INDUSTRY REMAINS WARY DESPITE ECONOMIC UPTICK

ELLIOT ZWIEBACH

Caution is still the byword in the executive suites. Despite indications of an upswing in the national economy, retailers and wholesalers remain restrained in discussing the regional economies in which they operate and the prospects for recovery during the second half of 1994.

While most distributors are experiencing improved local economies, the threat posed by new competitors or overstored conditions has left them anticipating less-than-stellar sales results during the balance of the year.

Ron Ocasek, chief financial officer at Riser Foods, Bedford Heights, Ohio, told SN he believes there's been a return of consumer confidence in the Midwest, but he said that condition is based more on consumer perceptions of individual job security than on any major economic surge.

"People have been told for years how bad things have been, but now they're beginning to feel more secure as they realize that maybe they won't be laid off," he explained.

However, with more competition moving into northeast Ohio, including the possibility that Meijer Inc., Grand Rapids, Mich., will open some of its large-format stores there, Ocasek said he expects Riser's second half to be very similar to what it has experienced the past three years: an economy that's "very flat, with no inflation and same-store sales down slightly," he said.

Jeff Gietzen, president and chief operating officer of D&W Food Centers, Grand Rapids, Mich., agreed consumer confidence is up "as people become used to white-collar layoffs and other economic changes."

But while that phenomenon portends well for the second-half sales, the boost to D&W's performance probably won't be dramatic, he said.

"We see business steady and growing as customers continue to feel better about things, but it will be very gradual," he explained.

Robert E. Stauth, chairman and CEO of Fleming Cos., Oklahoma City, said he welcomes the return of inflation but is apprehensive about competitive pressures that may result from the growth of supercenters.

Stauth said he believes the biggest industry concern during the second half will be the debate over President Clinton's health-care proposal. "It could have a major impact on the mind-set and certainly on the very real costs of independent retailers," he said.

Jack Brown, chairman, president and CEO of Stater Bros. Markets, Colton, Calif., is optimistic that the worst of the economic downturn is behind the Inland Empire (San Bernardino-Riverside County area) of southern California.

Stu Rosenthal, president and chief operating officer of Big V Supermarkets, Florida, N.Y., expressed concern about an oversaturation of new stores in central New York and the impact of a series of layoffs by IBM.

Nevertheless, he said, "we think the worst problems are behind us because there aren't that many more people to lay off, and there's some evidence of an uptick in the economy," Rosenthal said.

Jack Coppinger, president of Cub Foods Stores' Atlanta division, said he also expects only a so-so second half despite strong spurts in employment and population growth in Georgia and in Atlanta.

"The outlook for Cub is simply OK because, while population has grown at a rate of 6.85%, square footage [at new stores] is growing at a rate of 11% to 12% a year," he pointed out.

Coppinger said he expects competitive pressures to limit Cub's same-store sales growth to only 1.5% to 2% during the second half, rather than the 5% to 6% he would otherwise anticipate in a less overstored environment.

The executives' complete comments follow:

Jack Brown chairman, president, CEO

Stater Bros. Markets Colton, Calif.

We see the economy in southern California improving gradually. The Inland Empire (the San Bernardino-Riverside County area), where we have the major share of market, hit bottom economically two years ago, following the closing of two military bases that resulted in heavy civilian layoffs. But as those people have found work, the economy has come back.

'And we expect it to improve at a little faster rate than the rest of southern California because the construction industry, which is the area's No. 1 employer, is almost back to full employment as housing starts have picked up. In addition, people who can't find jobs here have found plenty of work in Los Angeles because of all the earthquake damage.

Ultimately, we expect Stater Bros. to do better in the second half.

Ron Ocasek chief financial officer

Riser Foods Bedford Heights, Ohio

The economy in northeast Ohio hasn't turned around into a boom economy, but things have improved because people are feeling better. Consumer confidence is up because there's so much pent-up demand. People have been told for years how bad things have been and they've put off major purchases. But now they're beginning to feel more secure as they realize that maybe they won't be laid off. So the improvement is not because the economy is really so much better, but because that pent-up demand is finally catching up with people. Another thing that's driving consumer confidence is the good results being reported by the auto industry, which helps people think things are brighter.

We believe the second half will not be as good as the first half. We don't see any inflation until very late in the year, and we're seeing competition continuing to move into the region, with a couple of Kmart supercenters still to come. There are already four in our area, though they have not affected us as much as they have other operators because of their locations and because our customers come to us for good values, excellent quality and good service, whereas most traditional supermarkets here compete on the price line.

Overall, we think the second half will be quite similar to the last two-and-a-half or three years -- very flat, with no inflation and same-store sales down slightly. And we see nothing next year that indicates things will get any better, with Meijer looking at several sites in this area.

Stu Rosenthal president, chief operating officer

Big V Supermarkets Florida, N.Y.

