At the end of the first half of the year, we took a look in this space at the economics of food distribution industry, and how industry performance was playing out at that point. Then, it looked as though the first calendar half was going to shape up to be strong. Moreover, predictions made then proposed that the balance of this calendar year would be strong too, since price inflation was expected to continue and consumers were expected to tolerate and pay higher price points for goods.
Now that another quarter has passed, empirical evidence about those suppositions has arrived: The first half had its expected strong finish. Here are some actual results drawn from a report on the industry's first half that appeared in last week's SN. That report looked at the nation's 10 largest chains that publicly report results. At those chains, sales grew, on average, at the rate of 3.6% during the first calendar half, excluding results of the Supervalu-Albertsons union, which would have skewed the average. A few examples: During the period, Kroger had a 6.7% sales increase, Safeway a 4.8% increase and Winn-Dixie a 1.5% increase. Conversely, A&P and Pathmark, soon to be united, each had a 0.2% sales decline.
Another important measure is same-store sales, which chalked up an average gain of 2.1% for the 10 largest companies. These and other metrics show that the industry perked along at rates that are better than those seen for a decade or so.
Now let's turn to the issue of whether or not that kind of performance can be sustained as the year continues on and concludes. As noted, it was earlier predicted that the last half would continue to be strong. Now, though, some trade observers aren't so sure the optimism of three months ago is completely warranted.
That's because the economy now looks more likely to sour than it did a few months ago. That owes largely to the decline in the housing market and the credit crisis. It's true that much of the population won't be immediately affected by these factors, but in a larger sense, many consumers can't shake the feeling that something is amiss in the economy. As a result, there may be some trading down already occurring at just the time commodity prices are increasing. Those factors may make it increasingly difficult to pass price increases to consumers. If that's so, margins will start to be squeezed as the year goes on.
Now let's put such weighty matters aside for a moment to reflect on the 41-year-long career of Barry Scher, vice president of public affairs at Giant Food, Landover, Md. Barry was an effective spokesman, lobbyist and public face of the chain.
As was reported in SN last week, Barry has now retired. He was one of the few remaining top-level supermarket executives who literally started as a grocery bagger and worked his way to the executive suite. He also represented a larger organization after Giant's ownership passed to Ahold. The industry used to be filled with executives who started at the bottom and moved sharply upward. The industry is poorer for having lost most of that heritage.