Moody's downgrades The Fresh Market

A Supermarket News story last month reported that The Fresh Market's effort to increase store traffic through investments in price have not been successful, and same-store sales are expected to decline for the rest of the year. Supermarket News cited Moody's Investor Service as the information source.

Moody's recently categorized The Fresh Market's corporate family credit rating as a very high credit risk and gave it a negative outlook.

According to a Moody's analyst, increasing pricing pressure and new store openings in The Fresh Market's operating areas will "make it very challenging to meaningfully improve profitability in the next 12 months." The analyst quoted cited potential pressure from Amazon-Whole Foods.

In addition to the credit rating downgrade, Moody's also downgraded the rating on The Fresh Market's $100 million revolving credit facility, as well as the rating of its $800 million senior secured notes.

The company was acquired last year by Apollo Global Management for about $1.4 billion. The Fresh Market currently has 176 stores in 24 states.

Dollar stores not being hurt by big retailer price wars

Despite analysts' fears that dollar stores could become collateral damage in the price wars being waged between big retailers like Walmart and Kroger, sales forecasts for Dollar General and Dollar Tree remain strong. Dollar General expects net sales to increase by five to seven percent for the year ending February 2, and Dollar Tree expects a similar increase for the year ending in January.

In contrast, Walmart and Kroger anticipate low single-digit growth.

"The big advantage that dollar stores have is that, given their store footprint and the real estate they need, they can exist in small towns where Walmart or supermarkets are not going to go," according to Euromonitor analyst Jared Koerten.

In an article last month, The New York Times said that dollar stores, which operate on razor-thin margins, are sprucing up stores, stocking more national brands, selling food and fresh produce, and opening more stores.

Moody's analyst Mickey Chadha added that "dollar stores... also offer home products, seasonal products, electronics, apparel and accessories that are higher margin."

Online grocery sales pose no threat to supermarkets, says Moody's

Moody's Investors Service said last week that it doesn't think online grocers pose a significant threat to brick-and-mortar stores, pointing out that the online grocery business accounted for only 0.5% of the overall grocery spend last year.

The company believes online sales are not likely to grow to more than 1% to 1.5% of grocery sales over the next five years.

"Online grocery shoppers skew toward households with annual income of $100,000 or more, " said Moody's. "For most people, home delivery of fresh food is too expensive."

Moody's added that "the logistical challenges associated with delivering perishables and fresh food at a reasonable profit and at a cost that is attractive to price-sensitive and skittish consumers is a major barrier for both aspiring entrants and existing food retailers."

Report says supermarket share loss will slow

A report issued last week by Moody's Investors Service predicts that the rate at which supermarkets have been losing share to alternative formats in the last 10 years will slow. According to the report, sales-building strategies by leading grocers such as Kroger, Wegmans, Safeway, Whole Foods and others will successfully attract customers.

However, "the performance gap between efficient operators who evolve with the changing competitive landscape... and those that don't will widen," according to a Moody's analyst. (In other words, Giant and ShopRite will continue to grow at the expense of other traditional supermarkets in Greater Philadelphia that have been struggling.)

The report says that supermarkets' share of food eaten at home in 2010 was 64.5% compared to 72.1% in 2000. Big box stores like Costco and Walmart, as well as dollar stores and discount supermarkets (Aldi, Bottom Dollar, Save-A-Lot) are largely to blame for the share loss.