The 75th Annual Report of the Grocery Industry

Glass
half
full
Grocers have weathered recessions before—
and smart operators this time will accentuate
the positive by helping shoppers eat well on a budget.
By Debra Chanil and Jenny McTaggart

24 • Progressive Grocer • April 15, 2008 A H E A D O F W H AT ’ S N E X T www.progressivegrocer.com

T he “R” word has been top of mind for virtually
every grocer, supplier, and even consumer in the
supermarket supply chain, for many months now.
Rising food prices, the high cost of fuel, and a frag-
ile housing market are just a few of the concerns
feeding their anxiety. But while an economic recession in 2008 is proba-
bly unavoidable, there are plenty of positive actions creative grocers can
take to make the most of the situation.
That’s because, obvious as it sounds, it’s hard
pricing and promotion strategies, since
shoppers will be more budget-minded
than ever, and consequently low-price
formats will make for tougher competi-
tion, analysts say.
At the same time, grocers should be
careful not to lose sight of long-term
investments, even if their sales suffer tem-
porarily. Newer focuses for business strat-
egy, such as environmental sustainability,
health and wellness, and customer seg-
mentation, continue to offer a lot of
fit the dry grocery and frozen food core of the promise for the future, especially for those that
to get around the fact that, as in any recession, store, as well as fresh foods. don’t lose sight of that potential in the scramble to
people still have to eat. Smart retailers can and And all grocers should be rethinking their quell immediate flare-ups related to the recession.
will position themselves as problem solvers, instead Data from PROGRESSIVE
of just another draw on the wallet. G ROCER ’ S 75th Annual
Retail climate
The fundamental problem to solve is, of Report of the Grocery Indus-
course, how can I feed myself and my family with- Compared with a year ago, are you more or less optimistic about the try, our latest exclusive com-
out spending too much? retailing climate for supermarkets? pendium of retail research,
To help, industry experts suggest supermar- Total Chain Ind Whlslr reveals that supermarket
ket operators spruce up their prepared food More optimistic 45.9% 46.2% 45.7% 45.8% operators are certainly aware
programs, since consumers will be eating out of current and impending
Less optimistic 29.0 26.9 30.3 29.2
less but still looking for quick meal solutions. economic troubles—but
They also ought to consider in-store cooking No change 25.1 26.9 24.0 25.0 many of them aren’t expect-
demos to inspire shoppers to make more healthy SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008 ing disastrous impacts, not
meals at home for less—a tactic that can bene- by a long shot. In fact, 46

The bottom line

How do you view 2008 for your company? What kind of year was 2007?
Scale: 0=awful, 100=sensational
Total Chain Ind Whlslr Northeast Midwest South West 1-10 11-99 100+
2008 (forecast) 70.3 73.6 67.8 71.8 69.0 69.4 70.7 73.6 67.9 73.5 73.0
2007 70.9 74.0 68.0 73.9 70.5 70.1 72.0 71.8 68.0 74.6 74.6
2006 66.9 72.6 62.7 72.3 70.2 63.5 68.4 68.2 62.8 69.2 74.9
2005 65.2 66.6 63.6 69.9 65.4 65.5 63.6 66.4 63.0 66.1 72.2
2004 65.2 64.3 63.9 75.4 64.1 62.5 67.3 67.0 n/a 66.7 65.7
2003 61.8 58.0 59.6 68.1 60.1 60.1 61.7 61.8 n/a 58.3 67.0
SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008

✦ OPTIMISM, a rising commodity among supermarket operators over the past five years, is still relatively high, but has finally leveled off. After hitting a high of 70.9 in
2007, this index of overall company performance dropped back slightly to 70.3 in the forecast for 2008. 2007 was particularly strong for chains compared with inde-
pendents (74.0 vs. 68.0, respectively), and for operators in the South (72.0). However, with the exception of operators in the West, the index forecasting expectations
for 2008 declined for each segment.

www.progressivegrocer.com A H E A D O F W H AT ’ S N E X T Progressive Grocer • April 15, 2008 • 25

