Food retailers, like almost everyone else, were caught off guard by the severity of last year's downturn. Nevertheless, they outperformed almost every other type of retailer and entered 2009 with a more realistic view of where this economy is headed.
That's the finding of a new SN survey in which 60% of retailers said they expect the recession to last into next year, and 24% anticipate recovery is years away. Those are viewpoints that dismiss some predictions of a turnaround later this year. Moreover, retailers expect the downturn to impact their profitability going forward, with 43% expecting a significant negative impact and 40% a slight one. (Click on "Retailers Worry About Protracted Recession" for the story.)
The survey is part of this week's theme issue on supermarket strategies for operating in a downturn. You'll see stories on that topic in each section of the magazine, and some will be referenced here.
SN's data show that retailers expect reduced customer basket sizes, as well as sales hurdles for perishables and nonfoods.
But there's some good news amid all this gloom. Food retailers are looking at the year with eyes wide open. They are expecting to make difficult choices for their businesses, including how to balance the drive for sales with the imperative for margins. Retailers don't expect to get much in the way of price breaks from vendors, but they do expect to see more promotional dollars. These developments will help supermarkets fare relatively well this year compared to other types of businesses.
It seems food retailers have not tired of price promotions that drive top-line sales and market share. Asked if they expect to conduct more price-focused advertising this year vs. 2008, nearly 80% said they were planning more than last year. Interestingly, nearly half of those — 37.1% of total respondents — said they expect to engage in “a lot more” price-focused advertising than last year.
That compares with the SN survey of a year ago in which only 6.8% said they planned to increase their price-focused advertising significantly during 2008.
The need to protect margins in such an environment is leading some retailers to embrace price optimization (click on "Balancing Act" to read the story). That technology aims to help them pinpoint products that will still be purchased if prices are raised.
This economy is sure to give a continued boost to private label. Retailers said they plan to grow share, with more than 60% saying it will rise 2% or more, a strategy that has the potential to advance both the top and bottom lines. But this forecast is probably too conservative. One SN story (click on "A Perfect Storm") points out that Costco's private-label share may grow from 20% to 25% of sales in a few years, while Wal-Mart's penetration could soar from 16% to 40% in the next three years.
The toughest choices this year will be to embrace initiatives that build transactions and gain customer goodwill but have a questionable impact on profits. These include programs such as low-price generic medications and free antibiotics, which are growing in popularity.
There's no single recession road map for retailers. Each operator will need to act as its own “global positioning system” by figuring out the best route, with a minimum of recalculations along the way.