Healthy Skepticism: Executives Cautiously Optimistic

JERRY GOLUB, who takes over for his cousin Neil Golub as chief executive officer of Price Chopper Supermarkets this week, begins his tenure on a cautious note.

While he sees some signs of economic improvement, Price Chopper’s success will depend on its ability to execute in difficult times as unemployment continues to be a concern and inflation remains difficult to predict. To this end he expects “steady growth in sales and profits” for 2012. 

“We are beginning to see some signs of improvement, though certainly not widespread,” he said. “One concerning factor is the lack of positive movement in unemployment rates. We feel that any real economic improvement will be generated by job creation. While we are seeing encouraging signs in some geographic pockets, we do not expect any significant overall improvements over the coming year.”

His expectations are similar to those of several other food retailing and wholesaling executives from around the country polled by SN, who said they see consumers continuing to trade down to lower-priced offerings amid a general lack of confidence in the economy.

Although Golub said he expects inflation to moderate in 2012, he also acknowledges its unpredictability will force Price Chopper to focus on managing its own costs.

“The one thing we do know about inflation is that it will most likely not be what we project. The volatility of inflation over the past few years has created significant challenges for our industry,” he said. “While we expect inflation to moderate next year, what is within our control is our ability to work, both internally and with our trade partners, to remove unnecessary costs and continue to offer the best possible value to our customers.”

Golub said Price Chopper had several new projects on tap for 2012 including a small urban prototype set to open in Saratoga Springs, N.Y., during the summer. The company is also finalizing the design for what he called a “next generation” supermarket prototype to be located in Latham, N.Y.

JAY CAMPBELL

Associated Grocers of Baton Rouge

J.H. “Jay” Campbell, president and CEO of Associated Grocers of Baton Rouge, La., said he is positive in his outlook for the cooperative’s member stores, although he predicted that consumers would remain under considerable pressure in 2012.

“I do expect that it is going to remain quite competitive at the retail level, and the consumer is going to remain discriminating,” he told SN. “The consumer is going to look to stretch their home budgets to the best of their abilities.”

In the company’s core operating area in Louisiana, as well as in Mississippi and east Texas, the company’s stores serve a large number of low-income consumers who rely on government assistance, he said, “so we are very cognizant of the need to offer value with each offering we have out there.”

He said it is not only low-income consumers who are feeling the economic pinch right now, however.

“I think right now there is a significant concern by most Americans that there has been a loss of wealth, whether it is in their home values or their stock portfolio,” he said. “They still don’t feel as wealthy as they were, and that impacts the way they spend. From a big-picture economic standpoint, that impacts the acquisition of hard goods — whether it is refrigerators or air conditioners or automobiles — there is a hesitation to spend on those things until people feel a little more comfortable about their wealth.”

He said that consumers are continuing to trade down in their grocery purchases, making it difficult to drive top-line sales growth, although he noted that AG’s members had positive same-store volume in 2011 when measured in units.

“We can plow back dollars into favored pricing for our retailers so they can be competitive every day, so they can have the proper shelf price presence for the customers, and I think it is paying off great dividends for our members,” Campbell explained.

Some AG members are growing, he noted, through new or expanded stores, although he said the uncertainty around what he described as an anti-business political environment under President Obama gives many retailers pause about investing in growth.

“The entrepreneurs are not going to take a risk unless they understand what the rules of the game are going to be, and in many cases the rules have changed dramatically,” he said.

JACK BROWN

Stater Bros.

Jack Brown, chairman and CEO of Stater Bros. Markets, San Bernardino, Calif., said he believes his company “will see some improvements in sales and profits in 2012, though it will be a tough year in Southern California.

“It’s an election year, and I don’t believe any of the numbers we’re seeing about the economy or unemployment. We’re told things are improving, but I don’t see it. We’re working harder than ever to get the volume we get, and though we’re told unemployment levels in our area have fallen from 15% to 13%, we don’t see large numbers of people going back to work, nor is the construction industry in our area growing significantly — and customers are telling us they’re still hurting as much as ever.

