SAME-STORE SALES DROP OFF IN '02

Liza Casabona

COLUMBUS, Ohio -- In the face of increasing pricing pressures, the food channel's same-store sales growth took a nosedive in 2002, falling to 0.4% from an average of 2% for the prior three-year period, according to the Food Channel Industry Outlook study, recently released by Retail Forward here.

"That's an alarming statistic to see dip that low. For supermarket retailers to be able to turn that around will be a challenge," said Sandy Skrovan, vice president, Retail Forward, and author of the report.

Compounding declining same-store sales has been a contraction of the store base for many chains, Skrovan said. In the 2001 to 2002 time period, approximately 450 food-retailing stores closed. The report predicts that over the next five years, the industry, on a compound annual basis, will see a loss of approximately 0.5% of its store base each year. Currently, Skrovan estimated nearly 66,000 supermarkets nationwide. At the predicted rate of decline, that number would decrease to close to 64,000 units in five years.

Some of the contraction has come from the reallocation of assets and retrenching of real estate by some chains, such as Safeway, Pleasanton, Calif., which has been looking to get out of the Chicago market since late last year with the sale of Dominick's Finer Foods, Oak Brook, Ill.

"What we've seen over the past few years is leading players defending their market share on a market-level basis. We are seeing a lot of market-level maneuvering and jockeying for position."

One of the biggest retailer challenges will be to improve profitability, which has been stifled by competitive pricing, Skrovan noted.

"What supermarkets really need to do is look for key points of differentiation where they can set themselves apart from Wal-Mart," she said.

Some chains have come to this realization already, utilizing micro-merchandising and creative partnerships to set themselves apart. Examples are Stop & Shop, Quincy, Mass., with its Toys R Us and Office Depot partnerships, and Albertsons, Boise, Idaho, with its geographically based approach to ethnic merchandising.

Creating a specific niche can also provide a hook for retailers targeting convenience shoppers. This has traditionally been an avenue that alternative-format retailers have developed. But the Retail Forward report points out, traditional supermarkets like Kroger, Cincinnati; and H.E. Butt, San Antonio, are going after the convenience shoppers with gasoline service pumps. Others have increased their focus on convenience foods.

Some chains, Skrovan pointed out, have also made headway by adopting alternative formats within an existing retail strategy. Some have recycled old real estate into price-impact formats, limited-assortment stores and grocery-warehouse stores. Kroger has done this with the conversion of some stores to Food 4 Less. Winn-Dixie Stores, Jacksonville, Fla., converted units in several Southeastern markets to SaveRite Grocery Warehouse formats.

Skrovan said that achieving profitability and increasing same-store sales through operational decisions will be important, but chains must also explore new growth avenues.