Shop Talk
Retailers, consumers and prices
Check Out Line: Have a flu shot, spend some more
Check out the impact of signs the U.S. flu season may be weaker this year.
Drug stores such as Walgreen, CVS and Rite Aid are offering flu shots earlier and more conveniently to keep sales from slumping with no expected H1N1 outbreak this year along the lines of last year.
Last year, consumers came for flu shots and bought other items as well, but those related sales could suffer this year. Walgreen, for example, said lower demand for flu-related prescriptions cut 0.3 percentage point from its same-store sales growth in August.
This year, drug stores began promoting flu shots in late August, a week earlier than last year.
Making it tougher for drug stores are rivals like grocery stores (Supervalu and Kroger), and big-box retailers (Target) have been offering flu shots as well.
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Check Out Line: Consumers beware! Rising prices even at Wal-Mart
Check out rising prices even at Wal-Mart.
Pressures created by rising costs have caused even the world’s largest retailer, known for its ”rollback” discounts, to boost the prices that consumers pay for groceries. Wal-Mart Stores raised average prices on supermarket items by about 6 percent in a month, according to a recent J.P. Morgan study in Virginia that compared the prices of 31-item goods sold at its supercenters, and at supermarket rivals Kroger, Safeway, Harris Teeter and Whole Foods. Specifically, the study found that prices at a supercenter in Virginia rose 5.8 percent, the most significant sequential increase since JP Morgan started price comparisons in January 2009. While the world’s largest retailer remains the cheapest among supermarkets, rivals such as Kroger and Safeway are gaining ground, according to J.P. Morgan. Rising costs of raw materials and oil are pressuring companies to pass on costs to consumers with higher prices.
Indeed, clothes makers such as Nike, VF Corp and Hanesbrands are facing the same conundrum. And British baker Greggs said soaring wheat prices were set to push up costs, emphasizing a theme that may be repeated for such food makers as General Mills, Kellogg, Kraft and Sara Lee.
However, the timing is not good as the state of the U.S. economy is still uncertain and unemployment remains stubbornly high, leading many consumers to still be wary about spending. U.S. retailers in July posted weaker-than-expected sales despite increased discounting. Also in the basket:
Wendy’s/Arby’s to expand into Russia
Check Out Line: Upset tummies in the food sector?
Check out sluggish results in the U.S. food sector.
Fast food giant McDonald’s and Kroger, the largest U.S. grocery chain, saw shares decline 2.5 percent and 10 percent, respectively, after reporting weak results.
McDonald’s said same-store sales at its U.S. restaurants slipped 0.6 percent in November, marking the second straight monthly decline. Following Yum Brands’ recent weaker-than-expected sales, it was the latest sign that the fast-food sector that had performed well through most of the recession was weakening.
Rising unemployment has begun to take a noticeable bite out of sales, particularly at breakfast — where McDonald’s leads the industry.
Kroger reported a much lower-than-expected quarterly profit and cut its full-year forecast as it feels pressure from falling food prices and stepped up competition.
Not everything was dark at the dinner table.
Chicken producer Sanderson Farms posted a quarterly profit compared with a year-ago loss as it benefited from higher poultry prices and lower feed costs. To wash that news down, alcoholic beverage maker Brown-Forman posted a higher quarterly profit and raised its outlook for the current fiscal year.
Check Out Line: Buying basics buoys big chains
Check out the ten largest U.S. retailers.
The National Retail Federation’s STORES magazine is out with its annual ranking of the top 100 retailers.
The list shows that U.S. consumers have been focused on bargains and basic necessities, such as food and medicine. Wal-Mart tops the lineup, followed by Kroger and Costco. Home Depot fell from No. 2 in 2007 to the fourth spot in 2008 as many shoppers decided to cut back on costly home-improvement projects.
Home Depot, Lowe’s and Sears Holdings were the only members of the top 10 to see their revenue fall in 2008.
Some other rankings that may interest you: Amazon.com is the 19th largest retailer, ranking higher than well-known chains such as J.C. Penney, 7-Eleven and Gap. Apple’s stores and iTunes combined hold the 40th spot, topping chains such as Nordstrom, Whole Foods and Barnes & Noble.
The companies were listed by annual revenue, which may include estimates for private or closely-held companies. Revenue from major non-retail operations were excluded when possible.
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This is a worldwide trend, bargain and dollar stores are flourishing and businesses selling products with higher profit margins see their revenue fall sharply. Could it be that we’re in a recession?
Check Out Line: “Insult to injury” for retailers
Check Out one analyst’s list of retail names at risk.
Around this time last year, stimulus checks amounting to more than $100 billion started landing in cash-strapped consumers’ bank accounts, giving them a chance to spend and boosting sales for many retailers.
But this year’s stimulus entails lower withholding taxes and not ”hard checks,” which means “the effects of this year’s stimulus on retailers will be a far cry from 2008,” Pali Capital analyst Stacey Widlitz said in a research note to clients.
As retailers already face thrifty consumers, tough comparisons versus a year ago could put some retailers at risk this time around, adding “insult to injury,” she said.
For example, electronics retailer RadioShack offered consumers a 10 percent discount on purchases over $50 when a stimulus check was used between May 4 and July 12 last year. That along with sales of TV converter boxes helped sales, Widlitz said.
“Beware of tough comps ahead, lack of stimulus promotions and the end of converter boxes in June,” she said in the note.
Widlitz also mentioned discounting giant Wal-Mart Stores, saying the retailer benefited last year from stimulus checks, and ”on top of increasing expectations, investors are not fully factoring in the headwind for May-June.”
