Food retailers experience sales decline in tough economy

May 18, 2009

The Food Marketing Institute (FMI) has released its “2009 Food Retailing Industry Speaks: Annual State of the Industry Review” that shows that due to inflation and a weak economy food retailers’ sales declined in 2008. According to the report, supermarket industry sales actually increased 5.2% in 2008, but these gains were offset by the 5.7% food-at-home inflation rate. Adjusted for inflation, sales declined 0.5%. Industry net profits decreased to 1.43%, from 1.82%, as companies competed more intensely for fewer consumer dollars in a recessionary economy. Contributing to this decline were increases in the cost of goods, health insurance, and credit card interchange fees, among other expenses. Independent retailers (companies with 1–10 stores) posted the highest net profits at 1.90%.

“The industry showed its resilience in the most challenging economy in modern history,” said Leslie Sarasin, FMI President and CEO. “Retailers aggressively discounted products and increased their lines of private brands to help American families lower their grocery bills. At the same time, they continued to control costs by improving efficiency and productivity, a hallmark of this industry.”

Supermarkets are responding strongly to consumer demand for lower-cost foods in three ways. First, the research found a significant increase in companies emphasizing low prices as a competitive strategy—from 69.9% in 2008 to 78.4% this year. Second, retailers are featuring private brands more prominently. In fact, private brand products now comprise 9.7% of the items carried in a typical store—up from 8.1% in 2008 and 7.5% in 2007. Third, half of supermarkets (50.7%) offer savings through frequent shopper or loyalty card programs.