Poor Economy, Deflation Play Havoc With Sales; Giant/Landover, Food Lion Maintain Top Spots

Simply stated, the 12 month period from April 1, 2009 through March 31, 2010 was the most challenging for food and drug retailers in the 32 years we’ve been covering the industry in the Mid-Atlantic.

With unemployment averaging about 10 percent during that 12 month period, deflation creating a three to four percent valley, and a generally cautious or negative consumer attitudes toward spending, the overwhelming majority of retailers suffered flat or negative sales during our market study measuring period. Add to that a continuation of the diverse and competitive retail landscape, a nearly negative perfect storm occurred.

In fact, total retail food and drug dollars spent during the past 12 months remained generally flat at $40.47 billion over the past year for the 88 counties and cities we measured. And if it weren’t for the more stable and affluent counties adjacent to Washington, DC (which remained somewhat recession proof), the overall Mid-Atlantic volume would have decreased slightly more than three percent.

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Of course, not all retailers felt the angina as much as others, despite competing in the same challenging environment.

Mid-Atlantic market leader Giant/Landover, which came in out of its nine year funk in 2009, continued to make solid progress. The 175 store unit of Ahold saw sales increase from $4.9 billion to $5.1 billion this year. With the company gaining traction from its “Project Refresh” store improvement program which is in its second year ($100 million a year has been committed for three years), a now solid price image and a rebranding of its image, Giant/Landover showed positive results on almost all fronts, including identical store sales, an elusive metric in the current environment.

Maintaining its second place position with sales of $3.68 billion in the Mid-Atlantic was Food Lion, which operated the most supermarkets in the region (331, three more than last year) and continued its leadership position in the Richmond, Tidewater and Eastern Shore markets. The unit of Belgian retailer Delhaize operated three of its formats in the region, Food Lion, more upscale Bloom and extreme value Bottom Dollar. Identical store sales were marginally down, matching the industry average, and as the new year began, the Salisbury, NC retailer embarked on a new lower price strategy chain-wide.

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This year, Wal-Mart surpassed Safeway for the number three spot in the market. While the Behemoth had a rather modest year by its standards (opening only three net new stores), it did manage to convert or open four new SuperCenters during our measuring period giving Wal-Mart 66 combo stores in the region. Extrapolated food and drug sales for the world’s largest retailer are estimated at $3.33 billion.

Safeway had a very challenging time over the past year as it struggled with its price image in this tough, value-oriented economy. Last summer, the Pleasanton, CA retailer finally bit the bullet and started lowering prices across the board, but many observers viewed the strategy as “too little too late.” And even now, Safeway has not gotten the “credit” it seemingly deserves for being more aggressive on everyday prices. The chain’s Eastern division, based in Lanham, MD, operated 132 stores and amassed estimated sales of $3.23 billion.

Moving up two rungs to fifth place among all Mid-Atlantic retailers was another Ahold division, Giant/Carlisle (Martin’s). Like its sister company based in Landover, Giant/Carlisle has maintained solid sales numbers through the year and opened three net new stores including its 150th unit in Culpeper, VA. However, the big news came last February when the retailer acquired Ukrop’s Super Markets (25 stores) in the Richmond market for $140 million and converted them to the Martin’s banner. The family-owned operator had been struggling for several years and in the four months since it took possession, Giant/Carlisle has already revamped much of the operation including selling beer and wine, opening on Sundays and improving pricing and merchandising. Those changes will be reflected in next year’s market study. For this year, Giant/Carlisle operated 80 units in the Mid-Atlantic ringing up sales of $2.42 billion.

CVS, the leading drug chain in the region, had a solid year, and was less affected than those retailers that relied mainly on selling groceries, where deflation was a more significant factor. CVS opened seven new units over the past 12 months (it now operates 445 stores in the region). Sales in the Mid-Atlantic are estimated at $2.15 billion for the Woonsocket, RI firm.

Another stalwart retailer, Shoppers Food & Pharmacy, had a poor year with sales dropping from $1.99 billion to $1.91 billion with 62 stores, two fewer than last year. The unit of Supervalu seemed to suffer from the same malady as other Supervalu retail units – a declining price image. In Shoppers’ case, it seemed to lose its once formidable discount image, which proved to be a slippery slope to navigate in such price sensitive times.

One retailer that managed to beat the challenging economic curve was Target, which after several mediocre sales years held solid with its revenue numbers this period. Extrapolated food and drug sales increased from $1.24 billion to $1.31 billion. Part of that gain came from the Minneapolis, MN based mass merchant’s conversion of about two dozen stores to its hybrid PFresh model which features expanded grocery, frozen and dairy as well as produce. About 50 more units are expected to be converted in the region over the next year.

Rite Aid was another retailer that suffered during the past 12 months as it competed with its two major drug chain rivals – CVS and Walgreens – as well as the other retailers selling HBC, general merchandise and prescription pharmaceuticals in the tight, over-stored region. For the year, Rite Aid operated 387 stores (seven fewer than last year) and amassed sales of $1.30 billion, down from last year’s figure of $1.34 billion.

Rounding out the top 10 among all Mid-Atlantic retailers was 7-Eleven, the leading convenience store retailer in the region. Now operating 930 stores (the most units of any merchant) 7-Eleven experienced a generally flat year. Sales for those stores are estimated to be $1.1 billion.

Another retailer that had a notable year in the region was Weis Markets, which broke the $1 billion mark in volume with sales of $1.01 billion. The Sunbury, PA retailer was significantly ahead of the industry average on ID sales and store conditions also improved in the first full year under new CEO Dave Hepfinger.

While sales at Harris Teeter were generally flat, the Mathews, NC retailer moved the needle forward by opening five new stores as it continues its aggressive expansion into the Washington, Baltimore and Eastern Shore markets.

Another supermarket retailer that had an outstanding year was Klein’s, which converted its banner to the ShopRite name and saw its seven stores flourish. The Forest Hill, MD independent led all retailers in sales percentages increase, improving from $111.8 million last year to $131.9 million.

Included among the retailers that struggled during the past 12 months were Super Fresh (A&P), Kmart and Acme Markets.

By class of trade, Giant/Landover (175 stores, $5.1 billion in sales) topped all supermarket retailers; Costco (24 stores, $967.9 million in extrapolated sales) led all club retailers; Wal-Mart (126 stores, $3.33 billion in extrapolated sales) led all mass merchants; CVS (445 stores, $2.15 billion in sales) was the leader among drug chains in the Mid-Atlantic; and 7-Eleven (930 stores, sales of $1.11 billion) paced all c-store merchants. Additionally the 21 military commissaries enjoyed a very good year with sales of $902.2 million.

Among all independent retailers (those operating 19 or fewer stores), Baltimore based Mars Supermarkets (16 stores, $203.1 million in sales) continued to pace the group, although its sales declined for a third consecutive year. Other independent retailers topping the $100 million sales mark included: B. Green (seven stores, $147 million in sales); Magruder’s (seven stores, $105.5 million in sales); and Karn’s Prime and Fancy Foods (seven stores, $104.8 million in sales).

As a collective group the 16 independent retailing organizations in the Mid-Atlantic operated 78 stores which garnered sales of $995.96 million or 2.46 percent of the total Mid-Atlantic pie.

The 49 organizations that trade as chains (those retailers with 17 or more units as a corporate entity) operated 4,439 stores and collectively produced $39.42 billion in annual sales or 97.39 percent of all Mid-Atlantic food and drug revenue.