1. “Feel the squeeze? Actually, so do we.” When the economy slows and businesses begin to feel the heat, grocery stores are often exceptions to the rule. That’s because when consumers cut back on frills like eating out, they tend to make even more trips to the supermarket. Still, all bets may be off in the wake of the crash of 2008.
Citi Investment Research analyst Deborah Weinswig forecasts falling same-store sales growth at many of the major chains in 2009; for one, she sees top performer Kroger experiencing a decline in same-store sales growth, from about 5 percent in 2008 to 4 percent in the coming year. Meanwhile, supermarket chain Supervalu forecasts its own flat sales growth through 2009.
Even the big-box stores—now established contenders in the grocery industry—are facing tough headwinds in the wake of the market meltdown. Weinswig says she expects dips in same-store sales growth for BJ’s Wholesale Club, from 11 percent in 2008 to under 7 percent in 2009, and a drop from 8 to 6 percent growth over the same period for Costco.
Bottom line, “it’s tough to pass through higher costs when consumers have such a laser-like focus on price,” says Mitchell Corwin, a senior equity analyst for Morningstar.
2. “You’re getting less for the same price.”
When Linda Edwards, a nurse in East Windsor, N.J., picked up her usual $4.99 jug of orange juice at Shop Rite this summer, she was surprised to discover that it contained 7 ounces less than it normally did. A few months later she noticed her Skippy peanut butter and chicken strips were also lighter but not any cheaper. “Everything seems to be shrinking, but my family hasn’t shrunk,” says the single mother of five boys. A spokesperson for Unilever, which owns Skippy, says reducing product size is one way the company is coping with higher food and fuel costs.
Manufacturers know that in a tight economy, consumers are driven away by price hikes, so they quietly shrink products, hoping a few ounces here or there won’t be missed, says Alexia Howard, a senior research analyst for Sanford C. Bernstein. But it’s starting to backfire, says Ben Popken, editor of Consumerist.com, who says he’s getting more complaints from readers about shrinking products. “People are really sensitive to any decrease in their purchasing power,” he says. Popken recommends checking the unit price between brands to see whether you’re paying the same price for less food.
3. “We jack up prices where you’re least likely to notice.”
When times are tough, super-markets know vigilant shoppers notice even tiny changes in the price of foods like milk, cereal, bread and cheese. In fact, there are about 500 such products, and stores raise prices on these staples at their own peril.
So how do markets deal with rising food costs? They tinker with the price of the roughly 45,000 items people don’t buy regularly enough to have a fixed idea of their cost—tacking on 3 to 4 percent to specialty products like, say, gourmet pasta sauce or fresh-squeezed juices, without consumers noticing. “There’s an opportunity to make some margin back on those items,” says Jim Hertel, managing partner of Willard Bishop, a consultant for the industry.
But don’t expect the savings to be passed on to you when costs come down. Many manufacturers lock in prices well in advance, and they often hold off on bringing prices back down to make up for the resulting losses, says Howard. One way to be sure you’re getting the best deal when prices drop: Stick to basics. Products like coffee and meat are likely “to reflect their underlying costs more quickly than most other foods,” Howard says.
4. “You can’t always believe our nutrition claims.”
It seems people are more concerned with their health these days, but nutrition labeling on most foods can be tough to decipher. Hoping to bridge the gap, grocery chain Hannaford Bros. developed a program called Guiding Stars, which posts nutrition ratings of one to three stars on the shelf tags of some products. “We’d like to see the FDA adopt the program nationally,” says Bruce Silverglade, legal affairs director at the Center for Science in the Public Interest.
Sounds great, but according to a Government Accountability Office report, the FDA hasn’t randomly checked the accuracy of nutrition labeling in over a decade, and of those products it has tested due to obvious red flags, more than 20 percent had errors. (An FDA spokesperson says random sampling isn’t necessary; the FDA tests products according to guidelines set by its Office of Regulatory Affairs.) With so little oversight, consumers can’t fully trust manufacturers’ nutrition labels or any ratings system based on that data.
“It’s the manufacturer’s responsibility to provide accurate information—that’s all we can use to assess products,” says Julie Greene, director of healthy living for Hannaford Bros.
5. “We won’t take your coupons.”
The Sunday paper used to be the source for grocery coupons. But now they’re increasingly available online, from sites like Coupons.com as well as manufacturers’ and supermarkets’ own Web pages. The problem is, they aren’t always easy to use. Over 10.6 million Internet coupons were redeemed last year, according to Carolina Marketing Services. While that amount is expected only to increase, it’s still a fraction of all coupons redeemed, and many stores are still unfamiliar with them.
That’s what 61-year-old retiree C.J. Shearrer discovered when he printed out about $30 worth of coupons and took them to a Wal-Mart in Midwest City, Okla. Shearrer says the manager told him the store didn’t accept online coupons; only when he showed him a printout of Wal-Mart’s coupon policy, says Shearrer, did the manager agree to take them. (A company spokesperson says Wal-Mart accepts one Internet coupon per item per customer, as long as it’s legitimate and scans at the register.) Stephanie Nelson, founder of information site CouponMom.com, suggests doing what Shearrer did: Bring along a copy of a given store’s coupon policy, which should be found on its Web site.