While the decrease in gas prices should be a boon for consumers in 2015, supermarket CEOs for the most part aren’t taking any chances.
A slate of top leaders interviewed by SN in recent weeks say they are cautiously optimistic that economic conditions led by lower prices at the pump will help improve sales at their stores this year, but they expect they won’t be the only merchants hoping to benefit, citing potential competition from restaurants and other food retailers. And, they say, practices developed during the recession — including an emphasis on price, a willingness to get by on slim margins and a need to differentiate and tweak selections to meet consumer demands — should also continue.
In today’s installment, Jonathan Weis, CEO of Weis Markets; Mark Skogen of Festival Foods; and Fox Bros. Piggly Wiggy owner Pat Fox provide their views. SN will run additional interviews later this week.
Pricing, resets to continue at Weis
“Given that gas prices are down about a dollar a gallon, Americans saved about $14 billion in 2014 and stand to save up to $75 billion in 2015. That’s more than $100 in savings per household. That’s a big positive,” Jonathan Weis, CEO of Weis Markets, Sunbury, Pa., said. “But some long term challenges remain – challenges that impact how customers shop our stores. While unemployment continues to decline, wages are stagnant and the economy has yet to make up for three million jobs lost in the great recession. As a result, customers remain cautious when they shop our stores.”
For that reason, Weis explained, the company in 2015 will continue a price-investment program that improved the chain’s comp sales and overall price perception over the last year, even as at it came at a cost to the bottom line.
“We increased our market share despite lowering our prices – essentially 2.6% in grocery deflation. We knew lowering prices would impact our earnings but it was the right thing to do for our business over the long run and we are encouraged by our progress,” he said.
Weis Markets is also investing in its store fleet, with 19 stores slated for remodeling this year and around 100 expected to receive merchandise resets.
“In terms of marketplace competition, we are determined to hold on to our business and generate new sales,” Weis said. “We now sell beer in 25 stores in Pennsylvania, a real feat in a highly restrictive state, and have seen solid sales growth as a result. In food service, we are competing more effectively against takeout competitors and our gas sales have grown considerably. At the same time, we remain committed to the service side of the business. While some of our major competitors seem indifferent to customer service, we’ve become more focused and responsive.”
Holding steady at Festival Foods
Even with an improving economy, Onalaska,Wis.-based Festival Foods expects margins and same-store sales to hold steady in 2015.
President and CEO Mark Skogen said the gas prices look encouraging to free up spending, but noted that the Wisconsin market tends to be stable.
“You know, this state has been one that just doesn’t move the needle a lot when gas goes up, goes down or whatever’s going on in the economy, and I guess that’s to our benefit that we are not chasing market conditions as much as other parts of the country.” On margins, he said “We’re projecting a little bit of growth, but not a lot.”
To help support Festival Foods’ growth — including plans for an urban format in Madison, Wisc. this year — the retailer has been hiring more associates, particularly those with in-depth knowledge about perishables.
“You have to be careful to not hire too much overhead or support staff, but we’ve grown recently to the point where these positions should help us take yet another step,” said Skogen. In addition, he said, the chain is still looking for opportunities for new stores — evaluations supermarkets wanting to sell and weighing the best locations.
Prime opportunity at Fox Bros.
Fox Bros Piggly Wiggly CEO Pat Fox said he’s been seeing customers spending more thanks in part to the improving economy and low gas prices. Fox pointed to the December sales of prime rib — a favorite Christmas dish in Wisconsin — offered at the same price as last year.
“We sold way more than we planned,” said Fox. “I think that to me personally was a direct reflection of the fact that the consumer is paying on an every-week basis — depending on how much they drive — $15, $30, $40 less in gasoline.”
The seven-store Wisconsin chain is expecting same-store sales to increase 2% to 3% in 2015, and Fox expects protein margins to stabilize with possible lower prices for customers. The chain will continue to focus on customer experience, and perishables and its ad program, Fox added. He said that the chain plans to expand its private label brat and beef stick line.
“We do that [meat line] very, very well and the growth on that has been just been phenomenal,” he said, adding that sales were up 20% last year.
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