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From the annual FMI convention in Chicago…
The members of the food industry convening in Chicago this week for the annual Food Marketing Institute (FMI) convention and exhibition face a business environment perhaps unlike any they've ever dealt with before. In addition to the heightened, cutthroat competition that most of them face on a daily basis, there are a plethora of external issues -- concerns about war, terrorism, the economy, and communicable diseases are the ones that leap immediately to mind -- that threaten to overwhelm them.

In his annual "FMI Speaks" presentation, FMI senior vice president Michael Sansolo laid out the often contradictory, hardly comforting, and frequently grim overtones in the circumstances that face food retailers today.

There are, to be sure, some encouraging signs. Supermarkets have been holding the line on price, for example, with the average market basket in 2002 less expensive ($24.63) than a year earlier (($25.66). And consumers continue to give a higher grade to retailers (8.1 on a scale of 1-10) than they do to discounters (7.8).

But even in the good news there are less than reassuring caveats; for example, Sansolo explained, there is a "softness" in how consumer rank supermarkets, with fewer consumers giving their supermarkets a "9" or "10" than they did a year ago.

The less than encouraging trends include:

• 40 percent of shoppers switch stores because of price.


• 20 percent of shoppers say that they do their primary supermarket-style shopping in a non-supermarket.


• Younger people -- the supermarket shoppers of the future -- are more likely to use discount stores, supercenters, ethnic food stores, and natural/organic stores than in mainstream supermarkets.

To get a sense of how the industry is grappling with a business climate that seems to defy historical reference points and easy categorization -- not to mention ready strategic responses -- we engaged in an exclusive e-interview with Sansolo, asking him to expand on some of the issues that he addressed in 'Speaks."

MNB: During the past year, it almost seems like the wheels have started to come off for the retail food business as it has had to grapple with so many issues at once: a war abroad, terrorist threats at home, domestic economic problems, food safety and security issues, and the competitive challenges that increasingly face industry players. Considering all that, what’s your assessment of the state of the industry?

Michael Sansolo: The wheels aren’t coming off, but the road is really, really bumpy.

There’s really no easy assessment of the industry or the past year. What happened was very simple. A number of issues—war, economics, terrorism, shifting consumer demands and more—all occurred simultaneously. The last word in that sentence is the key. We’ve had more difficult wars; deeper recessions; larger food safety/security issues (and more) in the past, but we’ve never had a year when everything happened at once. In 2002 (and the first quarter of 2003) that’s what happened.

Our industry is so inter-twined with the entire nation that the issues impacting the country impact us heavily. Declining consumer confidence, the on-going emphasis on value shopping among a majority of consumers, even concerns about the business environment all impact us. Even the way impact us very directly as many supermarket companies saw significant numbers of employees leave for military duty. (And, nicely, many of these same companies announced generous plans to hold jobs open for the reservists and to make sure they are covered from salary and benefit losses while they are in the military.)

The effect of all these challenges was one of the smallest overall sales gains—less than 2%—that the industry has ever recorded. But again, the picture isn’t simple. Half the companies we surveyed posted sales gains better than 3.4% and nearly one-fourth posted sales gains above 7%. Clearly, many companies found a way to grow and while many of those were smaller companies, a number of good-sized regional chains were able to set themselves apart from the competition and build.


MNB: In the coming year, what do you think the hot-button issues will be that the industry will have to face, and the initiatives that the industry will be pursuing most ardently?

Michael Sansolo: The most important issues always come from our consumers. Right now our Consumer Trends report finds shoppers in a cautious mood and focused on cost-cutting and that clearly will be a hot-button issue for the industry. Beyond that, however, there is a huge range of issues for the industry to face. Let me outline a few:

Competition remains as challenging as ever, especially with the continued growth of alternative shopping channels. Retailers will need to focus on creating value and standing out in the minds of shoppers to make sure they are winning the battle for shoppers every day. The majority of retailers tell us they are optimistic about building sales in 2003, so they clearly have a sense they are up to the challenges of the day.

A number of retailers say technological advances continue to loom large for the coming year. Internet-based technologies continue to offer the promise of smoother communications between suppliers and retailers and we continue to see growing interest in data synchronization and UCCnet. Work will also continue as we move toward the expanded UPC code in 2005.

Country of origin labeling regulations are coming and have real impact on all operators unless the government alters this very, very onerous policy. FMI is distributing information on this topic constantly and will have special updates available for operators at the May show and beyond. This is an issue that cannot be avoided by any part of the supply chain.

Food safety remains a vitally important issue and one that seems to change monthly depending on media reports or specific studies. Sometimes these issues move so quickly it’s hard to keep track of what concerns are being thrown at consumers. (Remember acryl imides?) In addition, food security is a growing concern due to heightened worries about national security.

