Save-A-Lot division; Smart & Final (+94%), which fine-tuned its cash-and-carry positioning; and Whole Foods (+27%), the leader in the growing natural foods niche.
Those are all operators of alternative formats. Other non-conventional operators that posted notable share gains include Costco, Target, BJ's Wholesale Club and Wild Oats. But conventional supermarkets are also expressing more interest in following the lessons of differentiation. Delhaize's solid 184% share price gain last year was partially attributed by analysts to the enhancement of Food Lion, including a new prototype.
Safeway's Burd, citing the company's recent consumer surveys, said there is more room to use perimeter departments to set the company apart. Safeway's shares fell 6% last year in the wake of labor issues and some management departures.
The key point is that retailers must take measures into their own hands by creating unique shopping experiences rather than merely depending on economic upswings.
That's not to say a rising tide won't ultimately lift more boats, but it can also flood those that haven't plugged their holes.