While many retailers have gone broke or initiated massive store closings, the list hasn't yet included a major or even notable minor grocer. Since they sell largely non-discretionary items and many families are eating at home to save money, some retail observers see supermarkets as somewhat insulated from the recession compared to other channels.
The biggest reason appears to be a reversal in a long trend of families eating out more. Menu prices are also rising due to food inflation. Citigroup Global Markets' Greg Badishkanian told FP Trading Desk that the rise in entree prices "combined with a weakening economy continues to drive consumers out of restaurants and into grocery stores."
According to several UK newspapers, the ability of grocers to weather the recession was also evident in strong holiday sales performances from the four major supermarkets in the region:
- Tesco reported a 2.5 percent rise in comparable store sales in the seven-weeks to January 10;
- Asda's update in mid-February revealed it expected like-for-likes up by about seven percent or higher for its fourth quarter;
- J. Sainsbury posted a 4.5 percent comp gain for the 13-weeks ending Jan. 3;
- WM Morrison reported like-for-like sales jumped 8.2 percent in the six-weeks ending Jan. 4.
The results were particularly notable given the sorry performance from general retailers. For instance, comps at Marks & Spencer fell 7.1 percent in the third quarter, with food sales down by 5.2percent.
The U.K. newspapers pointed out premium retailers faired worse than budget chains, noting the standout performance of Morrison versus Tesco. Some also noted that discounters are growing much faster as well-heeled consumers look for bargains. Aldi reported sales across the UK and Ireland rose 24.8 percent in total for the fourth quarter.
Indeed, throwing water on the whole supermarkets-being-recession-resistant theory was a report released last week from Verdict Research that said the European grocery market grew considerably in 2008 with the help of food and oil inflation. But the study, European Grocery Retailers 2009, said both those trends have reversed and any pressure on prices is expected to have a disproportionate effect on the bottom line, given the grocery industry's already slim margins.
Moreover, discounters such as Aldi and Lidl are expected to put downward pressure on prices as they look to gain market share.
"While grocers are to a certain extent insulated against the downturn that is severely hurting the rest of the retail sector, the effects of the credit crunch and the onset of the global recession will still be felt across the European grocery market," said Daniel Lucht, European retail analyst at Verdict.
Discussion Questions: How do you think supermarkets will fair as the recession goes on? Why haven't we seen bankruptcies or store closings so far among grocers? Do you think the discount channel will accelerate and hold its gains in food market share during this period?