Deflationary Pressures Cut Grocery Company Sales and Earnings

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October 20, 2009

In the latest string of declining grocery company earnings reports, Safeway and Supervalu blamed lower performance on heavy promotions and price reductions it took to attract today's cost-conscious shoppers, according to an Associated Press report.

Safeway earned $128.8 million for the quarter, down 35 percent from $199.7 million in the year-ago quarter. Meanwhile revenue declined 7 percent to $9.46 billion.

Meanwhile Supervalu's second quarter profits plunged 42 percent, earning $74 million, down from $128 million in the year-ago quarter on sales that slipped 7.5 percent to $9.46 billion.

Although Safeway reduced prices later than many competitors, the new pricing strategy seems to be working and has succeeded in attracting more customers with greater shopping frequency this past quarter, according to the company.

Compared to last year's inflation, Safeway CEO Steve Burd said prices for meat, produce and dairy continue to fall as do gasoline prices, which affect transportation and product cost of goods.

Although he added that the company is encouraged that sales volume and shopper trends continue to improve, he expects prices will get pushed lower still.

Shoppers are showing some early signs of relaxing their frugal ways, according to Burd, such as trading back up to lattes from coffee.

"That suggests to me that we're at or near the bottom of this whole thing, and that would be good for all of us if that's true," Burd said.

SBD View: With so much deflationary pressure on grocery prices, compounded by heavy CPG promotions and couponing, it seems that the store brand challenge is finding ways to preserve the price-advantage gap over national brands. But how are retailers doing that? Are they rethinking current pricing strategies on store brands too? How is this deflationary environment affecting store brand profits? Tell us your thoughts and ideas?

Read These Related Articles:

• Wal-Mart Edges Out Fry's in Tucson Store Brand Pricing Survey
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• Safeway Top Exec Favors Every-Day-Low-Pricing Over Traditional Hi-Low Pricing
• Kroger Rolls Out Two Discount Programs for Store Brands and National Brands
• Retailer and CPG Panel Attempts to Ease Tension Over Store Brands

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