Food Retailers Celebrate an Improving Picture for Profits

The mood was celebratory here at the nation’s largest convention of supermarket and food industry personnel. The good feelings reflected data that showed profits are up and Americans are poised to embrace their free-spending ways of years past.

The annual meeting of the Food Marketing Institute, a grocers’ trade organization, has attracted more than 23,000 people for a four-day event that is ultimately devoted to selling consumers everything from canned sardines laced with red pepper to peach sorbet.

Mornings are devoted to seminars which educate food retailers on subjects such as how to improve deli operations, make crusty French bread or reduce in-store accidents. The afternoons find conventioneers strolling by the sea of exhibits at McCormick Place, where the latest device to alter the bottom line may be on display. Evenings become an endless parade of parties, hospitality suites and dinners, where expense accounts take a beating.

This year, supermarket executives have reason to enjoy their entertainment because FMI reports that net profit margins before taxes for the industry increased 18.5% last year, to the healthiest levels since 1980. Despite the considerable gain, the net profit margin remains a slight 1.6% of total sales. In other words, supermarket operators are pocketing $1.60 for each $100 rung up at the checkout counter.

FMI’s members operate stores which have combined annual sales of $130 million, or half the nation’s grocery sales. The improving profit picture is welcome news to this group, which is experiencing a number of clear signals that the recession of the early 1980s is finally dissipating.

This is most evident in consumer responses to an FMI-sponsored Lou Harris and Associates national poll, which revealed high levels of optimism on financial issues. The poll results were released as part of the association’s “state of the industry” report.

“The American public remains strongly upbeat about their personal economic situations in 1985,” said Allen I. Bildner, an FMI official who is also a New Jersey-based supermarket executive, at a convention seminar. “Only about one in 10 respondents expects to see supermarket prices increase sharply in the next six months, down 50% from last year.”

The consumer confidence reflected in the Harris poll results has brought a surprising change in consumer shopping habits.

“The big picture: economizing is in decline,” said Timothy M. Hammonds, FMI senior vice president, who said poll results showed decreases in the number of consumers using coupons, and those examining newspaper ads for specials and comparison shopping.

“The emphasis on time and convenience and the decline of economizing strategies appears to be a solid trend,” Hammonds said.

One convention speaker went as far as saying, “For many shoppers, saving money is ‘out’ and saving time is ‘in.’ ”

Asked to explain the disparity of the Harris poll results with recent information from a Nielsen Clearing House Co. survey indicating record use of coupons, Hammonds said that the poll simply reveals people are drifting away from frugality.

“We tend to see attitudes emerging before actual behavioral changes. The poll indicates that people are tending to, or starting to, economize less. What we are seeing is the early warning signs.”

Supermarkets plan to capitalize on these time-saving inclinations by further expanding the number of non-food-related services already present in many stores. FMI data show continuing growth in the number of markets with pharmacies, automatic teller machines, salad bars and deli counters.

If consumers have taken a new approach to food costs, then the outlook on nutritional issues remains static. The poll found that consumer interest in nutrition issues may have peaked and that for the first time in years the number of those saying that they were “very concerned” or “somewhat concerned” about nutrition has declined.

Food safety remains important to the consumers surveyed, however. The FMI poll found, for instance, that 82% of those queried were either very concerned or somewhat concerned about “the possibility that fresh meat products may contain some (growth) hormones or antibiotic residues.”

The results show a high level of awareness on an issue that health activists have been championing recently. (Consumer activists believe the use of antibiotics in animal feed may eventually create a strain of harmful bacteria in cattle and poultry that if transferred to humans would be additionally untreatable.)

There is uncertainty whether diet or safety issues have contributed to the decline of red meat consumption, but retailers have addressed the potentially damaging situation with increased sales of seafood. FMI reports that more than 85% of the markets it surveyed sold fresh seafood.

Whether supermarket officials were incorporating the results of these consumer attitudes into their marketing strategies will not be known until yet another poll is taken. However, the exhibits that drew the most grocers may indicate the products likely to gain or retain supermarket shelf space.

Certainly, one of the busiest exhibits on the convention floor is Coca-Cola’s, where cheery company representatives are pouring many people their first taste of the newly reformulated Coke. When one of the company’s staff was told that the new Coke tastes a bit sweeter than the old version, he said, “No. It’s not sweeter. It’s smoother, with less bite.”

Just as the Coca-Cola representatives found themselves repeatedly explaining why the company changed its famous soft drink formula, so did those at the Pilgrim’s Pride booth. This Texas company debuted a fresh, boneless whole chicken. The chicken appears fairly intact, complete with skin, except it’s flat.

A company spokesman said that their process for successfully boning chicken is a trade secret. His explanation for why the firm introduced boneless, whole fresh bird, however, may fit into the changing consumer attitudes found by the Harris Poll and proved to be popular to those no longer concerned with economizing.

The reason for the boneless bird?

“It cooks faster,” he said.