Report: Supermarket Industry Under Pressure

COLUMBUS, Ohio - Weak demand, intense competitive pressures and low food price inflation are converging to threaten the outlook for the already troubled supermarket industry, according to consulting and market research firm Retail Forward in its recently released report, "Food Channel Industry Outlook."

The Columbus, Ohio-based firm forecasts another year of soft sales growth for the supermarket industry as more players are forced to succumb to intense price and competitive pressures. Adjusting for inflation, it predicts real sales growth of only 0.6 percent in 2003. The five-year outlook is just as bleak with real sales forecasted to grow at a rate of only 0.5 percent a year through 2007.

"Supermarkets are battling significant challenges on all fronts," said Sandy Skrovan, VP and author of the report. "The supermarket industry is in a vise. Industry players are struggling to sustain market share against a growing number of competitive alternatives. Leading players have yet to demonstrate the ability to leverage size and scale to create the synergies and efficiencies that result in sustainable profit improvement."

According to the report, retailers are looking at a number of ways to break the mold, including:

-- Re-evaluating the asset base - The number of market leaders contemplating divestiture of underperforming businesses is likely to rise, Retail Forward predicts.

-- Retrenching and refocusing real estate - Market-level jockeying is likely to continue as players close underperforming stores and pull out of non-core markets.

-- Revisiting pricing/promotions - More players will review pricing strategies and explore emerging technologies in an effort to maintain price parity with low-price competition on key consumables items and price "right" on other merchandise.

-- Seeking differentiation - Efforts to differentiate on non-price measures including fresh foods, micro-merchandising, creative partnerships, online retailing, and technological advancements such as smart carts, e-kiosks, and wireless payment systems.

-- Emphasizing convenience - The repositioning of supermarkets as today's new "convenience" stores will continue, as players expand their one-stop appeal with bigger non-foods offers, more "grab-and-go" meal options, and the addition of fueling centers.

A few growth spots are emerging in the supermarket industry, the report added:

-- A growing number are exploring ways to integrate dollar concepts into their stores and mainstream organic and natural product offers.

-- More are testing ethnic formats and categories.

-- Price-impact formats are on the rise as players look for ways to recycle real estate, diversify store portfolios, and introduce concepts that can effectively compete in a low-cost/low-price environment.
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