Independent retailers posted the largest gains in overall and same-store sales at 4.73 percent and 4.56 percent, respectively, followed by chains operating more than 100 stores at 4.57 percent and 2.56 percent.
Net income before taxes and extraordinary items increased to 2.1 percent of sales, up from 1.8 percent in 2004.
“The industry is performing with remarkable resilience and vigor,” said FMI President and CEO Tim Hammonds. “The smallest and largest companies are meeting the challenges of fierce competition, spikes in fuel and healthcare costs and even the worst Mother Nature can deliver in last year’s Gulf Coast hurricanes.”
“The larger companies are succeeding with technology, efficiency and new store formats that cater to changing consumer lifestyles,” he said. “Smaller retailers lead in sales growth because they are the epitome of meeting customer needs.”
The results varied widely across the industry, as in years past, with some companies reporting double-digit sales increases and others decreases up to nearly 5 percent. Yet more companies are growing by meeting consumer demands for convenience and fresh, perishable foods.
Self-Checkout Lanes, Quick-Stop Dinner Areas Deliver Convenience
The self-checkout lane is now a standard supermarket feature with three-quarters of stores offering customers this option. In fact, the typical store with this feature has two self-checkouts.
More retailers are offering shoppers a quick stop prepared-foods department where they can pick up dinner. Nearly four in 10 retailers (39.8) now have quick-stop areas, a more than 10-point increase from the previous year (28.2 percent). Most shoppers can also grab coffee to go with almost seven in 10 stores featuring coffee bars (68. 7 percent).
Other once-scarce features now growing more widespread include:
- Dollar-item department (53 percent).
- Sushi station (49.4 percent).
- Self-service digital photo kiosk (39.3 percent).
- Cooking demonstrations (37.3 percent) and classes (28.9 percent).
- Gasoline pumps (33.3 percent).
Energy Costs, Credit Card Fees Now Top Strategic Issues
The report found significant shifts in industry strategic issues. Competition is no longer the foremost concern, although it still ranks high with executives rating its impact in 2005 an average of 6.8 on a 10-point scale. Surpassing competition are three soaring costs:
- Energy — 7.3 impact rating in 2005, rising to 7.8 in 2006-2007.
- Credit and debit card interchange fees that banks and card companies charge on every plastic transaction — 7.2 percent, rising to 7.6 percent.
- Healthcare — 7.2 percent, rising to 7.5 percent.
More than three-quarters of the companies surveyed (76.3 percent) are passing along some of their healthcare cost increases to workers. Of those, the most common measures are to increase premiums (71.7 percent), deductibles (76.7 percent) and co-pays (62.5 percent).
Supermarket companies provide health insurance for nearly six in 10 workers (57 percent), including part-timers. On average, employees have to work at least 30 hours per week to be eligible for insurance.
There are few marketplace solutions to the rising cost of credit card fees since card companies and banks set them in secret. Card companies keep increasing the fees to induce banks to issue their cards.
Food retailers have many energy-conservation programs in place, but must now focus on the relatively recent spike in fuel costs.
Countering Low-Price Retailers With Fresh Foods
Supermarkets are competing effectively by emphasizing perishables such as meat and produce, drawing upon traditional strengths to differentiate from low-price retailers. Nearly all companies (97.5) percent use this strategy, rating its level of success an average of 8.3 on a 10-point scale.
More than eight in 10 are competing with private label products (86.3 percent) and natural and organic foods (81.3 percent), although with less success (6.5 and 6.1, respectively.) Three-fourths (76.3 percent) report better results (7.0) aiming to provide a “unique shopping experience” by enhancing product selection and store design.
What Sets the Top Performers Apart
The top-performing companies in sales and income provide additional insights into the strategies that are succeeding. The best performers in the past year, largely because of the strength of independent retailers, tend to have smaller stores, fewer checkouts but higher sales per checkout. They manage shrink more effectively.
Methodology and Purchasing Information
The data for this report are based on surveys of 93 companies operating more than 15,000 stores, filings with the Securities and Exchange Commission, and information gathered by the U.S. Bureau of Labor Statistics and Census Bureau. The analysis is also based on other FMI research, including U.S. Grocery Shopper Trends 2006, Facts About Store Development 2005 and the Annual Financial Review 2005.
To purchase the Food Retailing Speaks 2006: The Annual State of the Industry Review, visit the FMI Store at www.fmi.org/store or call 202-220-0723.
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