NEW YORK -- Many of the supermarket industry's top executives said they expect tough operating conditions to continue this year.
The same clouds that have hung over the industry for the past two years -- little or no food-price inflation, a price-conscious consumer and increasing competitive pressure from a host of operators -- remain in the 1994 forecast.
That was the consensus among industry executives who attended the annual Lehman Bros. Food Retailing Conference here last week. "It's going to continue to be a tough environment," Michael W. Wright, chairman, president and chief executive officer of Supervalu, Minneapolis, told SN following his presentation.
"I don't see any inflationary pickup," Wright said, "and I see a continuance of a lot of competitive activity."
Wright was among executives representing 15 companies who made presentations to investors at the two-day Lehman conference. Among the presentations, two other trends emerged:
· The growth of private-label products will continue this year, perhaps penetrating the 25% level of all grocery sales at some chains.
· Capital-expenditure budgets will rise -- for both high-debt chains and operators with strong balance sheets -- to help retailers roll out a steady flow of new stores.
Joseph Pichler, chairman and CEO of Kroger Co., Cincinnati, told investors that private-label items account for about 21% of all grocery sales at the chain, which, he said, reflects a changing preference among consumers. Kroger also is one of the chains cranking up its capital spending this year, with plans to expand square footage by about 5% per year through 1996.
As for the overall economic picture, Pichler told SN he believes consumer confidence may improve slightly in 1994, but overall economic conditions should remain about the same.
The big unknowns in 1994, Pichler said, are the health-care issue and last year's increase in the personal-income tax rate, which most consumers won't feel until they calculate their 1993 taxes.
Steven Burd, president and CEO of Safeway, Oakland, Calif., said the chain is not anticipating any food inflation in 1994 and has not allowed its operating divisions to include an inflation factor in their 1994 sales projections.
"We're anticipating a pretty flat economy, although there might be some exceptions to that in some of our markets," Burd told investors. "So we have to build sales in that environment, which is to say the environment we had in 1993."
Gary Michael, chairman and CEO of Albertson's, Boise, Idaho, also said he does not expect 1994 to be much different than 1993. "A challenge for all of us will be to keep our costs in line," Michael told SN.
Still, there should be a few rays of sunshine in 1994.
Victor L. Lund, president and CEO of American Stores Co., Salt Lake City, said he has seen economic improvement in certain market areas.
The Midwest, where American operates its Jewel Food Stores chain, is doing well and there have been slight improvements in northern California and the Philadelphia region, Lund said. American flies the Lucky Stores and Acme Markets banners in northern California and Philadelphia, respectively.
"Our view, based on the fourth-quarter results, is that there is a moderation in the economic environment," Lund said. "We are seeing a general improvement, but modest. It's not a barn-burner kind of deal."
Other regional supermarket operators also are noticing improving economic trends, most notably in the Northeast.
Gary Hirsch, chairman of Grand Union, said he believes consumer confidence has improved and disposable income has risen throughout the New York, New Jersey and Vermont corridor where the 253-store chain operates.
"I think, clearly, the economic environment is improving in our market areas," Hirsch said.
Robert Tobin, president and chief operating officer of Stop & Shop Cos., Boston, said the chain had "nice" holiday sales and, thanks to plenty of snow, the sales-trend improvement has continued into the first quarter.