FROM FMI: Gains Mixed, but Problems Universal for Grocers in 2006, Says FMI Speaks Study

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FROM FMI: Gains Mixed, but Problems Universal for Grocers in 2006, Says FMI Speaks Study

CHICAGO, Ill. - Supermarket industry sales increased 5.3 percent in 2006, and same-store sales rose 4 percent, the highest gain in more than a decade, according to the Food Retailing Industry Speaks: Annual State of the Industry Review 2007, released here this week by the Food Marketing Institute (FMI). These gains bettered 2005's 4.6 percent and 2.4 percent gains, respectively, in 2005.

While the national chains reported a banner year in sales and profit growth, the picture was far less rosy for many other retailers, according to the study. In fact, same-store sales decreased for nearly one-quarter (23.5 percent) of food retailers. All together, nearly half (47.1 percent) loss ground in same-store sales when factoring in inflation.

Net income before taxes and extraordinary items decreased to 1.8 percent, from 2.1 percent. Retailers with more than 100 stores reported the highest income numbers at a median of 3.2 percent.

"These results are impressive in view of all the rising costs the industry must bear, including energy, healthcare, credit card interchange fees, and the imperative to keep improving products and services in today's extraordinarily competitive marketplace," said FMI s.v.p. Michael Sansolo. "However, it is also clear that many retailers are struggling to solve the puzzle of cutting costs as much as possible while continually improving customer service."

Retailers are responding aggressively to diverse and changing customer demands, delivering fresh, healthful and convenient products storewide, FMI said. Meal solutions and niche marketing were among the strategies cited most by retailers. They said they are offering meal solutions such as:
- Hot-service counters, 89.2 percent.
- Self-service refrigerated cases, 83.8 percent.
- Made-to-order sandwiches, 71.6 percent
- Soup bars, 67.6 percent
- Catering, 62.2 percent.
- Separate checkouts for prepared foods, 58.1 percent.
- Salad bars, 56.8 percent
- Sushi stations, 52.9 percent.
- Snack/juice/coffee bars, 50 percent.

Prepared foods departments have grown large, with the median number of items offered at 62. Menu items in this department range from traditional fried chicken, to made-to-order pasta dishes, paninis, and burritos. Chicken remains the most popular item, however, prepared in a wide variety of forms including barbequed, roasted, fried, rotisserie, and tenders.

As many as 83.9 percent retailers said they offer ethnic foods, and 72.4 percent feature a natural/organic food aisle or section. Surprisingly, nearly half of the retailers surveyed are branding their own organic foods.

Looking to the future, the report found increased concern over a growing host of strategic issues. In fact, the level of concern, measured on a scale on 1 to 10 with 10 being the highest, increased for nearly every issue. Furthermore, more issues had an anxiety rating of 6 or higher than ever before in the report:
- Healthcare costs, 7.9 in 2007-2008, up from 7.6 in 2006.
- Competition from other retailers, 7.7, up from 7.5.
- Credit/debit card interchange costs, 7.5, up from 7.2.
- Energy costs, 7.4, down slightly from 7.5.
- Staffing, hiring, retention, 6.9, up from 6.5.
- Technology investments, 6.5, up from 6.0.
- Food safety scares, 6.0, up from 5.7.

The frustration over some of the issues stems from the industry's inability to control them, said FMI. The most significant example is interchange fees, averaging nearly 2 percent, which credit card companies and banks extract from every plastic transaction.

Nearly all retailers (98.8 percent) addressed competition issues by emphasizing perishable products such as meat, produce, prepared foods, and deli and bakery items. This strategy is yielding success, with an effectiveness rating of 8.6 with 10 being the highest, according to the report.

Companies are also competing by developing store brands (87.8 percent); focusing on natural and organic products (84.1 percent); providing a unique shopping experience, store design and product selection (74.4 percent); emphasizing consumer wellness and family health (73.2 percent); and featuring low prices (72.0 percent).

The data for this report was based on surveys of 92 companies operating 14,769 stores, filings with the Securities and Exchange Commission, and information from the U.S. Bureau of Labor Statistics and Census Bureau. The analysis also incorporates other FMI research, including U.S. Grocery Shopper Trends 2007, Facts About Store Development 2006 and the 2005-2006 Annual Financial Review.

The full report is available at