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Surviving the Recession Is Just the Beginning

Surviving the Recession Is Just the Beginning

Supermarket operators seem to be weathering the economic downturn pretty well, according to interviews with food retailing and wholesaling executives in a story in the July 6 issue of SN.

The shift toward more at-home dining is driving more customers into the aisles of traditional retailers amid the lingering recession, and operators see that trend continuing.

Those polled by SN for this article expect the economic malaise to constrain consumer spending for the rest of this year, at the least, and many expect that 2010 will bring only a modest and slow recovery.

That would seem to bode well for many traditional supermarkets, as long as consumers continue to see at-home dining as more economical.

However, things are not quite that simple. The weak economy is driving shoppers to seek the best possible deals, and although supermarket operators are rising to the challenge with innovative promotions, they must continue to capture higher volumes in order to maintain their profit margins.

“We'd like to see an increase in tonnage,” said Neil Golub, chief executive officer, Price Chopper Supermarkets, Schenectady, N.Y. “This has been impacted as customers are buying less.”

The operators polled by SN seem up to the task, and are clearly faring better than their counterparts in other retail segments. But are they thriving in the recession, or just surviving?

A speedy recovery in consumer spending, even if it means a resurgence in restaurant dining, would clearly be better for traditional supermarket operators than a long, slow rebound. Every day that consumers feel pressured to scrimp is another day they are susceptible to the rock-bottom price appeal of alternative channels like Wal-Mart, Save-A-Lot and Aldi.

And every day that traditional supermarkets promote their own price deals is another day not spent on honing the differentiating factors that separate them from their alternative competition. Private-label offerings have helped a great deal in providing both differentiation and price appeal for traditional operators, but store brands are only a piece of the overall proposition that mainstream food retailers need to embody in order to have ongoing success.

The longer the economy takes to recover, the more risk there is, too, that some other factor might come into play that disrupts spending in the supermarket. Commodity inflation has moderated lately, but increases in food costs could pressure already-slim margins, and likewise another spike in fuel costs could further tighten consumers' purse strings.

In addition to those issues, supermarkets also continue to face a tight credit market as part of the downturn, restricting access to capital for some operators.

The supermarket industry can surely be viewed as one of the few bright spots of American business in the downturn, but it remains to be seen if the strategies that operators have adopted to manage through it will serve them well in the long term.

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