There was a study that was released somewhere around 10 to 11 months ago that showed that Wal-Mart could only sustain another 50% inflation, it was pretty hush hush and got about 5 seconds of off beat notoriety… While I initially feel triumph at the thought of the evil giant falling, economically if a machine like Wal-Mart is staring down that barrel, others… well, retailers employee a lot of people even if it is not under the most favorable of conditions. Now take that study and the fact that we are practically begging China to dump a vast quantity of its surplus capital because their currency is to valuable, and you might start scratching your head and wondering how deep this rabbit hole goes! My only real complaint is that I wish that people would finally learn that the easy way out is never the right way out… the old adage, the easy man killed him self at work.
On a side note, if you really get interested in this stuff, you should look at what was being played out by OPEC and the ridiculous gas prices… and Hugo Chavez supplying ridiculously cheap oil to China along with the timings of the Bush administrations lashings of him, you can dig up some pretty interesting ‘coincidences.’ I guess it is hard for one puppeteer to put on the whole dumb show.
No tug-of-war between grocers and food makers-Kroger CEO
Costs for ingredients like rice, wheat and oil are falling, so why are prices for breakfast cereals like Rice Krispies and Special K still rising?
If you want an answer to this question, you aren’t the only one.
Food companies like Kellogg Co, which makes the products mentioned above, say the higher prices are justified because while commodity price inflation has eased amid a global economic downturn, commodity prices remain well above historical averages.
But CEOs of grocery chains like Safeway and Kroger say those higher prices are increasingly out of whack with their own lower-priced private label products.
“We have seen some price declines,” Kroger Chief Executive David Dillon said on a conference call, but he said prices for national brands were not in step with a broader fall in commodity costs.
Dillon said sales of national brands were ho-hum, while sales of Kroger’s store brands are rising enough to hit historic highs.
“That’s going to continue as long as that kind of price differential exists,” said Dillon, who expects national brand sellers to discount via promotions before they cut prices.
Check Out Line: Hanging at the mall not so fun
Check out how consumers feel about shopping at malls.
Auto dealers and reporters are popular targets for hate mail. But mall operators may have reason to fear joining them if a new study conducted by the University of Pennsylvania Wharton School and the Verde Group, a market research consultancy, is to be believed.
Almost eight of every 10 people surveyed faced a problem at the mall, citing such issues as a limited choice of places to eat, lack of variety of stores, parking difficulties and a shortage of restrooms.
But keeping shoppers happy will be critical this holiday shopping season.
U.S. consumers, who spend an average of $150 per mall visit according to the study, have curtailed shopping due to the recession, the weak U.S. housing market and high food costs, raising concerns about holiday sales. More and more people are scared about their jobs — another factor in the spending slowdown.
“These findings should be a call to action for mall developers who are failing to quench this thirst for excitement,” said Wharton Professor Stephen Hoch in a statement. “Malls can’t be mundane in this economic climate.”
Mall operators, already struggling to lure shoppers, are facing a dwindling pool of retail tenants, as many bankrupt stores like Steve & Barry’s have begun to shut their doors.
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Wal-Mart donates food, cash to fight hunger
Wal-Mart is partnering with Feeding America, the largest charitable hunger-relief organization in the United States, to provide 70 million meals annually to families and individuals who are struggling to put food on the table during the toughest economic downturn in decades.
The move from the world’s largest retailer comes as U.S. food banks are seeing donations fall short of demand.
Wal-Mart has committed to providing an estimated 90 million pounds of food annually – the equivalent of 70 million meals – to families in need by the end of 2009. It is also making a $2.5 million cash donation that has been earmarked to upgrade warehouses and to buy 20 new refrigerated trucks to transport food from Wal-Mart stores to food pantries, soup kitchens and other agencies affiliated with Feeding America, formerly named America’s Second Harvest.
“Given the current state of the economy and the increased burden on neighborhood food pantries and soup kitchens, we are enlisting our entire network of stores and clubs to participate in this food donation program to provide relief to communities throughout the country,” said Bill Simon, chief operating officer of Wal-Mart U.S.
“Today, with the help of Wal-Mart, we take a huge step forward in helping feed the millions of Americans who live at risk of hunger,” said Vicki Escarra, president and chief executive officer of Feeding America.
In a recent survey, 99 percent of Feeding America’s food banks said demand for food in communities across the U.S. has risen by 15 to 20 percent over the last year alone. Many food banks have reported even higher increases in demand – some with requests for food growing by 50 percent in the last year.
Feeding America’s major donors include Wal-Mart, Kraft Foods, Campbell’s Soup Co, ConAgra Foods, and Kroger.
Check Out Line: Souped up
Consumers may be cutting back on restaurant visits and car purchases but they are still buying crackers and juice, as Campbell Soup raised its full-year profit forecast.
The maker of Pepperidge Farm cookies and V8 juice has raised prices to offset soaring commodity costs and announced a $1.2 billion share buyback program that should help boost shares.
In more news on consumer staples, UBS is recommending that investors look to price leaders such as Wal-Mart Stores and Kroger, saying they are poised to gain market share as consumers shop for the best deals. That firm downgraded shares of grocers Safeway and Whole Foods.
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Check Out Line: Kroger Kroger rides lower prices, gas discounts to higher profit
Check Out the quarterly profit at Kroger Co.
The largest U.S. grocery chain posted a higher quarterly profit on Tuesday, thanks to its emphasis on lower prices and gasoline discounts – music to its shoppers’ ears and higher sales for itself.
“Kroger continues to help customers stretch their budgets in a number of ways, including lower prices and our expanded generic drug and gas discount programs,” chief executive David Dillon said in a statement.
The price cuts, he said, were helping Kroger’s customers save $1 billion annually, at a time when shoppers deem every last dollar precious, as they face skyrocketing prices for necessities such as gasoline.
Kroger also raised its outlook for the full year, based on the strength of the results from the reported quarter.
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