Food retailing executives said they see the evidence of an economic rebound in their cash registers, and they believe that consumers will continue to spend more freely in an improving economy in the second half of the year.
In interviews with SN, industry chief executive officers and chairmen said sales have trended up in the first half, and they expect them to continue to do so.
Their optimism is tempered, however, by indications that the economy may be lurching ahead more sporadically than had previously been thought, and by concerns that the war in Iraq and the threat of more terrorist attacks are x-factors that could have a negative impact on consumer spending and economic growth.
Jeff Noddle, chairman and chief executive officer, Supervalu, Minneapolis, for example, cited the recent June sales warnings from Target, also based in Minneapolis, and Wal-Mart Stores, Bentonville, Ark., as indications that consumers haven't loosened their purse strings all that much.
Other factors that concerned several of the executives included the difficulty in finding good workers as the employment picture improves and the increasing cost of providing health care for those workers.
"We continue to see a dearth of qualified, high-performing employees," said Al Plamann, president and CEO, Unified Western Grocers, Los Angeles.
Competition, especially from Wal-Mart, was cited as a top challenge for retailers as they enter the second half of the year, although some of the executives interviewed by SN indicated that they have been able to succeed against the discounter's relentless growth.
"We have to work harder and do things differently, but we are handling that new competitor and handling them very well," said Neil Golub, president and CEO, Price Chopper Supermarkets, Schenectady, N.Y.
Regulatory issues continue to loom large for operators as well in the second half, with country-of-origin labeling, workplace rules and other legislation being cited as areas of concern.
Perhaps in part because of their stake in such matters, most of the industry leaders interviewed said they support President Bush in the upcoming election.
"He's much more pro-business and he understands our concerns," said Steve Smith, president and CEO, K-VA-T Food Stores, Abingdon, Va.
Jeff Noddle
chairman and CEO, Supervalu, Minneapolis
I think the economy is improving compared to what it was, but I see it being a little choppy during the second half, with some ups and downs as the economy reacts to events. Jobs are being added and the Bush administration is crowing about that, but I see it as not as steady a growth as they say, and events like the presidential election and others will create some choppiness. If things go well in Iraq, then the economy may improve, but if things go poorly, the economy could take a step back.
And while consumers seem to feel good about the way things are going, Wal-Mart and Target just called down June sales, so that tells me the consumer is still unsure, particularly with gas and energy costs going up. So, I think the economy will be better, but not a flat run-up.
Like-store sales in the second half should average out at about 1% up.
Among the opportunities we see in the second half are the continued growth of Save-A-Lot. We also expect new gains in business in Advantage Logistics, our third-party business subsidiary that currently runs three Kroger facilities and two Atkins Nutrition facilities.
During the second half, we will add manufacturers to Supervalu Safe Harbor, the Internet portal that currently connects all the stores we support in a paperless system. In the coming months we intend to introduce manufacturers into that loop -- in fact, we're beginning to do it now -- to enable them to see our inventory, sales trends, upcoming events and other product activity. This will complete our end-to-end supply chain.
On The Election:
In the presidential race, I plan to listen to what each candidate has to say and then decide what's best for Supervalu and for the country. Although I know which candidate I prefer, I think it's important to listen to the debate and what each candidate has to say and then decide what's best for Supervalu and for the country.
Steve Smith
president and CEO, K-VA-T Food Stores, Abingdon, Va.
I think all indications are the economy is growing at a pretty rapid pace and the most encouraging thing we've been seeing over the past few months is jobs. That's been the most positive thing we've seen this calendar year.
I think people's confidence of how well things are going in Iraq is a factor in how people feel and how freely they will spend. People are going to be focused on the election as well. I don't know how that will affect their spending, but I know it will be a very interesting summer and fall. I think we'll have a very good summer and fall. Our sales have been strong since Memorial Day. I'm optimistic about the rest of the year.
I think the challenge for our company this year will be to continue to focus on the people issues. We have to train our people as well as we can and recruit as well as we possibly can, because in our business people truly make the difference between one store and the next. And as the economy improves it will continue to put pressure on retailers to retain the good people they need to execute their business plan.
On The Election:
I would support George W. Bush. He's much more pro-business and he understands our concerns. I had a chance to see [Labor] Secretary [Elaine] Chao recently in Washington. And to listen to a labor secretary talk about labor and [the Occupational Safety and Health Administration] partnering with business to make safer workplaces was a real breath of fresh air. It's a move away from the punitive atmosphere we saw under the previous administration. President Bush is friendlier to business and I and most grocers, I suspect, will support him for the presidency.
