Analysts predict better year-end for supermarkets

Industry analysts said earlier this month that they expect the financial performance of supermarkets during the second half of the year to be slightly better than in the first half. Reasons cited include the following:

• A slowdown in inflation, which may result in better value propositions;
• Slow but ongoing acceleration in the general economy;
• More meals at home expected this winter, as compared to 2011 when mild weather resulted in more meals away from home.

Overall, the financial performance for the top 10 publicly traded grocery chains in the first half of 2012 was mixed as compared to the previous year. Sales were up 3.5% and operating income increased 1.2%, but comparable-store sales increased less this year than last.

According to Andrew Wolf, managing director for BB&T Capital Markets, inflation ran at about 3.3% for the first half of the year, so the 3.5% sales gain came almost entirely from inflation.

"As a result, the stronger conventional players generally saw a little bit of improvement in volume trends as inflation dropped from 3.8% in the first quarter to 2.7% in the second - and while comparable-store sales were still down in real terms, they were down less as volume improved."

Top 10 publicly traded grocery chains (ranked by sales volume):
1 - Kroger
2 - Safeway
3 - Supervalu
4 - Ahold USA
5 - Delhaize America
6 - Whole Foods
7 - Harris Teeter
8 - Stater Bros.
9 - Roundy's
10 - Ingles Markets

Retail sales and vacancy rates at odds in recent reports, but wait...

Sales: According to Thomson Reuters data on 25 major chains, retail sales in the U.S. increased 1.7% in March, despite a late Easter, high unemployment and rising gasoline prices. Analysts had expected that sales would fall 0.7%. And according to a story in The Wall Street Journal, U.S. retailers expect solid spring sales, despite gas prices, inflation and lackluster consumer confidence. Global consumer strategist Don Palmer says many retailers are actually raising prices more than they have to in order to test their pricing power with customers.

But wait... Mr. Palmer points out there is risk in this pricing strategy, as resistance to rising prices will be delayed and hit later, possibly during the critical back-to-school or holiday sales season.

Vacancy rates: According to Reis, vacancies at neighborhood and community shopping centers, which are usually anchored by discount and grocery stores, rose to 10.9% in the first quarter from 10.7% a year earlier. The rate was unchanged from the three previous quarters and the highest since it reached 11% in 1991. The vacancy rate for regional malls hit 9.1%, also the highest rate since 1991.


But wait... CoStar Group said the vacancy rate for all types of U.S. retail properties (including freestanding stores, malls, strip malls and community shopping centers) fell to 7.1% in the first quarter from 7.4% a year earlier. Furthermore, retail properties overall have had net occupancy gains for seven quarters. More consumer spending and corporate hiring has helped, according to one of CoStar's senior real estate strategists.

There you have it.