This strange economic landscape is causing real concerns for retailers and suppliers as they struggle to keep the supermarket sales engine humming.
Officials at Campbell Soup announced in early September that its soup sales rose by 9% during the latest quarter. That is great news for the Camden, N.J.-based company and for its retail partners who are obviously selling more soup to consumers, which means more profits for retailers.
Other consumer packaged goods companies are posting similar results, all noting that the consumer is eager to buy as many affordably priced, yet tasty products at grocery stores as they can.
But these results may portend bad news for the economy in general.
This is no slap at Campbell, which has embarked on an ambitious and seemingly successful program to build consumer awareness of its brands and products. Instead, it shows that consumers are buying more products at their supermarket as they try to make their money stretch further in the face of rising energy and commodity costs and a persistent recession that is keeping unemployment rates near double-digit levels.
Shoppers, whether they are working or not, are scared about the future. More soup purchases at Safeway, Stop & Shop or Kroger means fewer visits to the neighborhood eateries that consumers have become accustomed to going to in better times.
As we have often written about, tough economic times can actually result in better sales and profits at supermarkets.
This time may be different, though. As the industry closes in on the crucial holiday selling season, many industry observers worry that consumers are on the verge of shutting off the spigot in terms of holiday sales. And, in a sense, this could impact the supermarket industry as never before.
Industry officials say that consumers, now paying more than $4 a gallon for gasoline in much of the country, will simply look to cut expenses elsewhere. This will impact the grocery store if shoppers suddenly decide to stop spending money on those little extras that make a difference to the retailer’s bottom line.
To combat this, mass retailers, as a whole, are getting aggressive. The media is full of these moves already. For example, the major mass retailers and big box chains, including Walmart, Kmart and Toys ‘R’ Us, have introduced more aggressive layaway programs to ease consumer concerns for the holiday period. Other chains have made it clear to their shoppers that they will hold the line on price increases during the holiday period and others are rolling out aggressive programs to get shoppers more excited about their in-store activities.
This may be just the start. The holidays are always the easiest time to get proactive on promotions. Even in the worst of times, consumers will still find a way to come up with money during the holiday period to lift the spirits of their families and friends. But, what happens during the grey days of January and February, if gas prices stay high and the economy stays low?
It will be during those potentially tough days that retailers and suppliers will have to be particularly creative in encouraging consumers to keep shopping. I would not bet the bank on it, but I do not think we have seen the light at the end of the tunnel quite yet.