Consumers are feeling the pressures of higher gas prices and an uncertain economy, and that's both good and bad news for supermarkets.
Although they expressed some concerns about consumer spending patterns and creeping inflation, food retailers and wholesalers reported robust summer sales in interviews with SN last week, and they said they expect volumes to stay up even as the leaves begin to fall.
"The gas price increases and the increased cost of energy for people's homes have taken some of the dollars out of restaurants and casual dining and put it back in the grocery store," said J.H. "Jay" Campbell, president and chief executive officer, Associate Grocers of Louisiana in Baton Rouge. "It has pinched a few budgets, and people are looking for a little more value by getting food to eat in supermarkets. I think there's anywhere from one to three more meals a week that are now being eaten at home, and that benefits the retailer who has a good deli and bakery, as well as the ingredients to assemble a meal."
The redistribution of the population in the New Orleans area and the closure of several supermarkets also have helped AG record strong sales, he said, although insurance and other costs have risen. He also said the congestion and accompanying increases in traffic in the inland areas where the population has gone up, combined with the high cost of fuel, have led to stronger sales at neighborhood supermarkets.
Some retailers said high gas prices have had a mixed impact, as consumers have cut back on spending on higher-ticket items but have shopped closer to home.
"There's no question that the price of fuel has been a factor this summer, but it's interesting in that it's affected our stores differently," said Rich Niemann Jr., CEO, Niemann Foods, Quincy, Ill. "In rural areas and small towns, people are doing less driving to the metro area to do some regional shopping. So in rural stores customer traffic and the average purchase has held up pretty well. In our more metro-area stores, where people are traveling to us, traffic and customer counts have been off, and the average purchase has been up."
He said stores shopped by a higher percentage of lower-income shoppers have been affected the most. "If they are spending $20 or $30 more on gas than they've planned to, they just have less money in their pocket, and that tends to drive the traffic down and the average purchase down."
Bob Kirch, executive vice president and chief operating officer, Laurel Grocery Co., London, Ky., said sales were up 8%-9% over the summer, which he attributed partly to new customers but also to positive same-store sales at customers' stores.
"I think the high cost of gas has kept people home and they've been eating at home more," he said. "That has helped our retailers do a little better than we may have expected.
"We're preparing for the fall to be very similar to what we've seen over the last three months. We think fuel prices are going to stay up even though it looks like we've seen some inching down recently. I think people will still be tight on money."
Dick Broulim, owner of Broulim's, a nine-store operation based in Rigby, Idaho, said rising gas prices could turn against retailers in the coming months as they are reflected in rising shelf prices.
"People are going to see that the impact is not just at the pumps," he explained. "They are already beginning to ask why certain products on the shelves are more expensive, and we have to tell them it has to do with the freight costs our supplier is charging us, which we need to pass along."
Broulim said sales for the summer have been up 8%-9%, helped in part by a move over the last 18 months of the produce sections at all stores to a more up-front position.
"We tried it at one of our stores and had a lot of success so we're doing it at other stores because it gives them a fresh new look," he said. "Produce was already near the front, but we moved the checkstands around and added new lighting so customers now walk right into produce on the right side of the store."
Looking ahead, he said he expects turkey prices to be up this year, "and the question is, will we lose more this year by being competitive?"
Lee Badger, owner and president of Lee's Marketplace, Logan, Utah, said high gas prices have helped his business to some degree "because people are not willing to drive as far," but his delivery charges have gone up, which he has reflected in his retail pricing.
Focus on Perishables
Badger and other supermarket operators polled by SN last week also attributed strong sales over the summer to changes they have made in their businesses, mostly related to improvements in their perishables offerings and increased service levels as they succeed in distinguishing themselves from supercenters. Badger said sales were up 10% at one remodeled store and more than 20% at another expanded location.
According to Badger, Associated Food Stores, his Salt Lake City-based wholesaler, "is asking all its retailers to really focus in on the things the big boxes can't do, particularly in the areas of perishables and organic and natural foods, plus customer service in a friendly atmosphere - to really be the hometown grocers."
He said he expects to maintain the same kind of increases through the fall, as the company rolls out new perishables initiatives in an effort to boost holiday sales.
Mark Kidd, president of Mar-Val Food Stores, Lodi, Calif., said sales at his four conventional stores rose between 3% and 7% during the summer, and he expects similar sales gains through the fall. He attributed the sales increases to the training the company has been giving its employees for about three years, as well as having convenient locations that help his customers economize their driving.
"On the positive side, I think more local people cut back on travel, which kept them close to home to shop with us," he said. "On the negative side, the number of boaters and campers who usually come to our areas for recreation dropped off."
The company's training program has been designed to improve service and encourage an "ownership attitude," he said. "We can try to spread ourselves between Wal-Mart and Costco, or we can take the stores a step up and deliver better, faster customer service in a friendlier atmosphere and be more of a community-oriented market that customers can enjoy coming into instead of being treated like a number."
Kidd said the stores are also doing a better job of merchandising, with better perishables displays and more variety in the meat department. Plans for one store include adding 6,000 square feet and expanding the produce, meat and deli selections.
Dale Riley, owner, Fresh Seasons Market, Minnetonka, Minn., said summer sales "were softer than we anticipated. I'm not an economist, but from talking to our customers, I'd say the price of gas at the pump was a factor."
He also noted that in the Minneapolis-St. Paul area, the major hub for Northwest Airlines, some 30,000 employees and their families are "facing uncertainty about their futures, and I think that's slowing down the economy too. That's my gut, and that's also what I'm hearing from most retailers in the Twin Cities. I don't hear anybody in the Twin Cities bragging about how good sales are."
He said he thinks shoppers may be cutting back on higher-ticket grocery items.
"While everybody's got to eat, they don't have to have steak," he said. "They can cut back with chicken."
He added, however, that he is "pretty bullish" about prospects for the fall.
"After Labor Day, I think sales will be more robust," he said.
Calvin Miller, president and chief executive officer, Associated Grocers of Florida, Pompano Beach, said business has been strong, with sales increases coming from new customers and same-store sales increases among the retailers who own the co-op. The wholesaler's bottom line has taken a beating, however, from skyrocketing insurance costs in the wake of back-to-back years of multiple hurricanes.
"When I got my first quote here, I told the insurance guy he had to be out of his mind," Miller said. "Fortunately, we're a strong company. But, if this keeps up - nobody can survive this."
He said he's trying to make up for the cost increases by cutting costs elsewhere and improving efficiency, but said some government assistance may be necessary to help businesses and homeowners. The "nightmare situation" could impact consumer spending in Florida, he said, as those people who choose to insure their properties are forced to cut back on spending in other areas.