Jun 6, 2003
Washington, DC — June 6, 2003 — In one of the most challenging years ever for the U.S. economy and food retailers, company sales grew an average of 1.6 percent in 2002 — only 0.3 percent after factoring out inflation — according to the Food Marketing Industry Speaks, 2003, the annual state-of-industry report released here today by the Food Marketing Institute (FMI).

In analyzing these results, contrary to the adage, the picture is clearer when one cannot see the forest for the trees. Within overall industry sales figures, two in 10 retailers (22.1 percent) reported declines, yet half posted gains of 3.4 percent or higher — including many independents (retailers with 10 or fewer stores).

Based on one of the truest measures of performance, same-store sales, well over one-third (35.5 percent) of independents reported sales increases of at least five percent, and exactly one-fifth reported increases of at least 10 percent.

“Perhaps the most important result in this research,” said FMI Senior Vice President Michael Sansolo, “is that despite the weak economy, wars, low consumer confidence, food security concerns and fierce competition, many food retailers are finding the strategies to succeed. This shows the resilience and creativity of retailers facing the most daunting challenges.”

The detailed results show that independents excel in key efficiency measures such as weekly sales per square foot of selling area ($11.40) and inventory turns (18 for all items) — the highest numbers reported among retailers with different numbers of stores.

In the area of labor, accounting for over half of operating costs, independents had the lowest turnover rates for both full- and part-time employees, 10 percent and 44 percent, respectively. They also incurred the highest labor costs as a percentage of sales (11.4 percent).

Sansolo explained, “FMI research shows that consumers value stores that have friendly employees and pay attention to special requests. In many cases, with a veteran workforce of well-paid employees, smaller retailers can outperform the competition.”

Competition Up, Food Inflation Down Despite Consolidation

Industry consolidation continues to have little, if any, impact on food prices or competition. “If anything,” reports Speaks, “competition has increased. For a number of years, supermarkets competed for food dollars against superstores, drug stores, warehouse clubs and the foodservice industry. Today, supercenters, limited-assortment stores and dollar stores are adding increased pressure to the ongoing battle to satisfy increasingly value-conscious consumers.”

Competition, much of it price-driven, continues to contain the cost of food. The prices for food-at-home increased only 1.3 percent in 2002, the lowest rate since 1992, according to Consumer Price Index data.

Customer demand for value is behind a major change in shopping patterns: nearly one in five consumers (19 percent) now view a discount store or a supercenter as their primary store, according to FMI’s Trends in the United States: Consumer Attitudes and the Supermarket, 2003.

Demographics Define Growth Opportunities

Competition and the pursuit of top-line growth are compelling retailers to search for new ways to differentiate themselves. The report cites two major demographic trends that present growth opportunities: the graying population and an increasing multicultural America.

The 65-and-older generation, now at 35 million Americans, will increase dramatically as the 70 million baby boomers begin turning 65 in 2011. Even now, boomers spend nearly $200 billion a year on food, according to FMI consumer Trends research. Pharmacy services merit special attention for this group, reports Speaks. In FMI’s 2002 pharmacy survey, 68 percent of food retailers with pharmacies said this department is likely to be an important business strategy in the coming years.

The opportunities in the ethnic and minority markets are evident from the finding that African Americans and Hispanics spend more per week on groceries than the average, and Hispanics make twice as many trips, largely to meet their need for the freshest foods possible, according to FMI consumer research.

Speaks cites examples of retailers opening stores catering specifically to Hispanics, noting that success depends on having bilingual, service-oriented employees, specialty-cut meats, imported produce and specialty breads. The best product mix may depend on where the shoppers’ roots are among the diverse countries with Spanish-speaking people.

Catering to Convenience

To increase sales, food retailers continue to broaden the products, features and services that deliver one-stop convenience, according to Speaks. Now commonplace among food retailers are delis (97.2 percent) fresh, prepared foods for takeout (93.1 percent), greeting cards (91.7 percent) and floral departments (79.2 percent). Other increasingly common and somewhat new offerings:

  • In-store banks, 50.0 percent.

  • In-store pharmacies, 48.6 percent.

  • Cooking classes, 26.4 percent.

  • Self-scanning of groceries, 25.0 percent.

  • Gas pumps, 18.1 percent.

  • Child care, 16.7 percent.

These offerings are not leading to widespread increases in store size. The typical store remained at 44,000 square feet in 2002, a plateau dating to 1999, according to Speaks. Tracking this trend, the median number of items carried in 2002 was 35,000, down from 40,333 in 1998.

Technology Enhances Customer Service, Operational Efficiency

Retailers are using technology throughout store operations. Leading companies are using a mix of innovations to speed customers through the checkout process. These include self-checkouts and self-scanning in which customers scan products as they are placed in the cart. Self-scanning can produce a digital receipt, which shoppers can pay in the store or debit from their checking account. Speaks found that 5.6 percent of food retailers have payment systems using Speed Pass technology.

Currently, 8 percent of retailers use biometric systems to verify customer identities, authenticate checks and automate payment transactions. These technologies identify physical features unique to individuals, such as faces, eyes and fingerprints. The use of such systems may increase fast since the number of companies planning to implement them quadrupled in the past two years.

Industry Must Follow Consumer Lead

“Altogether, our Speaks research shows an industry challenged in almost every way imaginable by both outside forces and major restructuring and competition within. The fact that smaller companies are solving the puzzle reflects their agility and awareness of customer needs.

“The biggest winner is the consumer. More than ever before, customers are dictating how the industry competes, whether their demand is value, convenience, health or ethnic foods. The consumer market is so diverse now that variety can only increase. And using technology strategically to track demand with unprecedented precision, the industry will continue to follow the consumer’s lead well into the future.”

Food Marketing Industry Speaks, 2002, is available for $45 to FMI members, $97 to associate members and $115 to nonmembers, with multiple copy discounts. Contact the FMI Publications and Video Sales Department at 202-220-0723 for more information.