FMI Reveals 'Striking' Optimism Across Grocery Industry

The future looks bright for retailers, according to the Food Marketing Institute’s 2018 Industry Speaks.

During a webcast presentation, FMI President and CEO Leslie Sarasin said she was “struck by the optimism expressed” in the annual Industry Speaks report, which was taken from a survey of 101 food retailing and wholesaling companies in the U.S. and Canada.

In fact, the measure of factors affecting retailers’ performance has historically been dubbed the “Worry Index” by FMI, but this year there were about as many positive factors as negative, leading the organization to change the name to the “Food Retail Pulse.”

Sarasin said the main drivers of the apparent increase in retailers’ confidence are the following factors: transactions, transaction size and sales per store are up; same-store sales are up and expected to continue rising; online sales and net profits are expected to grow; and tax reform is lifting investments.

“Food retailers are adapting and innovating,” Sarasin said. “They are strengthening programs that take advantage of health and wellness and the food-as-medicine movement.”

Indeed, the participating retailers showed optimism on several fronts, with 51% predicting same-store sales would grow, 31% believing net profits would increase and 25% saying basket sizes would grow.

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Additionally, retailers are making strides in online technology, marketing vehicles, new differentiation strategies, product assortments and using transparency as a shopper engagement tool, Sarasin said.

Local and national economies were viewed as an overall positive factor in profits, but Sarasin pointed out that larger retailers were more likely to view the current state of the economy more negatively than smaller companies. This may be due in part to the fact that strong economies often increase staff turnover rates.

Tax reform that came into play this year gave retailers' budgets a bit of extra wiggle room. About 36% of retailers said they would invest in stores and new real estate; 33% would boost wages; 28% would boost employee training; 16% would raise employee benefits; and 12% would increase employee bonuses.

On the other hand, “concerns coming from some familiar places continue to be the source of cost issues that cut into profits,” Sarasin warned, citing “nagging issues" such as healthcare costs, interchange fees, wage pressures and competition.

Healthcare costs were the largest concern for the retailers surveyed, which Sarasin said was “not surprising” considering that these costs rose by 2.1% in 2017, up from 1.7% the year prior. Additionally, 69% of participants said they anticipate healthcare costs to increase once again this year.

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Retailers handled the pressures of rising healthcare costs in a number of ways. Fifty-one percent said they fully absorbed the costs; 49% boosted employee premiums; 30% looked for other solutions, such as changing healthcare program designs or features; and 15% raised eligibility requirements for benefits.

The report also highlighted the changing landscape of grocery, with 52% of retailers surveyed saying they believe consolidation would continue.

The growing importance of e-commerce is another rapid change that retailers must stay abreast of, but while grocers have made progress in this area, there is still work to be done, Sarasin said.

“It sort of reminds me of my husband’s responses years ago to our son’s backseat inquiries when he would ask if we were there yet,” she said. “The intensity growing with each repeat of the question, my husband would say, ‘No, we’re not where we want to be, but we’re on our way and closer than we were before,’ and that’s kind of the way we are in the industry these days.”

About two-thirds of the retailers involved in online commerce said they saw sales increases of more than 10% in 2017, with average basket rings of $116 (compared to an average ring of $34.61 in-store). For those retailers e-commerce contributed an average of 1.3% of total sales. About 40% of retailers predicted that online sales will grow.

Space allocation in-store is also predicted to evolve, with more room being made for fresh, grab-and-go and online fulfillment, retailers said. When asked which categories would be given more room in the aisles, 89% of retailers planned to make more room for deli/fresh grab-and-go offerings; 71% for online fulfillment; 68% for fresh produce; 67% for deli/fresh self-serve bars and buffets; 64% for private brands; and 63% for deli/fresh made-to-order selection.

“In sports, you can usually tell a team’s projected philosophical direction by the kind of athletes they draft,” Sarasin said. “In retail, decisions regarding space allocation are solid indicators of a company’s anticipated growth direction.”

Retailers are also recognizing that shoppers are looking beyond store offerings when choosing a supermarket and looking at the company’s social policies as well, according to the report.

As such, 65% of surveyed retailers said they had goals in place to reduce food waste; 61% said they were improving hiring diversity, and 60% were working on product transparency.

Additionally, there has been a growing focus on shopper-based programs. Sixty-three percent of retailers said they would allocate funds to loyalty programs over the next two years and 93% said they plan to invest in community donations and outreach. Nutrition programs, consumer wellness programs and cooking classes are also rising in priority.