“As a result we’re focused on holding back price increases — even though costs are up — in an effort to share the pain with our family of customers, and we know they appreciate us for that.”

Brown said the impact of inflation is not clear. “The government says inflation is at 3%, but the impact on us is only 3% if you can pass it along. In Southern California, competition keeps retails down and doesn’t allow us to pass it all through, so we’re not seeing much benefit from inflation beyond 1%.”

As for initiatives Stater is planning, Brown said, “Our goal is to continue to deliver value to customers while keeping costs down wherever we can. For example, we’ve installed doors on freezer cases at all 167 stores, which has resulted in a significant drop in power costs, and we plan to move ahead and do the same thing in 2012 on all refrigerated cases.”

NEIL BERUBE

Associated Food Stores

Neil Berube, president and CEO of Associated Food Stores, Salt Lake City, said the recession was slow getting to the Intermountain region, “so we’re recovering later than other parts of the country. For our region in 2012, we expect the environment to be flat, with little economic improvement.

“At the national level there’s a higher level of confidence by consumers, though I doubt we will see much resurgence there in 2012. In fact, though industry sales might be flat to slightly improved, we don’t expect a significant difference from what we saw in 2011.”

Regarding inflation, he said, “Inflation has always been good to the grocery industry, and we will probably see more of it, though not at the pace we saw last year. We anticipate inflation in the 2% to 3% range compared with 5% to 6% in 2011.”

Berube said he expects to see an increase in profits at Associated “because of better management of gross margins and shrink and an increased emphasis on proper expense management. So we expect profits to be up — not as a result of sales but because we’ll do a better job of managing the business.

“We think there are additional gross margins to be squeezed from our corporate retail stores, and we’ve made the necessary and prudent adjustments to staffing levels there, so while we expect to see slight sales increases, we believe gross margin enhancements and better management of the expense lines will help profitability.”

GABE GABRIEL

Haggen Food & Drug

According to C.J. “Gabe” Gabriel, president and CEO of Haggen Food & Drug, Bellingham, Wash., “At best the economy is going to see a very slow recovery in the Pacific Northwest. One thing that’s hurting us as an up-market retailer is the unemployment rate. Till that rate is stabilized and starts improving, I will remain skeptical about the economy.”

Regarding inflation, he said, “We’re starting to see the cost of goods cool down a bit, and if that continues, it will be good for us because the more we’re able to offer good values to customers, the more they will come in.”

He said Haggen is “pretty optimistic” about the business because of several initiatives it is putting into place “that are unrelated to the unemployment rate or the economy but that are primarily related to how guests perceive us.

“One initiative is the rebranding we started in Bellevue, Wash., in November. The results at that store have been quite strong, exceeding our forecasts by a fairly significant amount, so as we rebrand the rest of our stores it will help sales.”

He said the company was in the midst at year-end of going store-by-store to determine what order rebranding will be carried out, “but once we begin early in 2012, it will be a very aggressive rollout to all 28 of our stores over the next three years.”

A second initiative is the introduction of Haggen Original — “a high-quality, well-priced private-label line whose quality must be at the national-brand level or above,” Gabriel noted. “We believe the packaging and package design are already above the national-brand standard, and we plan to go broad and deep across the chain.”

The company currently offers 400 Haggen Original items, with up to 1,700 expected to be available within 18 months, Gabriel said. The items are being offered at all stores as they become available, even before the rebranding starts, he added.

Another initiative involves new technology systems for merchandising and workforce management, both of which Gabriel said are near completion, “along with a revitalization of our pharmacies. We’ve already done the analytics and picked the system we want to install, but we haven’t yet begun to roll it out to the stores.”

SCOTT KARNS

Karns Foods

Scott Karns, president of Karns Foods, Mechanicsville, Pa., said he hopes to continue the momentum at his seven-store chain resulting from a more aggressive promotional posture it struck in 2011. But growing profitable sales will require a healthier economy with reduced unemployment, he said.

