Retailers Wary, But Confident

SN STAFF

By focusing on strong value propositions and innovation, supermarket executives surveyed by SN said they see plenty of opportunity for growth in 2009 — although their optimism is certainly guarded.

“There is no doubt the aftershocks of a global economic slowdown will continue into 2009,” said Ric Jurgens, chairman, president and chief executive officer, Hy-Vee, West Des Moines, Iowa. “The dichotomy of having just celebrated a record performance year in our company, contrasted with the struggles consumers are facing right now, is not lost on us. But we believe every challenge is an opportunity, and that opportunity right now is to be unrelenting in finding ways to offer shoppers more value for their money.”

The chain, with more than 220 stores in the Midwest, has been focusing on driving that value message by featuring budget-friendly menus matched with products on sale in its weekly ads, for example. It also encourages shoppers to visit with dietitians to help them eat healthy on a budget, he said.

Entering 2009, Jurgens said, the company is putting even more focus on nutrition with the launch this month of the NuVal Nutritional Scoring System, developed by Topco Associates.

Sustainability also is an ongoing focus at Hy-Vee in the new year. When it expands into its eighth state — Wisconsin — this fall, its first store in Madison is planned to be LEED-certified (Leadership in Energy and Environmental Design), and additional LEED stores are planned in the coming months, Jurgens said, noting that the chain is continuing with an “aggressive” capital-expenditure program.

He also said Hy-Vee will increase the number of “green” products on its shelves and seek to source products in more environmentally friendly ways.

“Food safety will also be a focus in 2009 as we continue a review of our policies and procedures in this critical area,” he said. “We are developing new educational and operational programs that reinforce safety measures.”

Neil Golub, CEO of Price Chopper Supermarkets, Schenectady, N.Y., said he is “hoping for the best and expecting the worst” in 2009.

“People are shopping grocery stores and they're not going to restaurants as much, but they're challenged by their incomes, and how that affects us in the next year, we're not quite sure,” he said. “We're going to have to be very careful about what we do and how we plan our strategies. We'll be very aggressive and do more things to give our customers value. That's probably where we're going to focus.”

Jack Brown, chairman and CEO, Stater Bros. Markets, Colton, Calif., said his company has seen increased customer counts in the fourth quarter — transactions increased by 400,000 over the previous quarter — which he attributes to the chain's sharp focus on value.

“We've adjusted our marketing program to ensure new customers see our values and regular customers understand we're working as hard as we can to help them stretch their food dollars,” he said.

Among the recent initiatives at the chain are 10-for-$10 promotions, which Stater Bros. worked with suppliers to develop.

He noted that although consumers seem to be spending slightly more on food now that gas prices have fallen, sales have not returned to year-ago levels.

Asked what other initiatives Stater Bros. has put in place to cope with the weaker economy, Brown cited a hiring freeze and a close examination of spending.

“We've gone back to create budgets from scratch, and we challenge every line item, and we've been able to eliminate some costs or to buy better,” he explained.

Doug Nidiffer, chairman, president and CEO of C&K Markets, Brookings, Ore., said he expects 2009 sales will be good “because of our geography, with most of our 60 stores in small towns in rural communities in Northern California and southern Oregon that are isolated from most metropolitan areas, which essentially isolates them from the worst effects of the economic downturn.”

He said he expects margins will be under pressure this year, however, because of increasing competition from big-box stores “that are hammering away at prices.”

“Retail pricing overall has become more competitive, and the effort to attract more sales in a declining market has forced the entire industry toward a more aggressive price stance. I see this trend continuing for some time. Our challenge is to innovate our way through this with better promotions and better procurement, to preserve company margins and product profitability.”

The initiatives C&K is pursuing are ones it began last year — careful marketing and careful purchasing, Nidiffer said — “because we thought that was a good time to slow down and retrench the company. So we've been allocating strategic capital expenditures for remodels; carefully budgeting for new equipment buys; maintaining and paying down debt; and not taking on any risky projects, like building new [ground-up] stores.”

Asked about changes his stores have made because of the economy, Nidiffer replied, “We find ourselves in a reactive position, and we've tried to provide what people ask for in terms of lower prices and more values by offering more large family packs and a lower-tiered private-label line, which has helped increase private-label sales in the last several months.”

In terms of shopping patterns, the stores gained business when gas prices spiked, but now that gas prices have come down, consumers have shifted back to their older patterns, he explained.

Mark Sprackland, president of Associated Grocers of Maine, based in Gardiner, said the independent retailers who belong to the wholesaling co-op are expecting shoppers to continue to spend less on premium products and to “approach discretionary purchases with more restraint,” although that opens up some fresh opportunities.

“Coupon redemptions will rise as consumers look for more deals, and sales in the baking categories are on the rise as shoppers are buying more flour, shortening, oils and even canning supplies,” he said. “Families may find that cooking from scratch may be a step up in both taste and nutrition.”

He said AG of Maine expects sluggish sales in the first half of 2009 “to give way to stronger sales in the third and fourth quarters as economic conditions improve.”

The company has several initiatives planned for 2009, including working to tie the issue of sustainability to its members' status as locally owned businesses.

“We want to redefine sustainability to include promoting to our customers' consumers how important it is to support local independent grocery stores,” he said.

Like other food retailers, Sprackland said, AG of Maine is focused on creating value for consumers.

“Value and convenience is more important than ever, so retailers must redefine consumer segments and trip values and push toward private label and value brands,” he said. “We want to focus on growing average transaction size with existing members.”

John DeJesus, president and CEO, Foodmaster, Chelsea, Mass., said he was worried about how much more shoppers can trade down. “I viewed 2008 as people hunkering down, excited to eat at home, so there was business to be had, if you wanted to go get it. I'm worried in 2009 whether anybody is going to have any money to spend. It was very evident in 2008 that people were trading down — private label instead of national brands, and instead of roast beef they were buying chicken. Once you go there, how do you get any lower than that? That's the fear.”

He said he's also concerned that cutbacks by manufacturers will limit the deals he can get. “What I lose sleep at night is over the idea of having a level playing field. I want to make sure I get my fair share so I can offer my customers a reason to come, but there are some manufacturers that don't even want to talk to us.”
— Reporting by Elliot Zwiebach, Jon Springer and Mark Hamstra