By Steven Harris, Director, Policy Development and Regulatory Compliance, Food Marketing Institute
Food retailers take pride in their ability to provide safe, quality and affordable food to their customers every day. The fact that they are able to do so in an ultra-competitive and in a less than two percent profit margin only makes me appreciate this achievement even more when I visit a grocery store. With the addition of new technologies and the changing consumer landscape, food retailers have had to take a hard look at their operations to determine how to best adapt to new aspects of the retail business, including making new investments in their stores, equipment and investing in their workforce.
According to FMI’s latest signature research report, The Food Retailing Industry Speaks 2018, food retailers expressed increased optimism about their future financial performance, a change from a year ago partly due to retailers’ focus on new growth strategies and on the changing marketplace. Speaks survey respondents indicated that same-store sales advanced 1.7 percent during fiscal year 2017, up from 1.0 percent the previous year.
Retailers have another source of optimism: the recent passage of the tax reform law. At the end of 2017, lawmakers passed the Tax Cuts and Jobs Act (TCJA), which lowered the U.S. tax rate for corporations, passthrough entities and individuals. The new U.S. corporate rate is now 21 percent, down from 35 percent. Historically, FMI member companies were paying one of highest corporate effective tax rates; the reduction of the corporate rate was a welcomed relief.
The law also increases expensing levels, which will help with new investments in technology and job growth within our industry. According to Speaks, 36 percent of food retailers said they will increase investments in store development, new equipment and real estate as a result of the tax law. Thirty-three percent of companies will increase wages. Companies also indicated they will be enhancing employee benefits and bonuses and looking for additional ways to invest in their workforce.
The tax law has only been effective for less than a year, but it has already provided a signal to companies to move forward with new capital expenditures and additional investments in their company, their employees and their communities.
The ramifications of this new tax law and other topics will be covered at the 2019 Financial Executive and Internal Auditing Conference, May 5-7, 2019 in San Antonio, TX.