 Annual Report

percent of executives PG surveyed in February 2008 Food stores, however, react at their own pace Yet it’s the higher-income consumers who are
said they’re more optimistic about the retailing cli- to economic forces. “In economic downturns, where more likely to trade down to a lower-priced store,
mate for supermarkets compared with a year ago. you have forces like high food and gas prices, credit since lower-income shoppers are probably already
One thing is for sure: The market is showing problems, and job cutbacks, supermarkets tend to frequenting a discounter, he reasons. The latter
signs that business is slowing shoppers are more likely to trade
down. On a scale of zero to Average supermarket performance measures down to lower-priced products
100, with 100 being “sensa- within a category. TNS Retail
tional,” retailers forecasted 2005 2006 2007 Forward’s February Shopper-
2008 would be at 70.3. While Sales volume ($ millions) $14.06 $14.68 $15.31 Scape survey found that rising
70.3 doesn’t sound so bad, it’s food prices are driving about half
Selling area (square feet) 32,396 33,398 33,300
slightly down from what they of shoppers to try to avoid buy-
expected for 2007—and in past No. of checkouts 9.1 9.3 9.3 ing food items that seem “just
Annual Reports, grocers tended No. of full-time equivalent employees 70 70 72 too expensive.”
to be rosier still about the year “The moral of the story is
to come. that supermarkets are going to
Average weekly sales want to market to lower-income
Sizing up the economy households differently than
Depending on what type of upper-income households,”
$ per store $270,385 $282,368 $294,423
data you look at, and whom you notes Badillo.
consult, you’ll encounter diver- $ per square feet 8.35 8.45 8.84 Past recessions provide
gent views on how supermarkets $ per checkout 30,043 30,362 31,658 strong indications of what’s to
will fare for the balance of this come, offers Ted Taft, manag-
$ per full-time equiv. employee 3,863 4,034 4,089
year if the economy takes a turn ing director of Meridian Con-
for the worse. $ per full-time equiv. employee hour 96.57 100.85 102.22 sulting Group, based in Wilton,
Many industry players and $ per household 84.60 89.26 91.98 Conn. “Eating at home is
watchers point to two recessions $ per capita 30.86 31.81 31.87 always something that picks up,
of the recent past—in 2001 and SOURCE: TDLINX; PROGRESSIVE GROCER MARKET RESEARCH, 2008
and that helps departments like
1990-91—for clues as to how prepared foods in grocery
this might all play out in the chains,” he says. “In fact, you
months ahead. hit the bottom, [but] with a lag,” says Badillo. could argue that supermarkets are much better
Frank Badillo, senior economist at TNS “When you factor in rising food prices, we expect prepared than the last time, because most of their
Retail Forward, based in Columbus, Ohio, that supermarkets should see negative inflation- prepared food programs are much more devel-
notes the current path of retail sales suggests adjusted sales growth in the second quarter, if not oped than 10 years ago.”
that if the economy is sliding into recession, the second half of the year.” Retailers surveyed by PG certainly seem poised
most retail channels appear to be faring more Badillo says consumer behavior is responsible to improve their meal solutions still further. In the
like they did in the 2001 recession than the for the lag in business impacts typically experienced Annual Report Marketing/Merchandising Strategies
1990-91 period. That means most retail chan- by supermarkets. “When it comes to grocery shop- Index, ready-to-eat meals moved to the No. 7 slot
nels can be expected to experience weak but ping, consumers tend not to change their habits as a priority, up from No. 9 last year.
positive inflation-adjusted growth—as opposed right away. A lot of this has to do with being famil- One major retailer that’s planning to serve more
to inflation wiping out any growth, as was com- iar with a certain store. People get used to a store’s meals is Minneapolis-based Supervalu. The com-
mon across channels in 1990-91. layout and don’t like to switch stores,” he observes. pany’s c.e.o., Jeff Noddle, told CNBC in an inter-

Consumers downsizing meals
THE ECONOMIC DOWNTURN is already causing
Americans to cut back on spending, according to data
from Allrecipes, an online cooking community with
more than 35 million unique visitors annually.
Here are some of the findings that Allrecipes
shared with PROGRESSIVE GROCER for the 75th Annual
Report of the Grocery Industry. The data was released
in March:
✦ Traffic to traditionally low-cost ingredients, such as
ground beef, pasta, and quick and easy recipes, has
increased. These channels have almost doubled
(increased by 90 percent) over the past three months.
• Ground beef: +117 percent
• Pasta: +83 percent
• Quick and easy: +88 percent
✦ Page views in collections that house “make-at-
home” versions of popular restaurant dishes such as
pizza, Chinese, and Indian-style have increased.
• Traffic to the pizza, Chinese, and Indian hubs has
increased 79 percent over the past three
months.
✦ Searches for low-cost vs. their high-cost counter-
parts have increased significantly, 74 percent overall.
• Ground beef (+107 percent) vs. steak (+83 per-
cent): Ground beef had a relative increase of 24
percent when compared with steak.
• Tilapia (+188 percent) vs. salmon (+105 per-
cent): Tilapia has increased 83 percent when
compared with salmon.
✦ Searches for inexpensive cuts of meat have
increased significantly:
• Meat loaf: 86 percent
• Casserole: 30 percent
• Pot roast: 24 percent
• Chili: 24 percent
Allrecipes has also witnessed increased traffic
to several of its cost-cutting meal idea pages,
including Budgeting Tips, Great Meal Ideas for
Under $10, and Basic Pantry Items that Produce
20 Great Meals.

26 • Progressive Grocer • April 15, 2008 A H E A D O F W H AT ’ S N E X T www.progressivegrocer.com

