WASHINGTON — Warning that the Wall Street financial crisis could cause bloodshed on Main Street, industry leaders late last week urged Congress to pass a financial bailout plan.
“America's supermarkets urge you to look beyond the rhetoric to the very real hardship being faced by our customers and our associates,” Food Marketing Institute here wrote in a “key vote card” issued to members of the U.S. Senate prior to their voting on an amended version of the bill the U.S. House of Representatives had defeated earlier in the week.
“A further tightening of the credit market — let alone the full-scale collapse many economists are warning about — would have dire consequences for our industry and our ability to serve our customers,” the card went on to say.
The Senate late Wednesday approved the amended bill, with presidential nominees Barack Obama and John McCain returning from the campaign trail to vote for the plan. The House was tentatively scheduled to vote on the measure Friday.
FMI had pushed unsuccessfully for passage of the House bill, starting with a letter to House speaker Nancy Pelosi and later with a “key vote card” ahead of the House vote. The trade group argued that the recent tightening of credit — sparked by so-called “toxic” mortgage debt a government bailout bill could acquire — could worsen an already tough economic environment for business.
“[T]ightening credit markets have made a bad situation worse, drying up the financing necessary to weather these difficult times and all but halting the creation of new jobs,” FMI said. “Congress needs to act now to begin to turn the tide and bring back stability to our nation's economy.”
Separately last week, other food industry leaders were outspoken in their support of a government-backed rescue plan. A.G. Lafley, chairman and chief executive officer of Procter & Gamble, had a letter published in the Cincinnati Enquirer saying that P&G's suppliers have been impacted by tightening credit and urging congressional passage of the bill. “Many [suppliers] are now hampered by the inability to get the capital they need to run their businesses,” he wrote.
And at an event Tuesday evening in Rochester, N.Y., Danny Wegman, CEO of Wegmans Food Stores, also spoke in favor of a bailout. “The cost of doing nothing might well exceed $700 billion,” he told a local newscast.
Fears of worsening credit crippling small businesses and consumers was a theme in the stock markets last week, which by late in the week had recovered only some of the losses accompanying last Monday's dive.
Supermarket stocks for the most part held up amid the chaos, with the SN Composite flat over the week ending last Wednesday, equal to the Dow Jones Industrials and ahead of the S&P 500, which fell by 2% over the same period.
Andrew Wolf, an analyst at BB&T Capital Markets, Richmond, Va., said he felt the market has not been trading supermarket stocks any differently because of the financial crisis. “People aren't saying supermarket stocks are risky because there's a run on the bank — there's no connection there,” he said.
He said he felt that the credit crisis posed a greater threat to smaller retailers that need capital to grow than to mature companies like Safeway, Kroger and Wal-Mart, which can generate their own cash and have less need to build new stores.
“If the system completely froze up, there would be issues, but at this point they are OK,” Wolf said. “If you're growing and small, you will have problems.”
Wolf said a bailout plan could help “re-liquify” the system, but he expects that credit will remain tight as long as the recession continues.
“Even if [a bailout] works and the gears of lending begin to churn again, demand and supply of credit is going to be lower than it was two or three years ago,” Wolf said. “They won't be giving away money like cotton candy anymore.”