But the bottom line is our consumers. We’ve all seen the news and mood of the country shift consumer confidence and buying habits. We’ve also seen how savvy retailers can work with shoppers to educate them and help them understand difficult issues. Not that long ago, irradiated foods were almost impossible to discuss. Now a growing number of retailers are selling them strongly thanks by providing information and knowledge.

MNB: That said, do you believe that the industry will have the discipline to remain focused on those issues? If you look back at the past few years, the hot initiatives have involved issues like loyalty marketing and meal solutions -- and yet, if you started talking at length at ‘Speaks’ this year about meal solutions, people would probably look at you like you have three heads. It isn’t that old an initiative, it still seems to make a lot of sense for consumers, and yet it seems like yesterday’s news.

Michael Sansolo: The hot issues change each year, but not the basic trends. You’re right that no one wants to hear a speech about meal solutions in 2003, yet you’d be hard pressed to find a supermarket without those products because they still work for today’s shoppers. The challenge the industry faces is that new issues are constantly coming to the fore and must be dealt with, while the basics of the industry cannot be neglected.

The basics simply come down to what consumers want. It begins with clean stores, courteous employees, competitive pricing and good locations. There’s growing concern about nutrition and that’s a vital issue. And people are pressed for time and want shopping and cooking to get easier. So meal solutions still makes sense. But the basics keep growing. Nutrition is a bigger issue than ever. Food safety gets plenty of publicity and plenty of attention. Emerging demographic groups (age, ethnic and even attitudinal) demand attention.

There will always be emerging issues and one of the goals of the Speaks presentation is to highlight as many as possible in a short period of time just as you do in presenting this daily column. But for the folks in the industry, the issues live on and so do their efforts to provide answers.

MNB: One of the most consistent themes that emerged in stories about the food industry this year had to do with financial probes into how companies did business, most often dealing with how companies were accounting for vendor allowances. Do you believe these kinds of stories undermine confidence in the food industry -- not just on Wall Street, but also on Main Street?

Michael Sansolo: Shoppers’ satisfaction with their own supermarket remains strong in 2003, because they grade stores on how well they serve their needs, not on the news in the Wall Street Journal. Even on the vital issue of food safety, consumers tell us they believe the supermarket is one of the stronger links in the food chain and is far safer in many cases than the home kitchen.

That said it is also clear that consumer confidence has been shaken over the past few years by business scandals throughout all sectors of the economy. That lack of confidence translates into some of the gloomy mood we see in the aisles and some of the budget-consciousness we see from our shoppers.

The bottom line is this: the sad parade of business scandals has sensitized consumers to these issues more than ever and the food industry has to operate in that environment. Shoppers visit our stores and use the products of our industry more than most any industry in this country. Shopper trust is vital and we must do everything we can to reinforce that trust daily.

MNB: If, as has been suggested by many in the MorningNewsBeat community, the financial underpinnings of the industry are more like a house of cards than anything else, what should the industry be doing to shore up the foundation and create a business structure that can stand for decades to come and incite nothing but confidence both on Wall Street and Main Street?

Michael Sansolo: This is an important question with no simple answer. The industry is very solid financially because we sell products and services consumers want and because the competitive nature of our industry forces each player to constantly find ways to improve operations. We give the industry as a whole far too little credit for the incredible job it does providing the needs of America’s consumers at incredibly affordable prices.

But business operates today in a very sensitive environment thanks to the issues raised in the previous question. Business practices that look overly complicated or seem to lack consumer focus now look suspect. Some of the news stories about companies in this industry and related industries have put a spotlight on how we buy and sell and the questions aren’t limited to a handful of companies.

Clearly, there is an issue here that must be addressed. In the past few months, FMI presented an exclusive study from McKinsey & Co. on the shift to value shopping among America’s consumers. This report painfully outlined how many traditional retailers are losing sales by losing touch with this new consumer reality.

McKinsey raised two important points in this report that are in line with your question. They suggested that retailers do whatever is possible to cut supply chain costs and look for ways to simplify wherever possible. The industry is full of many types of operators and there is no single way to run any part of this business. However, the message is clear that buyers and sellers need to work together to simplify the system as much as possible in ways that can reduce unnecessary costs while maintaining customer choice.

Many of the buying/selling practices currently used in our industry grew up due to realities dating back decades. Many were caused by governmental actions or even changes in supplier policies. But front page news is rarely about history. I imagine we’ll see many companies looking into this issue and asking themselves some challenging questions as to how they can simplify and improve buying and selling practices.

MNB: What has been the biggest/most pleasant surprise of the past year? And what do you hope it will be when, a year from now, you look back on the previous 12 months?

Michael Sansolo: It the midst of a challenging year, there are bits of good news. The high levels of consumer satisfaction with supermarkets is very good news. And it’s good to see so many retailers finding a way to beat the odds and build sales even in tough times.

Making projections about the future is always tough, especially when things are changing so fast. I hope a year from now we can look back and see numerous ways in which the industry answered consumer needs and evolved to become even stronger players than they are today.