 Annual Report 2007 supermarket sales

No. of % of Sales % of
stores total ($ millions) total
view last month that “Supervalu, like many retail- Supermarkets ($2 million or more) 34,967 100.00% $535,355 100.00%
ers, [is] delivering more meal solutions in a value-
Chain (11 or more stores) 28,637 81.90% 505,614 94.44%
priced way, so that people can pick up things that
are...ready to go or only need limited preparation, $2,000,0001 - $4,000,000 2,656 7.60 7,798 1.46
and bring them home.” $4,000,001 to $8,000,000 6,742 19.28 36,249 6.77
Indeed, many supermarkets are taking advan- $8,000,001 to $12,000,000 3,684 10.54 35,432 6.62
tage of the fact that the restaurant industry is tak-
ing a harder hit from the slowing economy. Accord- $12,000,001 to $20,000,000 5,224 14.94 77,686 14.51
ing to the NPD Group in Port Washington, N.Y., $20,000,001 to $30,000,000 4,956 14.17 112,721 21.06
foodservice posed no organic growth in 2007, and $30,000,001 to $40,000,000 2,189 6.26 69,764 13.03
total restaurant customer traffic was up barely 1
$40,000,001 to $50,000,000 1,241 3.55 51,089 9.54
percent. That’s due not only to the economy, ana-
lysts say, but also factors such as fewer women in the $50,000,001+ 1,945 5.56 114,875 21.46
work force in recent years.
As supermarkets jump into that breach for new Independent (10 or fewer stores) 6,330 18.10% $29,741 5.55%
opportunities to capture share-of-stomach dollars, $2,000,0001-$4,000,000 2,229 6.37 6,305 1.17
they would do well to make sure their meal solu- $4,000,001 to $8,000,000 3,631 10.38 18,074 3.37
tions address consumers’ topical health concerns.
$8,000,001 to $12,000,000 327 0.94 2,995 0.56
Judging by the findings in the Annual Report’s
Merchandising/Marketing Index, retailers seem to $12,000,001 to $20,000,000 122 0.35 1,749 0.33
be quite aware of that need. Health concerns as a $20,000,001 to $30,000,000 14 0.04 306 0.06
priority shifted up to No. 3 this year, while natural $30,000,001 to $40,000,000 4 0.01 117 0.02
foods and organics moved up to No. 9, compared
$40,000,001 to $50,000,000 2 0.01 86 0.02
with No. 12 last year.
Emphasis on fresh foods is still far and away $50,000,001+ 1 0.00 109 0.02
the priority index leader, with both chains and By supermarket format:
independent retailers testifying to the importance
of perimeter departments. That trend isn’t likely No. of % of Sales % of
to go away any time soon, as the pro-health and eat- stores total ($ millions) total
at-home trends support the need for fresh fruits Supermarkets ($2 million or more) 34,967 100.00% $535,355 100.00%
and vegetables and other wholesome fresh foods.
Conventional 26,832 76.74 357,454 66.77
As the economy continues to make shoppers a
bit more cautious, however, they may trade down Supercenter (grocery & mass merch)* 3,038 8.69 141,708 26.47
in some fresh categories, by choosing lower-priced Supermarket-limited assortment 2,349 6.72 10,978 2.05
cuts of meat or skipping higher-priced baked Supermarket-natural/gourmet foods 2,119 6.06 17,667 3.30
goods, for example.
“People will still eat meat, but they might look Warehouse grocery stores 457 1.31 3,319 0.62
for a cut that’s a little less expensive per pound,” Military commissaries 172 0.49 4,229 0.79
notes Taft. “And that might impact other cate-
gories. We did some work with A1 Steak Sauce Other food formats:
years ago, and we found that consumers were using
certain condiments more to make up for the taste No. of % of Sales % of
of the lower-quality cuts of meat.” stores total ($ millions) total
As such, it may be interesting to see how center Convenience** 145,872 n/a $306,621 n/a
store sales will fare. While private label products
Grocery stores (under $2 million) 13,652 n/a 18,206 n/a
and frozen foods might gain, the gourmet cate-
gory could suffer, industry watchers say. Wholesale clubs 1,152 n/a 101,511 n/a
In TNS Retail Forward’s February Shopper- Military convenience stores 422 n/a 2,228 n/a
Scape survey, 24 percent of shoppers said they plan
*Supermarket-type items only **Excluding gas SOURCE: TDLINX; PROGRESSIVE GROCER MARKET RESEARCH, 2008
to buy fewer gourmet and specialty products,
because of rising food prices.
✦ TOTAL SALES for the supermarket industry increased by 7.2 percent to reach $535.4 billion in 2007.While this
Reports from the trenches jump exceeds the 4.3 percent gain earned in 2006, some of the new increase was driven by a net gain of 948
units, compared with a net loss of 31 units in 2006. It’s also likely that some of the increase came from retail
While no one can predict exactly how shopper
price increases, as the Bureau of Labor Statistics reported an overall increase in prices for food at home of 4.2
behavior will change in coming months, PG went
percent in 2007, compared with only 1.7 percent in 2006.
to retailers at the beginning of 2008 to find out

28 • Progressive Grocer • April 15, 2008 A H E A D O F W H AT ’ S N E X T www.progressivegrocer.com

 Annual Report

what changes they’d seen in shopping behavior
thus far, as a result of economic concerns. Pro-
duce, dairy, and meat/seafood were among the
departments that had experienced increased traf-
fic, they reported. As a segment, private label
products were also seeing gains.
The overall departments that were hardest hit
were center store (25.7 percent of retailers said traf-
fic had decreased), HBC/pharmacy (28.6 percent),
and general merchandise (38.5 percent). Those fig-
ures might be more reflective of more general trends
in the industry, however, as grocers have lost cate-
gory share over time to mass merchandisers and
drug stores.
Looking at 2008, retailers said they expect
produce to be the top-shopped segment, fol-
lowed by private label products. For the most
part, though, they don’t expect traffic patterns
to change too drastically.
Nearly 72 percent of supermarket operators
expect transaction size to increase in 2008. This
could be because they anticipate more shoppers
will be stocking up during the fewer trips they’ll
be taking to cut down on fuel usage.
Grocers weren’t shy about sharing their per-
spective on how current economic conditions are
affecting shopping behavior. “Customers are look-

