COVID ‘Speaks Up’ in Annual FMI Survey

A move among food retailers to modernize technology underpinnings and improve operations in 2019—decisions designed to address slow-growing profits and multiformat competition—unexpectedly paid off when the COVID-19 pandemic struck and in-store and online volumes exploded, according to the annual Speaks report, from FMI-The Food Industry Association.

The 71st annual report, which is based on surveys of 37,000 U.S. food stores, itself saw impacts from the coronavirus. Historically released in the spring based on surveys taken early in the calendar year and intended to present a review of the prior year, disruption brought about by the pandemic delayed survey responses until June, providing authors of this year’s report, Steve Markeson and David Orgel, additional detail on the retailer perspectives on 2020, including eye-opening figures on 2020 year-to-date performance and abrupt changes in expectations and perception of threats. This is evident in demand shift of more than 25% to the supermarket channel as the restaurant business collapsed in the early months of the pandemic, and an average e-commerce sales increase of 300% in the first three months of the year.

That provided an abrupt acceleration from 2019, which, according to Speaks, saw average positive same-store sales trends of 3.3%—an increase from 2.5% in 2018—but net income as a percent of profits decrease to an average of 1% from 1.2% in 2018 and at its lowest point since the last U.S. recession in 2010.

“Although 2019 had several positive trends for the industry, there remain challenges,” said Leslie Sarasin, president and CEO if FMI. “More than half of retailers surveyed said international trade and tariffs had negative impacts on their business. Credit/debit card interchange fees and healthcare costs continued to cut into profits, as did higher wages and employee benefits costs.”

Those rising expenses cut into a decade-best gross margin percentage of 30.8% in 2019, Speaks data showed, with payroll and benefits together representing more than 19% of sales.

A third straight year of same-store sales gains were helped along by modest 1.9% food inflation in 2019 and dispersed rather unequally: Retailers with 10 or fewer stores reported average 3.5% comps, while big retailers with more than 100 stores saw 3.4% comps and those in between those extremes (retailers with between 11 and 100 stores) saw average comps grow slower than inflation at 1.8%, the report said.

The pandemic changed more than the trajectory of sales, Speaks noted, but also accompanied big changes in how retailers perceive benefits and threats to their businesses.

For example, in 2020, most food retailers are optimistic about increasing their in-store basket size, same-store sales, online sales and online basket size. A majority (62%) forecast their net profits will increase in 2020, compared to 36% in 2019. However, a similar proportion (66%) cite concerns that supply chain disruptions would negatively impact their businesses.

Perspectives on competition in 2020 represented “a dramatic shift” driven by the pandemic, the report added, with restaurants and non-supermarket stores that sell food seeming less a threat than they did only a few months prior.

“All of a sudden, some competitors didn’t seem nearly as threatening to supermarkets, and it’s fair to say supermarkets probably didn’t have time to look over their shoulders at competition. … Online retailers selling food did continue to present a big challenge for many, but traditional and non-traditional food retailers—and restaurants—were not seen as representing nearly the same levels of challenges as they did in 2019.”