Executives See Another Tough Year in 2010

While a new year can mean a new start, few grocery industry leaders are anticipating much will change in 2010.
They expect the new year will be a continuation of a difficult 2009, which challenged operators to compete amid price deflation, tight credit markets and a heavy new emphasis on value to meet a U.S. shopper base beset by financial uncertainty and high unemployment.

Optimism for 2010 centers on retailers being able to keep their own costs down, and for deflation to reverse itself. Retailers are also anxious to apply the lessons that operating in 2009's difficult environment provided, including the ability to remerchandise on the fly.
Mike Gilliland, CEO of Sunflower Farmers Market, the Boulder, Colo., natural and organic food chain, spoke for many in the supermarket industry when he predicted a dour business outlook.

“I'm not too optimistic about 2010,” he told SN. “I think we're still going to be fighting it out for the customer. Consumers are still going to be fairly traumatized, and will be through the end of the year.”
As 2009 came to a close, independent grocers were feeling the pinch of a newfound emphasis on value by some of the industry's largest players.
“If I had to put a word on it, ‘difficult’ is the one I would use, inasmuch as the markets have heated up so much, with competitors — especially Wal-Mart, Kroger and Safeway — taking a much more aggressive stance toward maintaining volume,” said Dennis Butler, EVP and chief operations officer, Laurel Grocery Co., a wholesaler based in Loudon, Ky.
Martin Arter, president and CEO of Affiliated Foods Midwest, Norfolk, Neb., said he believes consumer patterns will be similar in 2010 to what the industry saw in 2009. “We've obviously seen private brands on the rise, and I think that will continue,” he told SN. “However, the national brands are becoming more aggressive.”
For some of Affiliated's customers, deflation blunted gains in volume and subsequently pressured the bottom line, Arter said.
“With a smaller ring, even if there are more items in the basket, there is more pressure on labor costs,” he said.

Roger Collins, CEO of Harps Foods, Springdale, Ark., said he expects 2010 will provide a continuation of the trends that made 2009 difficult. But being quick to recognize those trends, and adjust to them, helped Harps manage those challenges well.
 “I think 2009 showed us that we needed to be on top of our games when it came to marketing. People stopped eating out so much, and they started focusing on eating at home. But they also started buying down and looked for ways to save money in the grocery store,” Collins continued. “The combination of those two things sort of offset one another. The [retailers] who were nimble and saw these changes taking place in their markets are the ones who did well in 2009.”