Merchandising/marketing strategies
How important are the following merchandising/marketing strategies to your company?
Score=percent of respondents rating strategy as 1 or 2 on a scale of 1-6, where 1=most important

Pres/ Buyer/ Sales/

top Retail/ mdsr/ adv/ Store
Total Chain Ind Whlslr exec ops cat mgr mktg mgr Northeast Midwest South West
Emphasis on fresh foods 77.8% 84.1% 77.7% 64.0% 77.1% 86.4% 75.0% 83.3% 76.4% 82.5% 82.0% 71.6% 69.8%
Community involvement 68.0 71.7 68.6 58.0 69.5 72.7 68.8 80.0 61.8 72.5 68.0 56.7 74.6
Health concerns 61.2 69.9 53.1 70.0 54.3 56.8 75.0 83.3 47.3 61.3 61.7 61.2 60.3
Private label 60.1 69.9 53.7 60.0 57.1 61.4 65.0 76.7 49.1 52.5 64.1 67.2 54.0
Hotter specials 59.8 61.9 58.3 60.0 57.1 52.3 67.5 60.0 63.6 62.5 63.3 56.7 52.4
Customer services 56.8 56.6 60.0 46.0 61.9 56.8 51.3 46.7 69.1 46.3 62.5 53.7 61.9
Ready-to-eat meals 53.3 62.8 45.1 60.0 49.5 52.3 60.0 66.7 43.6 56.3 54.7 52.2 47.6
Use of category management 52.7 59.3 45.1 64.0 40.0 56.8 70.0 56.7 45.5 55.0 52.3 53.7 49.2
Natural foods/organics 50.3 64.6 40.0 54.0 41.0 54.5 60.0 60.0 38.2 58.8 52.3 37.3 49.2
National brands 47.9 51.3 43.4 56.0 41.0 34.1 53.8 53.3 54.5 50.0 47.7 49.3 44.4
Newspaper inserts 45.0 47.8 46.9 32.0 47.6 31.8 43.8 43.3 61.8 31.3 51.6 43.3 50.8
Ethnic foods 44.7 57.5 36.6 44.0 40.0 38.6 55.0 63.3 34.5 46.3 45.3 37.3 49.2
Mailers/circulars 43.8 44.2 46.3 34.0 41.9 36.4 47.5 60.0 45.5 47.5 46.1 43.3 34.9
Emphasis on new technology 43.5 51.3 36.6 50.0 43.8 45.5 48.8 46.7 27.3 48.8 38.3 52.2 38.1
Demos and sampling 42.6 46.0 39.4 46.0 37.1 34.1 58.8 53.3 36.4 43.8 44.5 34.3 46.0
Newspaper ads (ROP) 37.6 43.4 35.4 32.0 28.6 29.5 50.0 30.0 49.1 35.0 35.9 43.3 38.1
Radio advertising 27.2 39.8 19.4 26.0 22.9 27.3 35.0 30.0 20.0 25.0 22.7 35.8 30.2
Frequent shopper programs 26.9 32.7 21.7 32.0 21.0 29.5 38.8 20.0 18.2 32.5 24.2 22.4 30.2
Affinity merchandising 25.7 26.5 24.6 28.0 21.0 18.2 36.3 30.0 23.6 31.3 20.3 29.9 25.4
Electronic marketing 23.4 28.3 17.1 34.0 21.0 11.4 31.3 40.0 12.7 30.0 24.2 16.4 20.6
TV advertising 23.1 38.1 12.6 26.0 10.5 22.7 35.0 33.3 20.0 18.8 21.1 32.8 22.2
Self-service applications 20.1 30.1 14.3 18.0 15.2 18.2 32.5 16.7 12.7 22.5 21.9 13.4 20.6
Digital media 16.0 15.0 15.4 20.0 15.2 13.6 18.8 26.7 10.9 22.5 14.8 14.9 11.1
In-house mag. for customers 13.3 15.9 12.6 10.0 9.5 4.5 20.0 13.3 18.2 13.8 12.5 6.0 22.2
SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008

✦ AN EMPHASIS ON fresh foods continues to top the list of merchandising and marketing strategies among grocers, showing particular strength among chains and opera-
tors in the Midwest and South. Overall rankings have shifted a bit over the past year; while community involvement remains in second place, health concerns moved from
fifth to third place, private label jumped from sixth to fourth, and ready-to-eat meals moved from ninth to sixth place. On the decline were customer services (from fourth
to sixth place) and hotter specials (from third to fifth). Health concerns, private label, and natural foods/organics are much more of a priority among chains, while customer
services are the target of greater focus among independents.

