Two Growth Challenges Also Present Opportunities

Two Growth Challenges Also Present Opportunities

This year's SN Economic Outlook Survey was just unveiled, and the temptation is to ask whether the news is good or bad? My short answer is: Yes.

By that I mean it depends on how you view it. It's really a case of the glass half full or empty. The outlook is for more tough times ahead, but supermarkets have gotten quite good at lessening the impact by turning such situations to their advantage.

A full report on the survey can be found here. In summary, retailers are predicting consumer spending to be the same or marginally better than last year, and forecast increases in customer counts but with smaller baskets. The majority expects food-cost inflation of less than 2% and anticipates engaging in a bit more price-focused advertising compared with the prior year.

What did retailer respondents say are the biggest challenges to their top-line sales growth? Some 61% identified the biggest threat as low consumer confidence and high unemployment that leads to reduced spending. In contrast, about 28% pointed to competition from non-traditional food retailers as the top hurdle.

I'd agree both of those challenges are top priorities, and the survey results point to some solutions. Retailer respondents predicted suppliers will provide some economic stimulus this year by sharpening prices to compete with private label, introducing more deals, or both. That should give retailers more tools to attract customers.

Moreover, retailers said they'll give more play to private-label strategies that have already boosted business. The great majority expects store label penetration increases of from 0.1% to 5% as a percentage of total dollar sales.

Furthermore, respondents don't expect restaurants to make a comeback anytime soon, which points the way for retailers to make further gains with at-home eating. Some 95% said if the economy improves customers either will not patronize restaurants more or do so just a bit more.

Now let's look at the second-biggest challenge cited by retailers, that of alternative-format competition, which covers the waterfront from supercenters to dollar stores. This isn't a new competitive threat, but during the downturn Wal-Mart and other price-oriented retailers have become more aggressive.

Some observers, however, point to opportunities based on Wal-Mart's vulnerabilities. At this month's National Grocers Association Convention in Las Vegas, speakers cited the retailer's repositioning that expands its customer base to include higher-income shoppers but runs the risk of alienating its core clientele. Independent supermarkets were urged take advantage of this situation, while continuing to play up their superior perishables and service as compared to Wal-Mart.

Clearly, whether the challenge is alternative formats, the economy or something else, some retailers will see the glass half full.

They'll have the same raw data as everyone else in surveys from SN and other sources. But it's how they interpret and act on that data that will make all the difference.

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