Feeling the Bite : Food Stores, Once Thought Recession-Proof, See Flat Sales
The nation’s supermarkets, long seen as recession-proof, are feeling the effects of a soft market as economic woes linger, pressuring stock prices and store sales downward and forcing consumers to shop for lower-priced food products.
Grocery retailing has generally been viewed as a recession-proof industry because demand for food has remained constant through past recessions.
This year, however, leading grocery stores are seeing flat sales and falling stock prices as the year progresses after peaks in both categories earlier in the year. Industry observers, doubtful that a quick rebound will take place, are now categorizing grocery sales as at best only recession-resistant.
“Consumers are now permanently prudent,” said Edward Comeau, an analyst with Oppenheimer & Co. “In the late ‘80s, the merchandise mix at supermarkets increased, and stores had a lot more upper-end produce. Grocery sales in the last 12 months have been just about flat. And if we get back to a slow-growth economy soon, consumers will be slow to come back.”
Sluggish supermarket sales have been most pronounced in California and the Northeast. The two regions have been plagued by high unemployment, businesses moving out and price competition with discount membership stores.
The soft economy has pressured consumers into becoming more price conscious, selecting less-expensive foods and advertised sales items, analysts said.
While food prices have risen very little, and in some instances fallen, consumers have “gone back to the basics” when purchasing foods, said Don Beaver, president of the California Grocers Assn. They are opting to cook from scratch at home, instead of buying higher-priced prepared foods.
Supermarkets in California “haven’t really felt a recession before,” Beaver said. “By the time one reaches us, it’s just about over. And people are very conscious about the economy, so their spending habits have changed. When things get a little tough, people will still make sure the family eats nutritious foods, but they might trade down from prime rib to hamburger, filet mignon to beans and potatoes.”
Shoppers have also recently steered away from desserts and non-essential items, such as coffee. According to Information Resources Inc., sales of cheesecake, lard, frozen bread dough, coffee and butter have dropped in 1991, compared to a year ago.
The switch from products that bring higher profit has had an impact on grocery store earnings.
Earlier this week, Vons Cos., Southern California’s largest supermarket chain, said its sales in the third quarter ended Oct. 6 were flat. The Arcadia-based chain said its net profit rose 5.1% in the quarter, but sales were $1.64 billion, the same as the year-ago period.
Vons, which has 319 stores, has seen its stock price tumble. It closed at $26.50 on the New York Stock Exchange on Thursday, down from a high in the spring of $34.125.
While the company’s gross profit margin in the third quarter improved to 24% from 22.7% in the year-ago period, the drop in sales and stock prices reflect an industrywide slowdown.
“What is happening in supermarket sales in Southern California is pervasive throughout the country,” said David B. Sykes, senior vice president of finance for Washington-based Giant Food Inc. “Very few chains are having sales improvements,” he said. “For us at Giant, we are running flat.”
Giant closed Thursday at $23.25 on the American Stock Exchange, down from $31.25 earlier this year.
Other supermarkets have also suffered sales and stock-price declines this year. Montvale, N.J.-based A&P;’s stock price dropped to $28.875 Thursday from a high of $57.75 earlier this year. The company’s net income dropped 60% in the second quarter ended Sept. 7 and 41.9% in the first six months of the fiscal year. Albertson’s Inc., based in Boise, Idaho, closed at $36 Thursday, down from a 1991 high of $51.375.
Increasingly, people are buying less heavily packaged foods and fewer prepared meals. They are now having more meals at home and buying less lavish, expensive food, said Jeffrey Francis, consumer program director for the California Public Interest Research Group.
Still, specialty grocery stores in California said their business has been steady. Although sales of certain products--such as higher-priced champagne--have fallen in some stores, overall sales have been consistent with past years, they said.
“Whenever we’ve been in a recession, our business has increased,” said John Shields, president and chief executive of Trader Joe’s. “I think that in a heavy recession, like the one we are in, people go to other food stores to see how their prices are.”
Supermarket Stocks Under Pressure
How stocks of three supermarkets chains--A&P; in the Northeast, Giant Food in the Washington, D.C., area and Vons of Southern California--have fared this year as the recession has cut into earnings.
Weekly closes, latest A&P; Northeast: $28.875 Vons Southern California: $26.50 Giant Food Washington D.C.: $23.25