30 • Progressive Grocer • April 15, 2008 A H E A D O F W H AT ’ S N E X T www.progressivegrocer.com

 Annual Report

ing for good values, not necessarily low prices,” Change in trips/transaction size
noted one respondent.
In 2007: In 2008 expected to:
“Economic conditions have increased theft,”
Stayed the Stay the
observed another retailer. Increased Decreased same Increase Decrease same
Not surprisingly, grocers’ opinions seemed to
differ based on the consumer demographics their Number of trips 30.7% 40.0% 29.3% 28.4% 40.0% 31.6%
stores serve. Transaction size 70.3 11.5 18.2 71.7 11.3 17.0
“My store is in a very affluent area, and most
SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008
shoppers aren’t fazed at all [by] price increases, and
are also willing to pay a premium for prepared
✦ SHOPPERS are expected to economize by purchasing more food for home consumption, thus increasing their
foods,” noted one independent executive.
transaction size, even if they trade down to private label and other lower-priced options. They may also cut back
Yet another operator claimed shoppers were “mov-
on the number of trips and travel to fewer stores to save on gas purchases.
ing away from frivolous items—specialty and gour-
met—to more basic products and private label.”
When asked to list the most dramatic shift in • Business is tied closely to the first two weeks • Fewer trips and larger transactions.
shopping behavior in the past six months they’d of the month, when [customers receive their] • Private label sales have grown at a record pace.
seen as a result of economic conditions, retailers assistance checks. • People are cherry-picking more than ever
had varied responses. These included: • Clean, well-lit stores with excellent service before.
• More people want to know how to cook and fair prices always win. • They’re complaining about rising food prices
things. • Coupon redemption has dramatically like they did back in the late ’70s and early
• Basket ring is up and customer count is increased. ’80s.
leveling off. • Declines in prepared foods and bakery.
Time to play it safe?
As grocers keep a closer watch on their shop-
Shopper traffic pers’ habits this year, some might also become more
How were the following departments affected, in terms of shopper traffic, by economic conditions in 2007? cautious about investing in growing their opera-
What do you expect for 2008? tions. “I think we’re already seeing retailers pretty
In 2007, In 2008, quickly adjusting their plans to ratchet back their
shopper traffic: shopper traffic is expected to: store openings,” says Badillo.
Stayed the Stay the Taft, on the other hand, notes that most retail-
Increased Decreased same Increase Decrease same ers “don’t want to cut back unless they absolutely
have to.” Regional players such as Harris Teeter
Produce 70.0% 8.5% 21.5% 77.6% 2.8% 19.6% and Food Lion have store growth in sight for 2008,
Dairy 66.4 9.1 24.5 61.7 5.3 33.0 although Wal-Mart and Tesco are among the com-
Private label 62.9 6.4 30.7 71.3 4.6 24.1 panies that have slightly scaled back their original
plans for expansion.
Meat/seafood 61.0 15.2 23.8 67.0 6.8 26.2
“In pockets of the country where there are a lot
Organic 56.1 12.8 31.1 59.9 9.4 30.7 of foreclosures, you may see more cutting back,”
Frozen food 54.7 14.4 30.9 62.1 7.8 30.1 suggests Taft.
Ethnic 52.3 8.4 39.3 51.4 6.4 42.2 Neil Stern, partner at retail analyst and consult-
ing firm McMillan/Doolittle, in Chicago, observes
Fresh bakery 50.5 17.6 31.9 54.7 9.7 35.6 that while the “quick things” to cut back on during
Center store 43.3 25.7 31.0 49.3 18.1 32.6 tough times are marketing and in-store labor, “You
Gourmet/specialty 42.3 18.9 38.8 46.1 12.4 41.5 can cut back on capital expenditures as well. What
all retailers have to do, though, is to balance short-
HBC/pharmacy 30.1 28.6 41.3 38.2 16.0 45.8
and long-term profitability. The reality is that shop-
GM 23.4 38.5 38.1 30.3 27.0 42.7 pers are still looking for somewhere to shop and
SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008 companies are under pressure to deliver numbers.
So you can’t sacrifice all the long-term investments
✦ RETAILERS said the produce department saw the largest increase in shopper traffic in 2007, and is expected to to make the short-term numbers.”
repeat this feat in 2008. Private label is also likely to see a significant jump in 2008, driven by consumers looking According to the Annual Report’s Operational
for lower-priced items. Other departments featuring perishables (meat/seafood, fresh bakery) should also see Trends Forecast, energy/fuel costs is the operational
larger increases as shoppers make more purchases for more economical yet healthy eating at home. One excep- factor that’s expected to increase the most, hardly a
tion is dairy, which may suffer as a reaction to its large price increases in 2007. HBC and general merchandise surprise, since energy expenses have continued to
departments are most likely to see declines in traffic, as other retail channels that offer these items at lower
top retailers’ worry lists as well. The concern appears
prices are more likely to attract shoppers.
to be highest among West Coast respondents. Retail

32 • Progressive Grocer • April 15, 2008 A H E A D O F W H AT ’ S N E X T www.progressivegrocer.com