In the grocery business you have be reserved about how strong you can go out and support the candidates on your own. We cater to Democrats, Republicans, independents, the Green Party, whatever. In our company, we educate our people on the issues and how the candidates view the issues, but when they go into the voting booth it's their business and we respect that.
Al Plamann
president and CEO, Unified Western Grocers, Los Angeles
I think the economy will continue to improve and show more structural strength in the second half. I don't believe increases in the cost of food or energy will have a dampening effect during the balance of the year, though those will be longer-term issues for the economy.
I think we'll probably see an overall sales increase of 3% to 4% in the wholesale channel during the second half. For Unified, we will continue to see growth but probably not as much as we saw in the first half, when sales grew by 15% as we benefited from the strike-lockout in Southern California. Without the labor dispute, I think we would have seen 4% growth in the first half, and that's about what we expect to see in the second half. Our [retail] members are continuing to grow their stores, and we're seeing strong retail sales.
We've budgeted 3% higher sales for the second half of this year than we did last year because we're seeing continuing job growth, new business startups in Southern California and a little more food inflation. So, people just seem more optimistic and feeling like they can spend a little more on food, so when you add it all together, we're optimistic it will be a better second half this year.
The entry of Wal-Mart supercenters into the California marketplace is one challenge we're dealing with. The first supercenter in La Quinta is not affecting our members, but the next one that's scheduled to open -- in Hemet -- will affect some members. To combat Wal-Mart, we're trying to encourage members to do a better job of understanding what their customers want and to focus on aspects of their business other than price, and we're continuing to offer workshops to members to help put an action plan in place so they can retain their business.
Another challenge is the difficulty finding good employees as we continue to see a dearth of qualified, high-performing employees. We also see legislation like country-of-origin labeling as a challenge that's having an impact on us.
During the second half, we intend to continue to focus on using technology to develop new pricing programs. We began putting in consumer-driven pricing in June that allows us to sell sensitive, high-movement items at competitive prices. We're also making changes in our distribution methods by looking at ways to distribute perishables more quickly using a flow-through distribution model. The idea is not to have the items sit in a warehouse but to combine just-in-time concepts with cross-docking concepts and a different methodology in the warehouse.
On The Election:
I will be supporting President Bush for re-election, because I think we need to stay the course. It will take time to put various security mechanisms in place that will enable us to be comfortable in travel and have confidence in the food supply, and I think he's on the right track with the economy. I would have preferred not to go into Iraq, but now we must stay there until we can put a successful exit strategy in place. I plan to make personal donations to the president's campaign and work with the trade associations that are involved in his re-election.
Neil Golub
president and CEO, Price Chopper Supermarkets, Schenectady, N.Y.
Were optimistic about our business. I think we're finally beginning to see some indications of inflation in a number of categories.
We've had a number of Wal-Marts that have opened, and as they move into the Northeast our results against them actually have been quite good. We have a number of stores that have been hardly affected by their opening. Naturally, we have to work harder and do things differently, but we are handling that new competitor and handling them very well.
We are optimistic about our growth, and we are moving into Connecticut. We have a number of stores there now, and we're planning more.
We just finished our fiscal year, and sales were considerably better this year than they were last year. Our fiscal year started when war in Iraq started, and that had some impact on the economy, but the year was pretty good, especially in the second half, and we're optimistic.
Certainly, competition from all of these new channels continues to be a challenge. You have to be vigilant about making sure you are very focused on what you do, so you continue to entertain your customers.
This year, we're planning at least eight store openings, and looking at some possible acquisition opportunities. Over the last three to four years, our capital budget is pushing $3 million to $4 million, so we're very aggressively pushing our growth, and we'll continue to do that. Returns are good enough so that we can limit the amount of outside financing we need, so we keep ourselves healthy and strong.
In terms of acquisition opportunities, there are a number of things going on right now and if they develop for us that's fine, and if not, that's fine too. We've got enough to keep us busy even if they don't happen.
On The Election:
I've been kind of low-key, but I've tended to be more Republican than Democrat over the years. I support our president, although I think he's got his foot slammed in the door. I think that side of the aisle tends to be more supportive of business.
Ross Roeder
chairman, Smart & Final, Los Angeles
The economic outlook is clouded because there are so many unknowns. The turnover of Iraq is behind us, but it's not clear if that situation is over, and it's uncertain what the Fed might or might not do and how that will affect us, and the fact the presidential election looks like a real tossup adds to the uncertainty.
But Smart & Final is doing very well, and we expect to continue to do well. Sales are strong, and we hope things will continue to improve during the second half, but we're not certain.
