Printer Friendly


* The industry entered 1984 in a demonstrably more confident mood.

* Many problems have been downgraded from "major" to "moderate," but concern about cut-throat competition has increased at store level.

* Prospects seem brighter in most trading areas as local economic conditions improve.

* Executives say maintaining the net profit margin will be abnormally difficult. Intensified price warfare is foreseen.

* Closer merchandising cooperation between manufacturers and retailers is very likely. National brands will get more play. Enthusiasm for generics wanes.

Store owners and managers think they will have less trouble handling most day to day problems in the months ahead. Although energy and labor costs, along with local economic conditions, remain high on the worry list, the degree of concern is much lower than it was a year ago. For example, at that time the severity rating given to local economic conditions was over 70.

In only one area do they anticipate worse headaches: cutthroat competition. Price warfare in all its forms increased last year, and more of the same is expected.

The worry pattern is very similar in headquarters offices. Energy and labor costs cause the most uneasiness, but, again, there is less apprehension. Qualms about local economic conditions have declined sharply. Even the matter of achieving productivity gains is now felt to be less difficult. Short-term interest rates, which caused much anxiety in past years, have fallen to the lower tier of problems.

Supported by Extremely bullish feelings about the U.S. economy, the food distribution industry entered 1984 in a buoyant state of mind. Never since the mood barometer was started in 1972 has there been nearly as much conviction that the nation's overall economic health will improve.

The positive attitude is evident across the board and apparently has a halo effect on other subjects. All segments are happier about the their companies' prospects and their personal financial situation than they were a year earlier. On those matters, the present scores for independent store owners and wholesale executives are an all-time high.

Even the opinions on grocery retailing profits have brightened. Historically, the consensus has always pointed in the direction of worsening results. This year's view--indicating that profits will stay about as they are--must therefore be regarded as relatively optimistic.

Food store prices are also expected to remain near current levels. Since prices could hardly be much steadier than they have been recently, the outlook for equal stability is quite encouraging.

Taken as a whole, the mood barometer pictures a confident industry. The nervousness which marked the early '80s, particularly about price fluctuations and retail profitability, has largely disappeared. With the economy moving forward, and the expectation of further strengthening, grocers have rarely eyed the future with so much self assurance.

After several years of increasingly sour feelings about the prospect for food store sales in their local areas, grocers have begun to take a little rosier view. Chain store managers are customarily more positive, and almost half foresee growth in their immediate neighborhoods. An explanation could be that they have abandoned declining areas and are now doing business in the most promising locations.

Assessments differ widely from region to region. The South Atlantic section looks best to both the chain and independent observers, as it has in the past. The Great Lakes and Plains section have made a good comeback since last year, while the North Atlantic area is fading. Echoing the national picture, chain managers are consistently more optimistic, with the largest gap occurring in the South Central region.

As store size goes up, so, in general, do opinions about potential. In many cases this is a result of wise site selection. Here, too, chain observers are happier than their independent counterparts. In fact, managers of the smallest chain units are about as satisfied with their position as owners of the largest independent supers.

The calmer attitude shown by chain executives about their own companies' problems is mirrored by their sentiments about the hardest issues confronting the entire industry. Most of them still look for the field to have abnormal difficulty in maintaining current net profit margins--but the figure is down from 74% a year ago. Mergers and acquisitions--often a consequence of sagging margins--are also expected to be high, but again by a smaller percent of respondents.

Far fewer executives anticipate an uncommonly large number of bankruptcies and Chapter XI proceedings. Continuing a trend that started last year, there is a sharp drop in concern about financial matters--generating capital internally, obtaining capital from outside sources, and dealing with high interest rates. The most pronounced improvement of all is on trading down by consumers. Just 12 month earlier, 55% of the executives foresaw an abnormal amount.

In contrast to the developing serenity on most subjects, a larger percent are alarmed about the outbreak of price wars. This relates, of course, to the number one problem--holding the line on profit margins.

A variety of interacting steps will be taken as decision-makers come to grips with their problems. More than eight out of 10 say they are likely or very likely to improve merchandising cooperation with manufacturers. At the same time, though, almost as many intend to press for better cash discount terms. It is highly probable that national brands will get special emphasis--but the movement required to keep items in distribution will be raised. Deal buying will be governed by tighter standards--but forwards buying activities will apparently increase.

Most of the prospective actions are not remarkably different from last year's planned strategies. One exception is a notable decline in intentions to promote generics. The no-names seem to be running out of steam.

Independents are more hesitant than chain store managers to predict longer gross margins and tonnage gains, but there is general agreement that labor costs as a percent of sales, retail prices, and competition will all increase.

The South Atlantic and South Central regions are where the highest number expect to move additional tonnage. The South Atlantic is also where chain managers are most convinced that competition will heat up further. Independents concur that conditions will be tough there. However, they think the fighting will be even harder in the North Atlantic.

The biggest change since a year ago is a sizable increase in the number of owners and managers who look forward to tonnage growth. Another positive trend can be seen in the labor cost ratio. Though most operators still think it will rise, the percents are smaller than in the prior year.

More than eight of 10 independents anticipate larger sales this year. The overall forecast is approximately the same as the start of 1983. As it turned out, 70% did boost their sales, 8% came in even, and 22% experienced a decline.

Notwithstanding the fact that 68% of chain officers think costs will rise faster than prices in 1984, their hopes are high. More than three-quarters feel better about supermarket prospects than they did a year earlier, and 37% (up from 30%) even think there will be significant "real" growth.

The economic recovery has given wholesalers more faith in the viability of their trading areas. Two-thirds still call conditions stable, but 23% forecast growth--a six point gain over the prior year.

Above all, the heads of wholesale companies expect increased competition. Nonetheless, 77% predict they will move more tonnage during 1984. The percent who think retail prices will rise is up slightly from a year ago, and opinions on gross margins have changed very little. The trend on labor costs as a percent of sales is encouraging. Fewer executives believe the ratio will rise, and more predict a drop.

Confirming the generally sunny outlook, the majority of wholesale leaders describe themselves as more optimistic about the overall climate for supermarkets than they were 12 months before.

Their company's size often colors the way executives view the future. This shows up very clearly in opinions about tonnage growth and labor costs. Leaders of large firms are considerably more confident about prospects for adding volume and, consequently, their chances to reduce labor costs as a percent of sales.
COPYRIGHT 1984 Stagnito Media
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1984 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:grocery annual report
Publication:Progressive Grocer
Date:Apr 1, 1984
Previous Article:Overview.
Next Article:Competition.

Terms of use | Privacy policy | Copyright © 2020 Farlex, Inc. | Feedback | For webmasters