 Annual Report
Change in promotional activity
prices came in second, followed by labor-related want to keep a To what degree did your promotional activity change in 2007? What do you expect in 2008?
concerns such as benefit costs and wage costs. Cap- closer eye on their Scale: 100=increase, 50=stay the same, 0=decrease
ital expenditures aren’t expected to increase to a c o m p e t i t o r s’
level anywhere near these expenses. strategies. 2007 2008 (expected)
Price inflation is a huge concern for grocers, “Chains whose Expanded private label offerings 77.5 79.3
especially in light of the chain reaction that high reason for being is
More weekly specials 69.3 72.2
prices have at the retail level. more focused on
“There’s a lot of evidence of food inflation occur- low price will Volume discounts (value packs, etc.) 67.2 68.5
ring,” notes Stern, “and national brand manufactur- probably have an BOGO 62.1 66.9
ers have been trying to hold the line and not pass on advantage,” Circulars 61.2 62.6
price increases. But it’s starting to change now. It’s observes Taft.
tough for retailers to pass along these costs to the “Wal-Mart, which Fuel discounts/rewards 60.7 62.8
consumer during tough times. If this happens, has been outper- Loyalty discounts 59.2 64.9
you’ll see a real compression of margins.” formed by Target Increased couponing activity 56.7 65.2
for few years now, SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008
Low-price competition is actually show-
The future doesn’t look too bright in this area, ing an uptick.”
✦ MORE than ever, expected increases in promotional activities are focused on attract-
unfortunately. One expert, Lester Brown, presi- At the begin- ing shoppers to the store via price appeal; hence, grocers expect to increase their efforts
dent of the Washington-based Earth Policy Insti- ning of the year, toward private label programs and more weekly specials. Even so, all promotional activi-
tute, predicts that almost a third of the U.S. grain the world’s largest ties are expected to see an increase in 2008.
crop next year may be diverted from the family retailer jumped at
dinner table to the family car as fuel, according to the chance to play
a report from the Reuters Global Agriculture and up its advantages during the slowing economy, by percent to 30 percent savings.
Biofuels Summit, which was held in January. announcing its own “economic stimulus plan for Now several industry reports are suggesting
Competition remains a serious consideration U.S. shoppers.” Wal-Mart rolled back prices on that Wal-Mart, as well as other one-stop-shop,
for grocers, too, and in light of the economy, they’ll thousands of items in a single week, providing 10 low-price formats, could come out on top this
year as penny-pinched shoppers look to con-
solidate trips and get the most out of each tank
Operational trends forecast of gas.
How do you expect the following operational factors to change at your company in 2008?
A recent study by The Nielsen Company, for
example, finds that U.S. consumers are making
Scale: 100=increase, 50=no change, 0=decrease fewer shopping trips across most retail outlets.
Total Chain Ind Whlslr Northeast Midwest South West However, while shopping frequency across most
Energy/fuel costs 87.9 82.3 92.9 83.0 83.1 86.7 88.1 96.0 retail channels is flat or on the decline, super-
centers continue to show growth in shopping
Retail prices 86.4 77.9 92.3 85.0 83.8 87.1 83.6 91.3
frequency.
Benefit costs 80.8 73.9 84.6 83.0 78.1 82.8 76.1 84.9 “Long-term trends show us that all value retail-
Wage costs 79.4 69.5 88.3 71.0 75.0 81.6 76.9 83.3 ers—supercenters, warehouse clubs, and dollar
Competition 70.9 69.5 71.7 71.0 66.9 66.8 73.9 81.0 stores—are gaining in their quest to grab shop-
pers,” observes Todd Hale, s.v.p. of consumer &
Technology spending 67.6 65.0 70.0 65.0 64.4 67.6 64.9 74.6 shopper insights, Nielsen Consumer Panel Services,
% net profit 63.2 65.9 62.9 58.0 58.8 64.5 61.2 68.3 in Schaumburg, Ill. “Keep in mind, however, that
% gross margin 63.0 64.6 63.4 58.0 56.3 65.2 64.9 65.1 some U.S. grocers reported stronger same-store-
sales growth than supercenters or dollar stores in
Capital expenditures 47.8 40.3 54.6 41.0 49.4 47.7 47.0 63.0
2007. Proximity to shoppers and a healthy focus on
Employee turnover 47.0 37.6 50.9 55.0 40.0 47.7 51.5 63.0 convenience and value helped many of these grocers
SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008 deliver solid results.”
Conventional supermarket operators would be
✦ WITH THE PRICE OF OIL topping $100 a barrel for the first time in 2007, it’s no surprise that energy/fuel costs wise to tout the fact that they can offer customers
top the list of expected increases among operational factors. Notice in particular the score from retailers in the great value during tough times, say Stern and others.
West—at 96.0, it’s more than eight points higher than the industry average rating of 87.9. Concern over increas- “Supermarkets need to emphasize or re-emphasize the
ing retail prices ranks second, at 86.4. As the Bureau of Labor Statistics forecasts pricing for food at home to value that’s inherent at shopping food retail,” notes
increase by 3.5 percent to 4.5 percent in 2008, independent operators are especially worried (their score of 92.3
Stern. “By that, I mean they should emphasize the
is 14.4 points higher than the 77.9 registered by their counterparts at chain operations). Further down on this
economy of putting a meal on the table—by buying
list, look for an increase in technology spending, as this trend rose from ninth to sixth place, driven by expected
increases among independents and operators in the West. ingredients at a retailer vs. buying meals at a restau-
rant. It’s more than just discounting; it’s also show-

34 • Progressive Grocer • April 15, 2008 A H E A D O F W H AT ’ S N E X T www.progressivegrocer.com

