No Free Lunch

The erratic economy, overstored landscape and changing consumer dynamics are keeping food retailers on their toes as they jockey to increase basket sizes and gain a competitive edge.

Analysis by Meg Major and Jenny McTaggart Research by Debra Chanil

Despite an impressive 3.8 percent overall supermarket sales increase during the past year driven primarily by new stores and hefty price inflation, retail food executives are toiling mightily to chisel growth during an evolving economic cycle that has triggered a schism between the operators that are feeling more optimistic about the road ahead, and the larger percentage that have since retrenched into a more guarded stance from last year, according to findings revealed in Progressive Grocer's 79th Annual Report of the Grocery Industry.

The downgrade in optimism among most retailers is clearly driven by independents, which are virtually split on whether they're more optimistic or less optimistic compared to a year ago. Historically, chains and wholesalers have always been more optimistic, but the gap between those two groups and independents is higher than ever. However, among the most revealing takeaways contained within the following pages of PG's annual "State of the U.S. Supermarket Industry," the consensus finds the independent sector — whether real or perceived — as the group struggling the most to keep pace with a mounting slate of competitive threats.

A highlight of PG's exclusive, retailer-driven exclusive research, the Annual Report of the Grocery Industry exemplifies our brand's 90-year heritage of providing retail grocers with one of the most accurate and reliable barometers of market intelligence. As in years past, information gathered for our annual benchmarking study was assembled primarily on a proprietary survey fielded to headquarters executives and store managers at supermarket chains, independents and wholesalers across the country in early 2012. The report is rounded out by store and sales data provided by TDLinx and Nielsen's Homescan panel (additional information about the methodology appears below).

Top-line statistics tallied in this year's study find supermarket sales climbing a notable 3.8 percent over last year to reach $584.37 billion, generated primarily by an increase in the number of stores and hefty price inflation. Total store count was up 1.2 percent, and per store sales increase edged up 2.7 percent.

Conventional-format supermarkets continue to make up the largest piece of the sales pie, with 68.24 percent of total sales, compared to 65.65 percent last year. The continued encroachment of supercenters, limited-assortment stores and natural/gourmet food formats continues to see positive gains in store count.

Chain stores continue to dominate the retail food landscape, with 82.26 percent of the total store-count pie, consistent with share recorded the previous year, while independents had 17.74 percent of units. Chain operators had a comparative net gain of 354 units (up 1.2 percent), vs. 66 units for independents (up 1.0 percent). Chains garnered an even stronger share of sales, capturing 94.3 percent, compared to 5.7 percent for independents.

Half Empty or Half Full?

When asked to rate their overall anticipated outlook for 2012 vs. 2011, retailers responding to this year's Annual Report have tempered their overall optimism for the year-end outlook, although chains with more than 10 stores were deemed to be most optimistic about the future of the business, as indicated herein.

Private brands continued to generate shopper interest throughout the majority of 2011 — not surprising since the economy remained rather sluggish — although hints were detected in the study's findings that find many retailers returning to an embrace of national brands to fuel their promotional activity.

Deli in the Driver's Seat

Looking ahead, deli and prepared foods are expected to fare exceptionally well this year. With consumers now more inclined and accustomed to purchasing prepared meals at supermarkets, grocery retailers are responding admirably well by making more space for these offerings. International fare and regionally produced ingredients are among the hottest trends in deli department foods. Ditto for signature and organic salads and side dishes, which also are rising in popularity in tandem with today's top culinary trends.

Meanwhile, health, beauty and wellness categories saw the least shopper traffic among major categories in 2011; however, retailers are more positive about this section for 2012. Further, two categories that were abuzz in recent years — ethnic foods and pharmacy — are expected to remain prevailingly popular with shoppers in the year ahead.

The key consumer trends of more at-home eating, value-centric format expansion and expectations of fresh food excellence will likely persist for conventional-format operators for the foreseeable future.

Now it's time to turn our attention to the nuts and bolts of PG's 79th Annual Report of the Grocery Industry. Our analysis of this year's survey data unfolds on the following pages in numerical sequence, with 11 pages of insights data that expounds further on the most influential trends reported by retail survey panelists for each.

Methodology

PROGRESSIVE GROCER'S 79th ANNUAL REPORT OF THE GROCERY INDUSTRY is based primarily on an exclusive survey conducted among headquarters executives and store managers at supermarket chains, independents and wholesalers.

A total of 248 responses are included in the final results. Among these respondents, 57.4 percent classify themselves as independent operators that are supplied by a wholesale distributor. A total of 22.4 percent of responses were generated by executives from self-distributing chains, while 20.2 percent were from wholesalers or wholesale-owned stores. A total of 53.3 percent of respondents operate 1 to 10 stores, 16.7 percent have 11 to 99 stores and 30 percent operator 100 stores or more.

Regionally, 33.9 percent are headquartered in the Midwest, 20.9 percent are from the West, 24.2 percent are from the Northeast and 21 percent are from the South.

Additional store account and sales data was provided by TDLinx, a Nielsen subsidiary company, which maintains a national database of supermarket and other retail format locations. Consumer behavior data was provided by Nielsen from its Homescan panel of more than 125,000 households.