SUPERMARKETS FACE NEW ECONOMIC PARADIGM

MARK HAMSTRA

CHICAGO -- Supermarket operators must find creative ways to increase consumer interest in shopping for groceries in order to reverse a trend in declining same-store sales.

That was the message of Michael Sansolo, senior vice president, Food Marketing Institute, during the Speaks presentation at FMI's 2002 supermarket conference here last week.

Same-store sales in inflation-adjusted terms fell 1.1% in 2001, according to results from FMI's annual survey of the industry, following a decline of 0.5% in 2000.

The same-store sales decline in 2001 was the biggest since 1991, he said, noting that the trend indicates that supermarkets no longer can count on a sluggish economy to drive consumers into supermarkets.

"We are coming out of a recessionary time, and we don't have to look that far back to see when recession was a positive for our industry, when people switched from eating at restaurants to eating at home," Sansolo said. "Well, in the last two recessions, in the early '90s and then the very short one we've just had, we've seen just the opposite happen. We don't win in recessions any more."

He also presented other indicators of the flat sales environment, including 3.7% median total company sales growth in 2001, down from 4.2% in 2000 and 5.1% in 1999.

However, supermarkets have been able to cope to some degree by eliminating costs from their operations. According to the FMI survey, profits increased to 1.25% of sales in 2001, up from 1.18% a year earlier.

The FMI survey data also revealed that supermarkets posted average earnings before interest, taxes, depreciation and amortization of 4.92% in 2001, up from 4.78% in the preceding year.

"We are finding a way to increase profits, despite flat sales," Sansolo said. "Clearly, we are finding ways to get money to the bottom line."

However, he cautioned that supermarkets should focus on bringing dollars into the cash register rather than squeezing pennies out of those dollars.

"As we all know, and we've been down this road many times, you can't save your way to prosperity," he said. "We've got to find a way to bring excitement back into the stores."

Driving sales may be especially important as new costs creep into the system. For example, Sansolo said FMI has heard from several members that insurance rates are rising for supermarket operators.

However, Ron Pearson, chairman and chief executive, Hy-Vee, West Des Moines, Iowa, who is at the halfway point of his two-year term as chairman of FMI, said he thinks sales trends may be turning the corner.

"In 2001, it was clear that the economy was starting to have an effect," he said. "Consumers were trading down and cutting back on spending, and it was pretty clear as we were heading into Thanksgiving and Christmas, dinners were canceled and catering events were canceled.

"But we have seen very clearly an upturn in confidence. They are back spending more in the stores."

Pearson also said he thinks supermarkets are reaping benefits from the trend toward home-meal replacement by grouping products together to suggest meal solutions for consumers.

"I think that's making a difference," he said.