NEW YORK — Product-cost inflation has been manageable so far, retail executives speaking at a conference here said last week.
“The strategy is to pass inflation along, and so far, everyone is being pretty rational,” said Michael Schlotman, senior vice president and chief financial officer, Kroger Co., Cincinnati, at the BMO Capital Markets 2011 Farm to Market conference.
He said it was still too soon to accurately assess how consumers were reacting to higher shelf prices, however, particularly since many increases had just been passed through in the last few months.
“Our goal is to maintain the relative price position we enjoyed before inflation,” Schlotman said.
He reiterated previous projections that the company would see overall inflation at the shelf of about 1% to 2% for the year as part of its same-store-sales growth forecast of 3% to 4%.
Retailers overall seem to be more conscious of protecting their margins lately, Schlotman noted, citing a reduction in the use of “loss leader” products as promotions to drive traffic.
“I would say that kind of activity is dramatically more rational today that it has been over the last three or four years,” he said.
Asked to comment on inflation in meat and poultry, Schlotman said that given the size of the hog and cattle herds, and the high price of corn for chicken feed, “I don't really see anything out there that gives me comfort that the protein complex is going to have any ease in the level of pricing that's out there today.”
Sherry M. Smith, executive vice president and chief financial officer, Supervalu, Minneapolis, said her company also has been rational in passing along price increases.
“We do continue to see price increases from the manufacturers in the low-single- to some double-digit [increases], depending on the commodity,” she said. “The industry has been rational, and passing those on at retail, and we are passing on these increases to retail, with our objective to protect our profits on the items and our gross margin rates, balancing the architecture overall of the pricing in the category.”
She said the company's sales guidance for the current fiscal year includes inflation of about 3%.
“We are seeing in a lot of Center Store categories, [and] it's also in the meat categories and some in the perishables,” she said, noting that it was difficult to predict how long inflation would continue. She also noted that it was difficult to assess the impact on consumers.
“It's a little early yet, since a lot of the more pronounced price increases have just been coming over the last [approximately] 30 days or so,” she said.
Even Bentonville, Ark.-based Wal-Mart conceded in its first-quarter conference call last week that it was passing along price increases.
The company said that inflation “provided a small tailwind” for its comparable-store sales, helping to balance declines in traffic. Comps were down 1.1% for the 13-week quarter (see story Wal-Mart U.S. Comps Down).
“We continue to see inflation in key categories such as produce, meat and dairy,” said Bill Simon, president and chief executive officer, Walmart U.S. “However, we manage through inflation with little impact on our margin, and have seen continued growth in units sold year-over-year.”