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Costs and prices.

* Disinflation was alive and thriving last year as food-at-home prices advanced at their lowest rate in 15 years.

* The increase in energy costs was the slowest in nearly a decade.

* Union representation in chains continued downward as operators fought to wriggle out of the cost-price squeeze.

* Independents managed to bolster their gross margins, but their payrolls got fatter too.

* Solid gains in areas of productivity contributed to the wholesale sector's healthy overall performance. The lid on prices tightens further

Supermarket operators were again caught in a disinflationary cost-price squeeze, as retail food prices gained at a barely perceptible rate last year over 1982. Compounding the problem: Active price-cutting continued as a dominant strategy, setting off widespread price wars and further suppressing overall profits. Not everyone felt the pinch though. A fair number took advantage of stable prices to emphasize quality and higher margin items and emerged from 1983 in relatively good shape.

Meanwhile, the general consensus is for food-at-home prices to head higher in 1984--but not high enough, according to at least one sector of the industry. A clear majority of chain executives expect costs to again rise faster than prices, which they see climbing 3.6% in 1984. The percentage gains of both food-at-home and food-away-from-home on a year to year and 1983 month by month basis are tracked in the above chart. Marketing costs ease...But still outpce food prices

Nominal price hikes for fruits and vegetables, poultry and dairy products, along with a decline in meat prices, helped to keep the year-to-year advance for food-at-home at its lowest level in 15 years. If economic forecasters are accurate, however, 1984 will see a return to double-digit inflation at the meat counter and more moderate, but nonetheless accelerated price increases for most other food categories. The index for food-away-from-home, meanwhile, registered the lowest manual increase since 1964, when prices gained only 2.2% over the prior year. And while marketing costs continue to increase more rapidly than food prices, the trend is clearly downward. Labor in 1983 advanced at half the pace recorded in 1982, while transportation remained relatively stable. Equipment--more are buying...And looking for efficiency

Equipment buyers, hoping to cut costs while building sales, increased their shopping lists last year to procure more productive and cost-efficient equipment. A case in point: Nearly double the number od independents and a full 50% more chains than a year earlier dipped into their coffers to purchase random weight printing scales. Similarly, technological advances in surveillance equipment convinced twice as many chains to invest in that type of equipment in 1983. Meanwhile, the percentage of stores opting for glass door frozen food cases over open wells and multi-decks continued to grow as the fixture's flexible shelving design and energy conservation features gain in popularity among retailers. Overall, the average equipment tab for independents in 1983 fell below the 1981 level, while the number of independents making major purchases climbed from three out of four in 1982 to nine out of 10 last year. This dichotomy reflects, in part, a surge in the percentage of refurbished--and less expensive--equipment being bought at a time when the requirement for equipment in expanded service and specialty departments is increasing. Monthly energy tabs--back to single-digit hikes

Ever since OPEC became a household name, supermarket operators have been slapped with annual double-digit increases in their energy bills. Last year the burden became more tolerable as chains and independents saw their rates, on average, climb less than 10% for the first time in a decade. But don't give all the credit to the oil importing nations. Industrywide energy management programs designed to reduce consumption played a dramatic role in the easing of costs. Chain stores, operating stores that are typically larger than their independent counterparts, still run up larger tabs. Similarly, the higher the volume and larger the selling area, the steeper the energy bill for supermarkets. Cost ease, but not concerns

At first glance, the average increases in energy cost in 1983 seem inconsequential compared to the punishing hikes of years past. Only when you consider the neutralizing effect of food disinflation does the bloom on the rose begin to wilt. It's little wonder then that energy costs are still considered a major problem this year by both groups (see Outlook section, Chart 12). In an effort to ease utility bills even further, chains and independents plan to intensify their energy management efforts in 1984--while keeping their fingers crossed that heightened Middle East tensions don't result in another energy crunch. Independents' margin, wage & net profit trends

Practically half--49%--of the independents polled this year indicate that margins climbed in 1983 over the prior year. Conversely, the same percentage experienced the same, or lower, wage expense as a percentage of sales. The bottom line: More than 40% enjoyed higher earnings. Margins, wages and unionization in 1983

The conciliatory mood that existed between management and labor prior to the bottoming out of the recession is reflected on the two accompanying charts. Management sought and received a modicum of wage freezes, deferrals and, to a lesser extent, reductions. Moreover, union representation continued its slow but steadily downward trend in chains last year, underlining that group's effort to reduce the percentage of sales gap that exists between union and non-union stores. Note in Chart 43 that while average wage rates for full-time clerks and journeyman meat cutters showed moderate gains, the high volume stores ($8 million plus) actually realized a decline in hourly wages among both groups. What does all this portrend for the year ahead? The increase in the number of work stoppages that occurred during the first quarter of 1984 is a clear signal that workers, convinced that the economy has greatly improved, are determined to recoup the concessions they made the last time they were at the bargaining table. Looking at gross margins, Chart 41 indicates that independents continue to operate in the 20% range. Range of wage expenses as % of sales

In one hand and out the other, so to speak. That's what happened to independents last year as gross margins climbed to 20.2%, up one-tenth of a percent, while wages rose an identical amount to 9.1% of sales. The good news is that the biggest percentage gain was recorded by those stores with gross margins of 22% and over, while stores with margins below 17% showed a marked decrease as a percent of total. Offsetting that achievement, however, was the substantial increase in the percentage of independents experiencing wage expenses of 11% of sales or more. Wholesalers' productivity (1983 vs. 1982)

Wholesalers, as a group, fared better than the supermarket industry as a whole in 1983, recording dollar sales and tonnage gains of roughly 6% and 4%, respectively. The health performance is due in great part to solid improvements in store service levels, struck service and inventory turns. Chain execs see 6.2% median wage hike for '84

Evidence that chain management will be taking a harder line this year is reflected in their forecast of an average wage increase of 6.2%, which is sharply lower than the 1983 projection. The prevailing view among chain executives is that significant wage hikes are no longer necessary in light of the easing rate of inflation. Did productivity keep pace with wage hikes?

A clear two-thirds majority of chain executives believe they got their money's worth last year, responding positively to the question of whether productivity kept pace with wage hikes. Medium-sized chains (21-50 supermarkets) were the most satisfied, with more than seven out of 10 executives giving the thumbs up sign.
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Title Annotation:annual grocery report
Publication:Progressive Grocer
Date:Apr 1, 1984
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