NEW YORK — Supermarkets and drug stores are expected to show relatively greater strength during the first half of 2008 than other retail segments, including home- and apparel-related businesses, which will be hurt by pressures on discretionary spending among most consumers, according to a report issued yesterday by Fitch Ratings here, a global credit ratings agency. "Given their broad non-discretionary product offerings and convenient store locations, supermarkets are expected to perform well against a challenging economic backdrop as consumers trade down from casual dining restaurants," the report noted. "In addition, supermarkets are expected to pass cost increases through to customers and benefit from their value-oriented private-label offerings. However, sales mix shifts as well as price investments and higher product and operating costs could weigh on operating margins." According to Fitch, successful operating strategies will be critical to preserving sales and profits and gaining market share, "and a clear demarcation between the strong and weak operators will become apparent, [resulting in] further retail consolidation as strong operators accelerate their share gains and weaker operators get rationalized out of the market."
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