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  • From: "Tradingpost" <tradingpost@lobo.net>
  • To: livingontheland@lists.ibiblio.org
  • Subject: [Livingontheland] Grocers choosing to absorb extra costs
  • Date: Mon, 17 Jan 2011 17:51:58 -0700


Grocers choosing to absorb extra costs
http://azstarnet.com/business/article_238c05ee-c8fe-57e3-ad95-8fb080e3bc93.html
Monday, January 17, 2011 12:00 am | Comments

NEW YORK - Orange juice isn't the only thing at your supermarket that's been
squeezed.

Rising food prices mean grocery store chains must absorb extra costs on items
such as meat, seafood and produce, or they try to pass them along to
customers.

But many of those consumers are unemployed or have less money to spend, even
on essentials.

For now, the big chains are mostly choosing to absorb. As a result, profits
are falling, and so are their stocks, making them one of the few dim lights
in the market in 2011.

On Tuesday, Supervalu was the first of the grocers to report quarterly
results, and the numbers for its fiscal third quarter were ominous: a loss of
$202 million, or 95 cents a share, compared with a profit of $109 million, or
51 cents, in the same period a year earlier. The company, which operates
Albertsons, Jewel-Osco, Acme and other chains, also cut its forecast for the
year.

"This is going to be a challenging year going forward to manage inflation,"
Supervalu CEO Craig Herkert told analysts. "It's just a fact, and we believe
these inflationary measures are going to impact consumers."

The result: "Investing in (grocers) now is certainly not for the faint of
heart," said Philip Gorham, an analyst at Morningstar.

The pressures that supermarkets are dealing with are felt elsewhere. Soaring
commodity prices help energy and agriculture companies that produce raw
materials.

But there are plenty of losers from the commodity boom stuck trying to pass
on higher costs to customers whose wages are not rising as quickly. Evidence
of that came in the government's inflation report on Friday.

The Consumer Price Index rose 0.5 percent in December, the largest increase
in 18 months. Most of it was due to higher gas prices.

Food prices increased just 0.1 percent, suggesting grocers still aren't
passing on higher costs on most items.

Forty million Americans now rely on foods stamps, up 50 percent from four
years ago, and gas now costs 12 percent more than it did at this time last
year.

That's one reason that middle- and lower-income consumers are increasingly
going to supercenters that offer less selection but lower prices than
traditional grocery stores.

Grocery sales at stores such as Walmart, Target and Costco grew at a rate of
10 percent a year over the past five years, according to Packaged Facts, a
market research firm.

Sales at traditional grocery stores are growing closer to 4 percent.





  • [Livingontheland] Grocers choosing to absorb extra costs, Tradingpost, 01/17/2011

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