ANALYST: INVESTORS IGNORE SUPERMARKETS

JENNIFER L. BALJKO

NEW YORK -- Despite outperforming the stock market this year, the supermarket sector is overlooked as an investment option, Gary Giblen, managing director at Smith Barney, New York, told investors and analysts at the New York Society of Securities Analysts Retail Industry conference here.

Many investors shy away from supermarkets because they have preconceived notions that the industry expands slowly and has been squeezed by food inflation, supercenters and home shopping services, Giblen said.

"There are a lot of silly misunderstandings out there about the supermarket group," he explained. "It's interesting to note that when you look at the year-to-date stock performance of the group and the individual names, [the group] significantly outperforms the market. The group average is up 27.5% through early December. The S&P 500 [the Standard & Poor's Index] was up 20.5%. That tells you there is something going on more than that it's a boring, defensive group. Because here you are in a big bull market, and the stocks have outperformed."

Key factors behind the supermarket sector's higher revenues and margins include the following, Giblen said:

New merchandising categories, such as home-meal replacement programs and full-service departments, that have lured new consumers and sharpened supermarkets' ability to compete with other types of retailers.

Growth from acquisitions of independent operators. Big chains still have a lot of room to expand because of the market's bounty of independents.

Increasing private-label sales. Improving private-label penetration boosts margins and forges better deals from national-brand manufacturers and vendors seeking shelf space.