Top 25 Retail Banners Will Lead Growth Through 2015: Report
Retail consolidation that recently impacted the book trade is predicted to hit the retail food channel over the next few years in the same fashion, according to a report from RetailNet Group ( RNG).
The top 25 retail banners that operate in the United States currently hold 65 percent of sales, but even excluding acquisitions or closures, these retailers are forecasted to capture 100 percent of dollar growth in food selling channels from 2012-2015, said Tim O’Connor, VP of RNG.
Overall sales growth of food selling channels is forecasted at a relatively modest rate of 4.3 percent, which when weighed against inflation in cost of goods, is below the population growth rate on a volumetric basis. The slow growth and likely consolidation foreshadow an intensely competitive retail environment over the next five years, which O’Connor said is likely to translate into market exits and acquisitions as a result.
A factor driving this forecast is digital price transparency among shoppers that are now able shop for price comparisons with web-based applications and accordingly choose where to buy.
“E-commerce is a related and parallel driver of competitive intensity, which combines to engender a degree of deflation from competitive pricing that has and offset effect on cost of goods inflation,” noted O’Connor. “The result is a diminished retailer and ultimately supplier/combined margin pool, as was already evident in 4q2011 earnings announcements from Walmart and Target.”
While this will be good for consumers, O’Connor said it will be a challenge for retailers, suppliers and their employees, as retailers and suppliers look to reduce overhead expenses in the next few years to compensate for margin losses from pricing.
While RetailNet Group does not forecast specific retailer acquisitions or market exits, O’Connor said there is a clear indication “that a number of operators will either exit marginal stores and markets as Safeway has done recently in the Philadelphia market, or close/spin off/sell entire banners/divisions as Sears may be starting to do with their recent restructuring announcements, and Food Lion’s closure of the Bloom banner.”