We're seeing some pickup in the local economy, though we haven't yet cycled against some recent IBM layoffs, and we're not sure how that will affect us. And IBM is continuing to lay off and transfer people, which affects our business in Dutchess and Kingston counties.

We think the worst problems are behind us because there aren't that many more people to lay off. And there's some evidence of an uptick in the economy, although we still have the IBM issue in a piece of our trade territory.

If the situation remains calm, then we will see some improvement in our business. But if the layoffs continue and the economy is otherwise favorable, the improvement will not be as strong.

We're also facing problems posed by competitive saturation in the area. Much of the new competition is in areas where the IBM layoffs had the greatest impact. In Kingston County, for example, Shop & Save is under construction and Super Kmart plans to build there. And in Dutchess County five new competitors opened in a three- to four-mile radius.

In other areas in which we operate, the outlook is brighter, though we're not sure how one will affect the other. The very best we can hope for, competition notwithstanding, is that the net impact will be favorable, though tempered by the IBM layoffs.

Don D'Amour CEO

Big Y Foods Springfield, Mass.

The economic outlook for our area is more of the same, with no radical improvement. We expect plant closings and layoffs to continue, so things are not rosy by any means.

But we are optimistic about our company because of the stores we've been opening and remodeling. With the economy not growing, the only way to grow market share is to take it from someone else, and that's what we've been doing through our expansion and upgrading programs.

Jack Coppinger president

Cub Foods Atlanta division

The economy over the next couple of years will be excellent both in Georgia overall and in Atlanta. Georgia just experienced the highest growth rate in new jobs in the U.S., with 85,000 new jobs, and that means more money available for supermarkets and more opportunities for sales.

The growth rate of people moving into the state, mostly around the Atlanta area, is 6.85%, which is the biggest growth on the East Coast and the highest growth rate east of the Mississippi, and it is continuing to grow.

When the Olympics comes to an area (as it will to Atlanta in 1996), there's a tendency to add to the employment base in the nonservice level sector -- higher-paying manufacturing and construction jobs -- and that will help the economy.

For Cub, the outlook is simply OK because the increased growth in new-store square footage has been greater than the population growth. While population has grown at a rate of 6.85%, square footage is growing at a rate of 11% to 12% a year, which is still better than a year ago when population grew 2% to 3% and square footage grew 10%.

As a result of competitive growth, everyone's same-store sales have to be negative, except for very good operators. Over the last year we've been able to keep same-store sales slightly ahead, and we think the second half will be better than the first half because, of 27 new stores slated to open since last July, 22 will have already opened.

And with our ability to maintain same-store sales during that development spree, we hope the increases in the second half will be better than the rate of inflation -- something like 1.5% to 2%, rather than the 5% to 6% we usually look for.

Don Gallegos president

King Soopers Denver

The economy in Denver is very good, and we have a lot of new people moving into the area. And obviously, when there are new people, that's good for everybody, including supermarkets.

But we're also seeing a lot of new competitors moving in very rapidly. For example, Kmart is building four supercenters in Denver this year and one in Greeley, which is 60 miles north, where we have two stores. And Wal-Mart is opening a supercenter in Greeley at about the same time as Kmart, in late summer.

So with all that new-store activity, it's hard to project how we will do. Without that competition, I believe we'd have a great second half. But I don't think we will do as well during the second half because of the competitive activity.

Jerry Metcalf president and CEO

Scrivner Oklahoma City

I feel pretty optimistic about the economy. Certainly the first half came through pretty well, although it was spotty because of bad weather, and consumer attitudes continue to be pretty good.

For the second half we expect better increases than in the past couple of years. Hopefully those gains won't be fueled by inflation, though there will be some of that, but most will be real growth. We've built a lot of stores over the last few years, and we believe that will pay off, beginning during the second half of the year.

Robert E. Stauth chairman, president, CEO

Fleming Cos. Oklahoma City

The second half of the year will be affected in large measure by what happens with President Clinton's health care plan. It could have a major impact on the mind-set and certainly on the very real costs of independent retailers all over the country.

Once the health-care proposals come down to one or two, each business can assess the impact of both. And that impact will be dramatic, particularly if the benefits are mandated, because that will take it out of the retailer's control.

Otherwise, the second half will not be much different from the first half. We've seen some inflation come back into the picture, and that's been a pleasant development.

The only change in second-half business could come as a result of more supercenters opening, providing more competition, and that is everyone's No. 1 concern.

Jeff Gietzen president, chief operating officer

D&W Food Centers Grand Rapids, Mich.

Our economy has been growing more stable, and we're seeing some increased optimism. Consumer confidence has been increasing somewhat as people become used to white-collar layoffs and other economic changes. As a result, people seem to have loosened up their shopping habits over the last year or so, but it's been very slow and gradual.

Competition has not changed much, except for the shutdown of Meijer's Source Club, and our business is doing well as customers loosen up. We opened three new stores during the first half of the year, and that's giving us a good boost for the second half. We see business steady and growing as customers continue to feel better about things, but it will be very slow and very gradual.