Nov 12, 2002
WASHINGTON, DC — November 12, 2002 — For the second straight year, the retail food industry increased net profits (1.36 percent) and operating income (3.22 percent), showing the industry’s resilience in a weak economy, according to the 2001-2002 Annual Financial Review released today by the Food Marketing Institute (FMI). The profit and income figures are up from 1.25 percent and 3.03 percent, respectively, in fiscal year 2000-2001.

“The industry’s financial performance is most impressive considering the unprecedented level of competition and minimal inflation,” said FMI President and CEO Tim Hammonds. The portion of family income spent on food-at-home continued a half-century decline to only 6.0 percent in 2001, according to the Economic Research Service of the U.S. Department of Agriculture.

“Food retailers are using technology, smart purchasing and inventory controls to reduce operating costs,” Hammonds said. “More rigorous management practices reduced inventories to a record low of 21.78 percent of assets — proof that the industry is improving efficiency in an area that has long needed tighter controls.” Comparable figures exceeded 26 percent 10 years ago and 35 percent in the early 1980s, according to previous editions of the Annual Financial Review. FMI began tracking industry financial performance in 1972.

Consumers Continue to Drive Focus on Convenience

The industry is also meeting the continuing consumer demand for convenience, evident in the just-released FMI report Facts About Store Development, 2002. “Although new store construction was down, retailers increased one-stop-shopping opportunities in remodeling, adding pharmacies, in-store banks, prepared takeout food and gasoline pumps,” Hammonds said.

Capital expenditures decreased slightly in the most recently fiscal year to 2.79 percent of sales, from 2.89 percent, according to the Annual Financial Review. “This most likely reflects more conservative investment strategies and more focused spending on the products and services that consumers demand in the current environment.”

Other key findings in the 2001-2002 report include:

  • Earnings before interest, taxes, depreciation and amortization (EBITDA) — a ratio that some analysts regard as the truest measure of operating performance — was 5.33 percent of sales, the highest level since FMI began tracking this ratio in 1993-1994.

  • Return on assets (ROA) remained largely unchanged at 3.77 percent.

  • Return on equity (ROE) decreased slightly to 12.94 percent, from 13.42 percent in the previous fiscal year.

  • The current ratio returned to historical levels, showing improved liquidity with current assets exceeding liabilities by 1.11 percent, up from 0.99 percent.

  • The industry’s effective tax rate — measuring income taxes at all levels — remained unchanged at 35 percent of sales.

The report notes that although industry profits increased, “the challenge persists to increase top-line sales.” Same-store sales increased by only 2.2 percent in 2001, according to FMI’s Food Marketing Industry Speaks, 2002. When adjusted for inflation, same store sales decreased by 1.1 percent.

The net profit figure in the Annual Financial Review was slightly inflated by 2001 rule changes by the Financial Accounting Standards Board, affecting the financial statements of companies involved in mergers and acquisitions. These changes increased industry profits by 0.07 percentage points in 2001-2002.

This year’s report was based on data collected from 98 companies, operating 15,938 stores. The primary sources were a mail survey, annual reports for stockholders and 10-K reports filed with the Securities and Exchange Commission.

To purchase the 2000-2001 Annual Financial Review ($30 for FMI members, $76 for associate members and $90 for nonmembers) or to obtain more information, please contact FMI Publications and Video Sales (202-220-0723) or visit the FMI Web site (www.fmi.org/pub/).