Big Themes Developed During 2006, a Successful Year 2006-12-18 (2)

By David Merrefield
Editorial Director

As was mentioned on this page last week, the annual "Year in Review" is the theme of this week's SN, which means, of course, it's time to take a look at what happened in 2006.

And the year didn't disappoint. It was not only eventful, but was successful for the food retailing industry. An annual financial review of food retailing, issued a couple of months ago by the Food Marketing Institute, shows that industry net profits averaged 1.46%, up from 1.16% the previous period. (The review covered portions of 2005 and 2006.) The increase was concentrated on larger companies, but smaller ones improved too. Profit levels at companies with more than $100 million in sales averaged 1.56%, up from 1.24% the previous period, while those with sales less than that mark were at 1.16%, up from 0.9%.

With that good news as a backdrop, take a look at the year's events throughout this week's pages. Meanwhile, let's take a look at three big topics mentioned in this space during the year.

• Big Buy: The year started with the agreement that led to the sale of Albertsons to Supervalu and several investment groups. The integration of much of Albertsons into Supervalu has gone well, so from Supervalu's viewpoint it's all good. But from another viewpoint, a mystery endures: Why couldn't Albertsons have reorganized itself without a sale? No doubt the answer hinges on whether expertise or will existed at Albertsons. A powerful role was played by executive compensation too. (Column of Jan. 30.)

• Convergence: A couple of key industry players discovered this year that the limits of their simple marketing formula had been reached, and it was time to take a new approach. One of those was Wal-Mart Stores, which reached upscale in an effort to uncover a new shopping demographic. The other was Whole Foods, which did the reverse with item-and-price advertising intended to ward off its high-price image (May 15). Neither of these efforts proved to be particularly successful and both companies will probably return to what they do best. Nonetheless, Whole Foods will find increasing competitive pressures as many supermarket chains start to converge on its high-quality offer (Aug. 8 ).

• Regulations: The reflexive position of the food-distribution industry concerning nearly any regulatory effort has been to be against it — at least until quite recently. That's changing because this year featured more than its share of food-safety scares that produced tangible business losses in closely related sectors, such as quick-serve restaurants. The fact that regulatory agencies have been starved for funds in recent years is increasingly viewed as a potential problem, so calls for a more muscular and uniform regulatory approach are stirring (Oct. 9). The related issue of harmonization figures in too. Here's an example: New York City has acted to ban trans fats. Soon other levels of government will follow. The result will be a chaotic patchwork of regulations. Clearly, if regulation of this type is to be taken, it's in the best interest of all industry players that it occurs on the national level so solutions that will work everywhere can be developed.