Because of the strike-lockout at the end of last year and earlier this year, comparisons between the second half and the first will be tough, but we anticipate a very good year.
The challenge in the second half will be to continue to hold onto the customers we acquired during the labor dispute and build sales, and so far, so good.
But doing business in California continues to be a big challenge in terms of work rules, regulations and the legal environment. Without those challenges, we could focus more on sales, but we're constantly dealing with lawsuits on labor and hours and controls and regulations at the local level that have little to do with marketing and that all leads to higher prices.
We don't anticipate introducing any new programs in the second half, other than the fact we're doing so well that we want to continue to execute well.
On The Election:
I will support President Bush because he has a far better grasp of the problems we face. When I listen to Sen. [John] Kerry, he talks about creating a health care system, but I don't hear any specifics, other than programs that will lead to higher taxes. Bush has done a good job protecting the country from terrorist attacks, and I don't think Kerry would be a good choice to take us forward.
I have a residence in Florida and that's where I voted in 2000, so I will help Bush by voting there again.
Mike Proulx
president, Bashas', Chandler, Ariz.
The economy is improving in Arizona, with construction of new homes and office buildings going strong. The number of new jobs is increasing, and investment in infrastructure continues to prepare the state for the future needs of the predicted population growth.
However, there are concerns surrounding the threats of terrorism, especially along the Arizona-Mexico border and at Arizona's nuclear energy plant.
Rising interest rates threaten a slowdown in growth and a rise in the cost of goods. High gasoline prices are also a concern that add to the cost of doing business, especially in the outlying and remote areas of Arizona.
Government regulations cause concern to retailers for various reasons, including proposed taxation, country-of-origin labeling, liquor and tobacco restrictions, and weights and measures rules.
We respect the challenges of our vendor-supplier partners, and we will continue to work on strengthening our relations with them.
Our crystal ball predicts continued fierce competition in the hot Arizona desert because we're all good at squeezing water out of the cactus in this highly competitive market. We will add eight new stores by the end of 2004, and those will help us compete in this hot market.
Don Marsh
ceo, Marsh Supermarkets, Indianapolis
I definitely see the economy improving in the second half. I see it now. I see it in our sales, and from people you talk to around town and in different businesses across the country. It's not just the food business. I think the second half will see more sales growth than the first half of this year and more than last year, which was a tough year. We're coming out of that now, providing something unusual doesn't happen like a disaster like 9/11. I feel we've pretty well addressed most of our challenges and we're looking forward to the rest of the year.
I think [the economy] is all in people's confidence. Once they start having more confidence they'll spend more, and they're getting to that point now.
Rich Parkinson
president and CEO, Associated Food Stores, Salt Lake City
I feel very bullish about the economy for the second half because we're starting to see an increase in what have been flat sales, so I expect a more robust grocery performance.
We're looking for sales improvements of 2% to 3% during the half, but it's hard to make a comparison with last year because we were getting some of the Fleming business at that time, and we expect to maintain and enhance that business going forward.
We see challenges in the area of increasing health care costs and the growth of Wal-Mart, which will build its third warehouse in Utah later this year. But our members are doing a good job dealing with Wal-Mart, and we have a definite strategy to take advantage of our members' differences. We've analyzed the demographics and competition in each market to find seams of opportunity that our members can use.
We're in the process of moving from ad groups to various versions of a common ad to enable us to get the strength of our system reflected in how we treat the various brands. For example, in Utah and Idaho, we have a 35% market share, so we're putting efforts into moving to a single ad program that reflects that strength.
On The Election:
I support President Bush because his platform is geared more toward private business, and I will show my support by voting for him.
John Catsimatidis
CEO, Gristedes, New York
I see the economy continuing to progress in the second half and things will be much better this year. I think we'll continue to see acquisitions in the food business. Our attempt to buy Kings failed last year but we're continuously looking for opportunities.
We hope to take our company private this year. The independent directors are doing a fairness opinion and as soon as that's complete we're going to write the check.
Norman Mayne
CEO, Dorothy Lane Market, Dayton, Ohio
This is an election year, and I don't think the president is going to let anything happen to stop the economy. Besides that, I see our customers are upbeat, and business is good. Barring any catastrophes, I don't see the growth changing.
The first half of this year has been very good for us, and we anticipate that will continue for the balance of the year. I've got almost nothing to complain about: It's much better than it was a year ago.
Our concerns for this year are continuing to watch our costs. Health care is something that everybody has to take a look at and as people, take responsibility to look after our own health. Once we do that, together can get our health care costs down, because that is a big challenge.
