May 2, 2004
CHICAGO, IL — May 2, 2004 — Nearly one-third of food retailers are thriving despite the price-driven competition that continues to slow supermarket sales increases, and, in fact, are achieving growth rates of 5 percent to 10 percent and more, according to state-of-the-industry Speaks data released here today by the Food Marketing Institute (FMI).

Industrywide company sales increased 2.4 percent in 2003, up from 1.6 percent the previous year. Factoring out inflation, the 2003 growth figure was only 0.20 percent. Same-store sales, regarded as the truest measure of growth, increased 0.25 percent. This continues a zero-growth trend dating to the early 1990s. The data also show that sales declined for more than one in four companies (26.4 percent).

“The overall sales figures obscure the great news this year — that numerous companies are thriving in what may be the most competitive period in the industry’s history,” said FMI President and CEO Tim Hammonds. “The data show that 30.6 percent are increasing top-line sales by at least 5 percent. In fact, two in 10 are seeing increases of at least 7.5 percent, and one in 10 are riding growth rates of 10 percent or more.”

“What we’re witnessing,” Hammonds said, “is that Darwinian change is reshaping the competitive landscape of the retail food industry. Only the fastest and fittest will survive. The key to success is not simply low prices. The best retailers are selling value packaged with service, nutrition, variety and convenience — all of it fine-tuned to their local customer base.”

Concern Over Health Care Costs ‘Extreme’

Competition, however, did not top the list of the industry’s most serious issues in 2004. The rising cost of health care was number one, cited as an “extreme” concern by 53.0 percent of the executives surveyed. Competition was deemed extreme by 30.3 percent, followed by mandatory country-of-origin labeling (15.2 percent).

“The concern over medical costs is not surprising,” Hammonds said, “as the cost of health care benefits continues to increase at double-digit rates for food retailers and wholesalers, according to FMI’s 2003 Employee Benefits Survey. Over the past three years alone, insurance premiums for medical benefits increased 15 percent, 15 percent and an estimated 15 percent in 2003. And the premium increases for prescription drugs were even higher — 17 percent, 15 percent and 17 percent.”

Labor today accounts for 58 percent of company operating costs, according to the new Speaks data, and employee benefits now comprise one-third of those costs. “In an industry where the margin for error is as narrow as our 1 percent net profit level,” he said, “double-digit increases in labor costs year after year can sink even the most fiscally sharp operators.”

Industry Reaches Out to Consumers Across the Aisles

The new data show how the industry is working to meet consumer demands on multiple fronts. More than eight in 10 retailers feature delis, fresh takeout, ethnic foods, bakeries, butchers who cut meat to order and private label or store brands. All cater to the predominant consumer demands for service, variety, high-quality fresh foods, value and convenience, which are documented in FMI’s just-released Trends in the United Sates: Consumer Attitudes & the Supermarket, 2004.

Some of the less common offerings suggest how the industry front-runners are succeeding. Among these are pharmacies and cooking classes, offered by 56.3 percent and 35.2 percent of companies, respectively.

Two-thirds of retailers now provide health and nutrition information. “Retailers can deliver health and convenience in fresh, prepared takeout meals. Our 2003 Shopping for Health research shows that dieters regard fast-food outlets as their number one barrier to success. Supermarkets are starting to win back some of that business, in part, because we can offer a variety of healthy takeout alternatives.”

One-quarter of supermarkets feature quick-stop areas to pick up the items for “tonight’s dinner.” Nearly as many offer gas pumps. “These services provide one-stop solutions for all the working couples and for the youths who can’t cook or don’t want to and will become our primary shoppers of tomorrow. For the Internet-savvy consumers, one in five stores now offers pick-up areas for online orders.

“And for masses of shoppers who dread long checkout lines, 7 percent of retailers are now using Speed Pass technology to quicken transactions.”

More Service and Space Lowers Productivity Measures

The new services and departments in supermarkets are increasing store space and labor, decreasing some of the productivity measures. For example:

  • Median weekly sales per square foot of selling area decreased significantly to $9.29, from $11.13 in 2002.

  • Median sales per labor our declined to $114.11, from $137.68.

The industry gained productivity through considerable drops in worker turnover. Among all employees, the 2003 rate was 41.8 percent, after running above 60 percent from 1999-2001. Among full-timers, the rate was 14.3 percent, down from the 20 percent range in 2000-2001.

Industry Executives Look at Dramatic Changes in the Future

Gathering this year’s Speaks data, FMI asked industry executives to comment on changes they see coming in the next five to 10 years. Particularly 10 years from now, large numbers see some dramatic changes:

  • All communications will be electronic, predicted by 53.8 percent of the respondents.

  • At the checkout, smart cards could replace other forms of payment, according to 52.3 percent.

  • Self-scanning will outnumber checkout lanes, according to 55.4 percent of the executives asked, while 27.7 percent believe checkout stands will be eliminated altogether.

  • Coupons may become a promotional tool of the past in the view of 60 percent.

In some areas, executives do not see major changes occurring. The 24/7 business model is expected to survive with only 3.1 percent believing stores will be closed on the slowest day of the week in the next five or 10 years.

Skepticism over the future of Internet shopping persists. In 10 years, less than 20 percent of those surveyed predict that consumers will buy packaged goods online.

Few believe the federal government will streamline its oversight of the food industry, now shared by more than a dozen agencies. Asked when only one federal agency will oversee the industry, nearly two-thirds (64.6 percent) replied never or longer than 10 years from now.

The full report on these and other data, the Food Marketing Industry Speaks, 2004, will be released this June. For more information, call 202-220-0723 or visit www.fmi.org/pub.