In 2002, the supermarket industry posted its smallest annual increase in sales since 1995, while weak demand, intense competitive pressures, and low food price inflation are converging to threaten the outlook for this already troubled industry, reports Retail Forward in its recently released Food Channel Industry Outlook.
Retail Forward 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, the company predicts real sales growth for this channel of only 0.6 percent in 2003. And, the five-year outlook is just as bleak with real sales forecasted to grow at a meager rate of only 0.5 percent a year through 2007.
“Supermarkets are battling significant challenges on all fronts,” said Sandy Skrovan, Vice President with Retail Forward, and author of the report. “The supermarket industry is in a vise,” she says. “Industry players are struggling to sustain market share against a growing number of competitive alternatives. Pricing pressures, margin pressures, and escalating costs continue to drain the bottom line. Leading supermarket players have yet to demonstrate the ability to leverage size and scale to create the synergies and efficiencies that result in sustainable profit improvement.”
The report says that leading industry players are looking for ways to break the mold in an effort to strengthen market share, increase profitability potential, and defend against fierce competitive pressures.
A few growth spots may be emerging, however, according to the report. For example, a growing number of supermarkets are exploring ways to integrate dollar concepts into their stores and mainstream organic and natural product offers. More are testing ethnic formats and categories as the US population becomes increasingly diverse. And, 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.
“To compete more effectively, defend market share and sustain profitability, supermarkets must look at new ways to tap under-penetrated or underserved demographics and lifestyles,” Skrovan said.
Retail Forward 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, the company predicts real sales growth for this channel of only 0.6 percent in 2003. And, the five-year outlook is just as bleak with real sales forecasted to grow at a meager rate of only 0.5 percent a year through 2007.
“Supermarkets are battling significant challenges on all fronts,” said Sandy Skrovan, Vice President with Retail Forward, and author of the report. “The supermarket industry is in a vise,” she says. “Industry players are struggling to sustain market share against a growing number of competitive alternatives. Pricing pressures, margin pressures, and escalating costs continue to drain the bottom line. Leading supermarket players have yet to demonstrate the ability to leverage size and scale to create the synergies and efficiencies that result in sustainable profit improvement.”
The report says that leading industry players are looking for ways to break the mold in an effort to strengthen market share, increase profitability potential, and defend against fierce competitive pressures.
• 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 to focus investment in stores with the greatest potential and highest market share.
• 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 will escalate 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, according to Retail Forward, 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 may be emerging, however, according to the report. For example, a growing number of supermarkets are exploring ways to integrate dollar concepts into their stores and mainstream organic and natural product offers. More are testing ethnic formats and categories as the US population becomes increasingly diverse. And, 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.
“To compete more effectively, defend market share and sustain profitability, supermarkets must look at new ways to tap under-penetrated or underserved demographics and lifestyles,” Skrovan said.
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