 Annual Report

ing consumers the value that is there.”
Adds Taft: “Grocers can talk about the positive
features of the departments they have that are on the
firing line in terms of where the food dollar goes.
That includes frozen foods, prepared foods, and
fresh departments like meat.”
At least one regional chain—Quincy, Mass.-
based Stop & Shop—hyped its value offerings
early in 2008, via a radio commercial featuring
Andrea Astrachan, v.p. of consumer of affairs at
Stop & Shop and Giant-Landover. “Last year we
lowered thousands of prices,” she said, “[and]
despite the economy, we will keep working to
keep prices low and make sure we’re the store
where you want to shop.”
There’s no doubt that pricing and promotions
will play a huge role in grocers’ strategies this year.
The Annual Report finds that 79.3 percent of gro-

Competitive threats
How much of a competitive threat is each of the following retail formats?
Score=percent of respondents rating threat as 1 or 2 on a scale of 1-6, where 1=most important
Total Chain Ind Whlslr Northeast Midwest South West
Wal-Mart 63.9% 62.8% 61.7% 74.0% 50.0% 71.9% 67.2% 61.9%
Chain supermarkets (11+ stores) 45.3 54.0 40.6 42.0 43.8 43.0 43.3 54.0
Supercenters (excl. Wal-Mart) 36.4 34.5 35.4 44.0 33.8 42.2 38.8 25.4
Independent supermarkets (1-10 stores) 27.2 26.5 29.7 20.0 31.3 25.0 23.9 30.2
Mass merchandisers (excl. Wal-Mart) 24.9 23.9 21.7 38.0 22.5 25.8 22.4 28.6
Wholesale membership clubs 24.6 28.3 18.3 38.0 20.0 19.5 20.9 44.4
Dollar/discount stores 20.1 14.2 22.3 26.0 20.0 19.5 32.8 7.9
Organic/natural food stores 18.3 22.1 17.1 14.0 18.8 16.4 9.0 31.7
Drug stores 16.3 11.5 17.7 22.0 22.5 14.8 14.9 12.7
Limited-assortment stores 15.4 12.4 13.7 28.0 15.0 14.1 19.4 14.3
Fast-food outlets 12.4 8.0 14.3 16.0 10.0 16.4 9.0 11.1
Smaller/convenience formats (i.e., Tesco) 9.8 14.2 7.4 8.0 13.8 10.2 9.0 4.8
Convenience stores 9.5 5.3 12.6 8.0 13.8 11.7 7.5 1.6
Online retailing 5.9 6.2 5.1 8.0 11.3 3.9 6.0 3.2
SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008

✦ HO-HUM, Wal-Mart once again tops the list of competitive threats—and with a lead close to 20 percentage points over the next competitor, it’s likely to stay on top for
some time to come.Aside from Wal-Mart, we see that chain operators consider other chains to be their toughest competition, while independents appear more scared
than chains by the predatory pricing of dollar/discount stores. Regionally, organic/natural food stores aren’t seen as much of a threat in the South, while clubs rank third as
a threat among retailers in the West (compared with sixth overall).

Impact of current economic conditions on shopper behavior

Total Chain Ind Whlsl Northeast Midwest South West

Shoppers are more price-conscious
in their product choices 62.7% 54.9% 70.9% 52.0% 62.5% 58.2% 64.1% 65.1%
Shoppers are conserving
or combining trips (more one-stop shopping)
due to increased gas prices 44.7 40.7 48.6 40.0 41.3 50.7 42.2 47.6
We are seeing shopping
patterns shift toward more
meals prepared at home 35.5 35.4 37.1 30.0 38.8 43.3 27.3 39.7
Other mentions 8.0 5.3 10.9 4.0 8.8 4.5 7.0 12.7
Multiple responses accepted
SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008

36 • Progressive Grocer • April 15, 2008 A H E A D O F W H AT ’ S N E X T www.progressivegrocer.com

 Annual Report

cers plan to expand their private label offerings, account for such a large chunk of grocers’ bills. vey said they’re pursuing sustainability initia-
72.2 percent will add more weekly specials, and Other green moves include composting waste and tives related to new buildings and remodels,
more than 60 percent will be rolling out volume dis- reselling it for customers’ use, switching cooking almost an identical match to the Annual Report’s
counts and more couponing activity. oils to biodiesel, packaging from renewable findings. What’s more, in FMI’s survey another
While 33.7 percent of respondents plan to invest resources, and recycling. 40 percent said they plan to go greener in their
in price/promotion optimization technology to The Food Marketing Institute noted in its operations in the next five years.
gain efficiencies in the year ahead, 47.6 percent Facts About Store Development 2007 report that
won’t do so, and 18.6 percent don’t want to say food retailers are embracing sustainability to Keeping score on suppliers
either way. reduce energy costs as they build new stores. As Last but not least, in another new area of the
many as 34 percent of respondents to FMI’s sur- Annual Report (or, more accurately, a revival of a
On the green scene
A new trend in operations that has gained Investing in price/promotion optimization technology?
lots of attention in the past year is sustainability
and the “greening” of supermarkets. In this year’s Invested in 2007: Plan to invest in 2008:
Annual Report, PG asked retailers for the first Total Chain Ind Whlsl Total Chain Ind Whlsl
time whether their companies are investing in Yes 32.1% 49.4% 25.5% 23.5% 41.5% 51.9% 37.8% 35.3%
environmental sustainability. While 50.9 per-
No 67.9 50.6 74.5 76.5 58.5 48.1 62.2 64.7
cent said no, a full third (37 percent) said yes.
SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008
Twelve percent offered no response, indicating
that there’s still an educational curve when it
comes to sustainability.
Investing in environmental sustainability?
The companies that are involved have been
experimenting with a wide array of initiatives, Total Chain Ind Whlslr Northeast Midwest South West
ranging from offering reusable bags and discour- Yes 37.0% 49.6% 29.7% 34.0% 45.0% 32.0% 28.4% 46.0%
aging plastic bags, to implementing LEED certi- No 50.9 35.4 62.3 46.0 41.3 53.9 56.7 50.8
fication in new stores and remodels, to investi-
No response/don’t know 12.1 15.0 8.0 20.0 13.7 14.1 14.9 3.2
gating solar energy.
SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008
Energy and lighting are two areas receiving par-
ticular attention, probably because these factors

