Supermarket companies are projecting capital expenditures for the current fiscal year that are about even with last year's totals, although a handful are ramping up their investments.
According to recent filings with the Securities and Exchange Commission and executives' comments to analysts and investors, the major traditional retailers are continuing on their recent path of aggressive remodeling programs while shunning new-store development.
Kroger, Supervalu and Safeway collectively ended their most recent fiscal years with the exact same number of stores that they began with. Cincinnati-based Kroger Co. managed to increase its net store count through acquisition — to 2,486 stores, up 18 from the preceding year — but Safeway had a net decrease of 14 units, to 1,761, and Supervalu's store total fell by four, to 2,474.
“It seems like we have peaked out a little bit on cap-ex spending,” said Jason Whitmer, an analyst with Cleveland Research. “The numbers across the board seem to be flat at best.”
Kroger has projected cap-ex spending of between $2 billion and $2.2 billion, not including acquisitions, after capital investments totaling $2.06 billion in the company's most recent year. Whitmer estimates the company will complete about 220-240 remodels in the current year, up from about 200 last year.
Square-footage growth is estimated to fall between 2% and 2.5% in 2008, on the heels of the 2% the company added in 2007 through the acquisitions of Farmer Jack and Scott's stores in the Midwest and the ongoing buildout of the massive Marketplace format.
Safeway, meanwhile, projected a slight decline in cap-ex spending for 2008 — from $1.77 billion down to a range of $1.7 billion to $1.75 billion — although its “lifestyle” store remodeling schedule remains on par with last year. The Pleasanton Calif.-based operator said it planned to open 20 to 25 new lifestyle stores and to remodel 250 to 255 stores into the lifestyle format, which includes an upgraded perishables offering and a wider assortment of prepared foods, in 2008.
Minneapolis-based Supervalu invested about $1.27 billion in capital spending in the most recent fiscal year, including about $1.2 billion for its retail store base and the rest for its distribution operations. That represented a 37% increase in cap-ex over prior-year investment. It opened 27 new supermarkets (not including Save-A-Lots) and completed 141 remodels.
In the current fiscal year, it plans to remodel 165 and open 15 new traditional supermarkets.
“Supervalu is really trying to dial up [cap-ex spending], but I don't see them dialing it up that aggressively,” said Whitmer.
One growing area of investment for the traditional supermarket operators has been the purchase of the land on which their stores are sited, he pointed out.
“I think the remodels are still where most of this money is going, or towards real estate — we're seeing a pretty big trend here toward a lot of grocers wanting to own the real estate,” he said. “It's much easier to manage projects for remodels, and it's easier to put in fuel centers.”
The reduction in store counts that operators have undertaken in recent years — Safeway has trimmed its store count by 55 in the last three years, for example — could begin to slow, Whitmer projected.
“I think they are getting closer to the end of this pretty torrid pace of operational closings,” he said.
