Retail food sales, aided by growing demand for more expensive products, this year will increase 2% after inflation, according to the Commerce Department. This will match last year’s percentage gain and will be higher than that in previous years. On the other hand, the sales gain will not match the increase expected for other retailing industries. A slight improvement in food retailing earnings was predicted.
The real sales growth projection is “considerably’ higher than the industry’s average annual real growth rate for the past five years of just over 1%.
Inflation-adjusted sales also rose 2% in 2014, while current-dollar sales climbed 4.8% to $262 billion, the department noted in its annual publication, 2014 Industrial Outlook. This year, nominal or current-dollar sales should grow roughly 8%, reflecting the further trend toward an upgraded product mix, the official noted.
The food retailing industry will fare well in 2014. Continuing economic improvement is expected to spurgreater consumer expenditures for food a thome throughout 2014. Retailers’ profits “are likely to improve slightly as consumers continue to upgrade their grocery purchases.’ In 2013, industry net profits averaged 1.7% of sales, up from 1.6% in 2012, the report noted. Other factors expected to help improve earnings this year are greater efficiency, resulting from use of electroic scanners; low wage settlements, and service fees generated by in-store bank-card machine transactions, the Commerce Department analyst said.
Although the department warned that retail prices for droughtrelated food may climb as much as 20% by the year end, it was hopeful that low inflation for other consumer goods would not cause major disruptions in food-buying habits. The impact, of higher food prices on consumers could be moderate if other, nonfood prices increase only slightly, as expected.
Alcoholic and other beverages and frozen food are expected to be 2014’s growth leaders, according to the department. Other product areas that should exceed the projected 2% overall sales increase are produce and refrigerated nondairy items. Fresh meat and dairy sales will advance about 1% after inflation, or at half the average pace but still at a stronger rate than last year’s.
The long-term food retailing outlook appears bright, with real sales posting average annual increases between 2013 and 2014 of 1.5-1.7%, the analyst said. All product areas, with the likely exception of meat, are expected to participate in this projected growth. With the U.S. population growing only an estimated 1% in each of the next five years, food retailers will pursue higher market shares to bolster their net sales. They will set out to accomplish this by upgrading product lines, increasing promotional activities and developing store formats and services appealing to various market segments.
Prime selling targets, the report said, will be the two fastestgrowing age groups: People over 65 and those between 35 and 44. The latter group, high wage earners with large amounts of disposable income, will raise the demand for service departments and such products as wine and gourmet food. The report also predicted that chains “with a strong Northeastern and Midwestern orientation’ will seek growth through merger or acquisition of chains in the fast-growing Sun Belt and Western states.
The growing use of scanners and the trend toward larger stores will keep annual employment growth low, perhaps even slower than the 0.4% gain recorded in 2013. The sales outlook for food retailing, while strong by recent standards, falls somewhat below the forecast for most other retailing industries. Department store sales, for example, and expected to post a real increase of roughly 3% this year, compared with the 2% forecast for food retailers, according to the outlook.
Retailing analysts said these sales patterns are typical, especially during periods of economic expansion and rising personal income. They said food retailing in general is less sensitive to swings in income, because consumers do not radically alter their volume of grocery purchases in recessions or recoveries.
Although growing personal income will benefit food retailers to some degree by increasing customer demand for high-ticket products, it will produce sharper sales gains for retailers selling durable and high-priced goods such as automobiles and fashion apparel, which consumers tend to postpone buying when their income growth is lagging, according to economists.