Rating of manufacturers’ effectiveness

Score=percent of respondents rating strategy as 1 or 2 on a scale of 1-6, where 1=most effective
North-
Total Chain Ind Whlsl east South Midwest West 1-10 11-99 100+
No. of new items 29.3% 21.2% 35.4% 26.0% 30.0% 31.3% 25.0% 34.9% 35.6% 23.6% 22.3%
Performance requirements on deals/allowances 21.0 14.2 26.3 18.0 20.0 22.4 20.3 22.2 26.6 14.5 15.5
Efficiency of electronic communications 20.4 13.3 22.9 28.0 18.8 22.4 19.5 22.2 23.7 16.4 17.5
Usefulness of category mgmt. programs 19.5 18.6 20.0 20.0 13.8 26.9 15.6 27.0 20.9 16.4 19.4
Value of deals and offers 18.9 14.2 24.0 12.0 16.3 22.4 15.6 25.4 24.3 20.0 9.7
Number of deals and offers 18.6 11.5 24.0 16.0 16.3 19.4 18.0 22.2 24.3 20.0 8.7
Efficiency of sales visits 13.9 13.3 12.6 20.0 12.5 14.9 14.1 14.3 13.0 16.4 14.6
Training/education programs to support lines 11.8 8.8 14.3 10.0 13.8 10.4 10.2 14.3 14.7 10.9 7.8
SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008

Change in supplier relationships in past year

Total Chain Ind Whlsl Northeast South Midwest West 1-10 11-99 100+
Better now 32.0% 39.5% 27.6% 35.5% 31.3% 37.7% 27.9% 35.2% 27.3% 43.9% 36.2%
Worse now 22.9 9.9 29.4 22.6 14.1 17.0 31.7 22.2 29.1 14.6 13.0
Stayed the same 45.1 50.6 43.0 41.9 54.6 45.3 40.4 42.6 43.6 41.5 50.8
SOURCE: PROGRESSIVE GROCER MARKET RESEARCH, 2008

40 • Progressive Grocer • April 15, 2008 A H E A D O F W H AT ’ S N E X T www.progressivegrocer.com

 Annual Report
section from reports past), PG asked grocers to
judge how effective their manufacturer partners
are in specific areas of the business.
Their responses revealed that some relation-
ships are strained out there—and apparently, there’s
plenty of room for improvement in communication
and strategy.
Suppliers scored highest on the number of new
product introductions they presented in 2007.
The other areas considered at least average in effec-
tiveness included performance requirements on
deals and allowances, and efficiency of electronic
communications.
The areas in which suppliers need the most
work, from the retailer’s point of view, include
efficiency of sales visits, and providing training
and educational programs to support their lines
and products.
About one-third (32 percent) of respondents
said their supplier relationships are better now
than a year ago, and 45.1 percent said they’re
about the same. Almost 23 percent felt that their
relationships have worsened.
When asked to name one thing that would
make their relationships with suppliers better, gro-
42 • Progressive Grocer • April 15, 2008
cers had a lot to say. Some of the most telling among concerned about selling more products.
the many responses were: • Better on-time delivery of seasonal product.
• Alignment of goals and strategies to the • Remember the independents.
customer level. • Offer more custom marketing plans instead of
• Availability of more delivery days, so as to cookie-cutter national plans.
obtain fresher stock in perishables. • Increase promotional allowances for buy-ins
• To be able to visit with a “real” person. and display allowances.
• More help in merchandising instead of being • Fewer out-of-stocks. ■
METHODOLOGY
PROGRESSIVE GROCER’S 75TH ANNUAL REPORT OF THE GROCERY
INDUSTRY is based primarily on an exclusive survey conducted among
headquarters executives and store managers at supermarket chains, independents, and wholesalers. A
total of 338 responses are included in the final results. Presidents and other top executives represent
31 percent of the total, followed by buyers/merchandisers/category managers, at 24 percent; store
managers, at 17 percent; retail/store operations executives, at 15 percent; and
sales/advertising/marketing executives, at 13 percent. A total of 52 percent of respondents represent
independent operators with one to 10 stores, 17 percent have 11 to 99 stores, and 31 percent operate
100 stores or more. Regionally, 37 percent are headquartered in the Midwest, 24 percent are from the
Northeast, 20 percent are from the South, and 19 percent are from the West.
Additional store account and sales data was provided by TDLinx, a Nielsen Company, which main-
tains a national database of supermarket and other retail format locations. Consumer behavior data
was provided by Nielsen from its Homescan panel of more than 125,000 households.
A H E A D O F W H AT ’ S N E X T www.progressivegrocer.com