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SLOW SUPERMARKET GROWTH FORECAST

COLUMBUS, Ohio -- The good news is that the economic outlook for the next five years is robust both in the United States and overseas, according to a trio of retail economists with PricewaterhouseCoopers.The bad news is that supermarkets will be one of the five slowest-growing retail channels in this robust global economy, one of the economists said in a conference call last week organized by PWC's

David Ghitelman

July 3, 2000

3 Min Read
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DAVID GHITELMAN

COLUMBUS, Ohio -- The good news is that the economic outlook for the next five years is robust both in the United States and overseas, according to a trio of retail economists with PricewaterhouseCoopers.

The bad news is that supermarkets will be one of the five slowest-growing retail channels in this robust global economy, one of the economists said in a conference call last week organized by PWC's Retail Intelligence System here.

Moreover, another noted, it's likely that sales this holiday season won't reach the high level of the last two Christmases.

Frank Badillo, PWC senior economist, said supermarkets would be one of the five slowest-growing channels over the next five years, which put them in the same category as national-chain department stores, conventional department stores, shoe stores and book stores.

"Supermarkets have been bucking the trend of late, helped by the high tide of consumer spending," Badillo noted. "But as demand recedes, they will be exposed to competition from supercenters and see their growth rates come down."

Supercenters, he said, will be the fastest-growing retail channel, followed by discount department stores, warehouse clubs, nonstore retailing (largely meaning pure-play Internet retailers) and appliance stores (their sales volume driven by computers and computer-related merchandise).

Badillo said supercenters, discount department stores and warehouse clubs owe their success to their "strong value proposition, which continues to draw consumers."

He also spoke about fast- and slow-growing product categories. Two of the fast-growth categories, prescription and over-the-counter drugs, are widely carried by supermarkets. Other growth items he cited were computers, durable home furnishings and toys and games.

Only one of the five slow growers, cigarettes, is a supermarket staple, although gasoline, which food retailers are increasingly offering, is another category Badillo said would see slow sales over the next five years. (He also predicted that gas prices will not go higher, but decline to a plateau.) Rounding out the slow-growth list were cars, trucks and consumer electronics other than computers.

Carl Steidtmann, PWC chief economist, said retailers should not look to Santa Claus to save their bottom lines this year.

"If you take a long-run perspective, it's hard not to be extremely optimistic," he said. "All of the basic trends that drive retail spending are favorable."

His short-term outlook, however, was less positive. "There has been a war on consumption waged by the Federal Reserve over the last 12 to 18 months, with six increases in interest rates," he said.

The war on consumption has already taken its toll on the housing market, employment growth, auto sales and retail spending, which had declined for the last three months for the first time since 1991, according to Steidtmann.

"Going into the Christmas season, retailers face some real challenges," he said. "They have strong year-ago comps, particularly in home goods and food. It's going to take a lot of effort to jump over those comps."

He also cited "higher energy prices, which are also detracting from consumer spending. All of which, put together, make for a difficult environment for retailers."

The economic outlook overseas, as portrayed by Ira Kalish, RIS global economist, was for the most part more reassuring.

Kalish said, "Growth overseas was strong except in Japan, which has been in what you might call a growth recession for the past decade."

But even in Japan, which, he noted, "is not likely to see accelerated growth any time soon," a "retail revolution" is under way -- "good growth prospects for new and innovative retailers."

Meanwhile, he said, Europe is "strong," Latin America is "recovering nicely from a good scare two years ago," Canada is "very strong" and Mexico "looks to be stable going forward."

The clouds Kalish saw on the international horizon included "political turmoil in Russia and China" and the possibility that "an economic crisis in a small country could have a domino effect." The dominoes most at risk, he said, were Poland, Argentina and Indonesia.

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