“We’re feeling pretty confident for 2012. Our past six months we’ve seen nice sales growth, just slightly ahead of food inflation. And we feel good about that going forward.”

A program of increasing the number of items featured in its weekly circular, beginning last May, was key to the sales lift. “Customers want to buy items that are on sale,” he said.

Inflation made for a challenging environment in 2011, with volatile jumps in commodities as well as steady increases in Center Store items, Karns said. He said he was hoping for less volatility and more moderate increases in 2012, but he wasn’t making predictions.

“I certainly hope some of the commodity prices come down a little bit and that we don’t see the jumps we saw in 2011. We also hope to see some Center Store item inflation come down a little bit,” Karns said. “I’m still not convinced that proteins like beef, pork and chicken won’t continue to go up quite a bit in 2011.”

ROB ROWE

Rowe’s IGA

Rob Rowe, president of Rowe’s IGA Supermarkets, Jacksonville, Fla., said he was optimistic that his two stores would continue to grow in 2012, despite a slow economic recovery and the ongoing challenge of food inflation.

“I’m positive for 2012,” Rowe told SN. “It was a good 2011 for us and we hope it continues to 2012, and even gets better. Housing and some other things are still a little rocky here in Florida, but for supermarkets, it’s been pretty good.”

Inflation continues to present a challenge to profitability, Rowe admitted, but said he was concerned primarily with sales.

“As far as inflation goes, right now we’re not passing much through. We’re only passing on what we absolutely have to,” he said. “That means our margins are lower, but I don’t really concern myself with margins, I look at dollars. You can’t take a percentage to the bank. If you’re making a nickel or a dime, you’re making a nickel or a dime. And I think getting that is better than marking it up too high and not getting anything.”

Rowe said he was looking forward to completing a renovation at one of his stores early this year while pursuing locations for additional stores.

DALE RILEY

Fresh Seasons Market

Dale Riley, the owner of Fresh Seasons Market in Victoria and Minnetonka, Minn., said he is cautiously optimistic in his outlook for 2012, although he said his forecast for the year ahead is filled with uncertainty.

“I think it is going to be a very unpredictable year,” he told SN.

He said his company, which operates two upscale, community-oriented stores, recorded “positive trends” in 2011 and had a “very strong” Thanksgiving shopping season, including the time leading up to Thanksgiving, although since then sales have softened.

“My best guess is that there was so much hype of about Black Friday, and people were taking advantage of the deals, and now they don’t have any money left,” he said.

Although his stores are somewhat isolated from competition in their markets, food-retailing competition in the region is increasing, he said, particularly among non-traditional operators. Trader Joe’s, Costco Wholesale, Whole Foods Market and Target Corp. are all expanding their presence in the market, he explained.

Riley, a former executive with Minneapolis retailers Lund/Byerly’s and Rainbow Foods who launched his own business in 2005, said conventional-store growth in the area has been minimal.

Asked about the potential impact of ongoing inflation in 2012, Riley said he is unsure what the new year will bring in terms of food costs.

“We keep hearing food inflation is going to rise, and if it does, and people don’t see their own economic situation improving, I just see it becoming tougher and tougher to compete for the food dollar,” he said. “People say, ‘Well people still have to eat,’ but they don’t have to eat as much or as well as they have before.”

He cited an example of customers trading down to an unfrosted cereal and instead sweetening it themselves to shave some money off their food bill, or trading down to store brands from national brands.

“If you are saving $1 or $2 [on an item], multiply that by the number of transactions you have every week, and it is a significant impact to your top-line sales,” Riley said.

He said he is hoping 2012 brings some good fortune.

“We are hoping Minnesota strikes oil just like North Dakota, and it’s right under our stores,” he quipped.moderate next year, what is within our control is our ability to work, both internally and with our trade partners, to remove unnecessary costs and continue to offer the best possible value to our customers.”

Golub said Price Chopper had several new projects on tap for 2012 including a small urban prototype set to open in Saratoga Springs, N.Y., during the summer. The company is also finalizing the design for what he called a “next generation” supermarket prototype to be located in Latham, N.Y.