Food Retailers Use Efficiency, Cost Controls and Technology to Achieve Highest Net Profits in Nearly 30 Years Oct 29, 2001 WASHINGTON, DC — October 29, 2001 — The supermarket industry posted its highest net profits in nearly three decades at 1.25 percent of sales, according to its 2000-2001 Annual Financial Review, just released by the Food Marketing Institute (FMI). Operating income, at 3.03 percent, was near the 10-year high of 3.05 percent.“What is most impressive about these figures,” said FMI President and CEO Tim Hammonds, “is that the industry earned them through efficiency, rigorous cost controls and strategic use of technology. Meanwhile, the percentage of disposable income spent for food-at-home continues to remain low (6.2 percent), along with food inflation.”Food inflation in 2000 was only 2.3 percent, more than a full point below the consumer price index increase for all items (3.4 percent), according to the Bureau of Labor Statistics.The gains in efficiency were most evident in reduced inventory costs, which continued a long-term decline — from 27.56 percent of assets a decade ago to 22.19 percent. At the same time, capital expenditures remained high, at 2.99 percent of sales — the second highest level in five years.“These figures paint the picture of a resilient industry focused on efficiency and delivering the products and services that consumers demand,” said Hammonds. “Food retailers are using technology and the Internet to reduce inventory and transaction costs. Stores and warehouses are becoming more energy efficient.“Most importantly, they are putting the products on the shelf and delivering the services that consumers want and need. Food retailers are accomplishing this by analyzing scanning data and using category management to ensure that entire product groups mirror customer demand. “They are providing one-stop convenience by adding gasoline pumps, full-line banking services, wellness centers, pharmacies, coffee bars, and prepared, ethnic and natural foods — all investments that will benefit the industry and our customers well into the future.”By virtually every measure, the industry’s financial performance improved:Return on assets — 3.78 percent, up from 3.55 percent in 2000-2001.Return on equity — 13.42 percent, from 10.71 percent.Asset turnover — 3.21 percent, from 3.18 percent.Earnings before interest, taxes, depreciation and amortization (regarded by many analysts as the best measure of operating performance) — 4.92 percent, up from 4.78 percent and the second highest level in the past five years.“This is not to say the industry lacks challenges,” Hammonds cautioned. “Competition has never been more vigorous with just about every retail channel venturing into the business of selling food. In fact, the lines dividing the sectors of the retail industry are blurring, if not disappearing altogether. And we still face significant competition from restaurants, particularly from quick-serve outlets. These factors and others continue to challenge the industry’s ability to achieve significant top-line growth.“And for consumers, this relentless competition has produced an unprecedented level of choice in variety, value, nutrition and quality.”Industry Well Positioned for the FutureAs to the future, Hammonds said, “The industry is well positioned. In a weak economy, people tend to eat out less and stretch their food dollars by purchasing store brands — all of which bodes well for the industry. “In addition, while some of the first online food retailing ventures failed, many of these were bought by traditional retailers, creating, in effect, ‘brick-and-click’ operations. As the Internet generations become our primary customers, our industry will be ready — whether they want to shop in cyberspace, in our stores or both.”To purchase the 2000-2001 Annual Financial Review ($35 for FMI members/$90 for nonmembers) or for more information, please contact FMI Publications and Video Sales (202-220-0723) or visit the FMI Web site (www.fmi.org/pub/).