ANNUAL FMI CONVENTION 1999

DAVID ORGEL

CHICAGO -- The supermarket industry is showing steady growth in key areas of financial performance, including the top and bottom lines.

Operators last year posted better results despite little help on the inflation front, partly by active efforts to draw consumers who had left for other shopping outlets, Michael Sansolo, senior vice president of the Food Marketing Institute, Washington, said last week.

Sansolo unveiled these results at Speaks '99, The State of the Food Marketing Industry, which was held during the FMI's Supermarket Industry Convention and Educational Exposition here.

Among major data released on last year's performance:

Food-store sales hit a record high of $443 billion last year.

Median sales rose 4.2%

Profits remained strong, with post-tax net profits rising to 1.22% of sales, the highest rate since 1992.

Same-store sales grew 2.6%

Particularly encouraging news was that same-store sales growth in real dollars was 0.7%. "That's real growth, the highest of the last five years," Sansolo said. "It's not astounding, but growth means that we got people back and they bought more."

Industry growth comes against the backdrop of continued low inflation. Inflation was up 1.5% overall and 1.9% for food, which Sansolo termed "incredibly low levels."

The economy as a whole continued to flourish last year, Sansolo noted. Unemployment remained low, the gross domestic product was up 3.9%, and the stock market advanced further.

Sansolo said industry results prove that stronger companies -- both big and small -- are surviving. The better profits indicate "companies are using technology and finding efficiencies and profitability."

The trend toward expanding stores continued last year, the FMI said. Median store size was 40,483 square feet, up from 39,260 square feet in 1997. Average store size has surged almost 350% since the FMI began collecting data in 1949.

The FMI last week celebrated the 50th anniversary of Speaks, which is the industry's annual report. The Speaks tradition was begun under the Super Market Institute, a forerunner to the FMI.

While celebrating the past 50 years of supermarket operations, Sansolo pointed to the stark differences today from the mid-point in this century. Growth today is very slow compared with the earlier era. In the 1950s, the industry at its peak recorded a 17% real sales increase.

"It was not so long ago that we were the hot growth industry," Sansolo said.

Many of the change drivers in today's market were also key factors in 1949, Sansolo pointed out. But the specifics have changed:

Competition. "This was pretty simple back then because supermarkets were the format and those you competed with looked like you," Sansolo said. "But today we compete with everyone, and everyone sells food. And competition is coming even from the far reaches of cyberspace."

Consumers. Consumer choices were predictable in 1949 compared to today. "Today there's so much diversity and different kinds of households." The result has been massive growth of product offerings by supermarkets.

Employees. A tight labor market has squeezed supermarkets as they attempt to grow their businesses and compete with other formats for employees. "Today we need skilled people, including people who understand technology," he said.

Technology. "Fifty years ago supermarkets were wondering if they should install air conditioners or electronic doors," Sansolo said. "Today with new areas like the Internet and privacy issues, we are seeing the new complexities that exist with technology. "

Government. "Today the federal government is larger than it was in 1949 and we are also dealing more with state and local governments," Sansolo said. "The food-safety issue brings tremendous involvement with government."