This annual issue of SN provides a comprehensive update on supermarket categories, but this year the economy and inflation steal the spotlight. The economy's impact is so great that few categories can be discussed without this larger context.

An understanding of what's happening at the category level is crucial to tracking the quickly changing picture of retail market shares.

You'll want to start by reviewing the 52-week performance data (to June 15) and profiles on 50 key categories within Center Store, Fresh Market and Nonfoods (see table, Page 18). The numbers are furnished by Information Resources Inc., which also provided insights for our stories.

The past year saw retailers and consumers being hit on multiple fronts: rising prices for food and fuel, along with a slumping economy marked by housing and job woes.

Food price inflation's effect was unmistakable in categories that saw surging dollar sales but flat or declining unit sales. This included eggs, with dollar sales up 28.7%, and milk, up 14%.

Consumers put the brakes on many important product trends of the past few years. Growth in supermarket prepared foods was slowed by a renewed consumer focus on saving money by purchasing ingredients for cooking, such as flour and mixes. Sales of certain perceived healthy products fell off because they were seen as too pricey. Small packages, once viewed as promoting portion control, no longer appeared to be good values to some shoppers.

The turbulence in categories hurt overall supermarket market shares, while helping supercenters and drug stores. IRI recently released a new Times & Trends report called “Channel Migration 2008” that shows supercenter share of CPG sales rising 1.4% in the 52 weeks that ended June 15, compared with a 0.2% drop for supermarkets. Meanwhile, both supercenters and drug chains posted share gains across a wide range of supermarket departments, ranging from Perishables to General Merchandise, while supermarkets experienced drops in many of those segments, IRI reported.

What explains these share numbers? Sheila McCusker, editor of IRI's Times & Trends report, said consumers are leaning more on supercenters for big shopping occasions and drug stores for convenient fill-in trips. Supermarkets are apparently the loser in this equation. McCusker also predicts that some of these changes could be permanent as habits become ingrained.

That is the ultimate danger for supermarkets, because they risk giving up hard-won gains against alternate formats. Grocers had positioned their stores to take advantage of new trends, but they didn't foresee the economic downturn ruining the party.

Now they are left trying to reprice merchandise to find a good balance between margins and sales — a tricky business, as was evident in the most recent string of retailer financial reports. Few supermarket companies got the formula right, but that effort will be crucial to making it through the next year.