"We do not view lower product cost as a margin expansion opportunity."
The title of this post comes from Kroger's remarks after reporting sales this week. Kroger is the nation's largest grocer although their food sales have fallen behind that of discount general merchandiser Wal-mart.
Kroger makes it clear they are going to mercilessly drive name brand product prices down with a surge in their private label business. (A little known fact is that Kroger is also one of the largest food and consumer products manufacturers in America. Something that has served them well as a competitive advantage in the private label business.)
Anyone who has ever worked with a grocery or discount retail chain knows these are probably the world's most brutal negotiators. Margins are pennies on the dollar and they typically don't miss a penny. Because of that, they are also the world's most efficient allocators of capital. No spending without a clearly quantifiable return on investment. Maybe a committee of grocers should manage the TARP program and the auto bailout. For that matter, maybe they should run the government. That's only partly a joke.
I remember reading some time ago that a few in the financial community were stating that cheap food prices were gone forever - citing examples of sky high prices at grocery stores. I don't know about your experience but many grocery items have already dropped substantially in price. Name brand consumer product and food companies can expect to get taken to the wood shed on price by Kroger, Wal-mart, Safeway, Target, Albertsons and other retailers as input costs moderate. In other words, the price increases rationalized by rising commodity prices are going to be taken back. That is bad news for the defensive consumer staples businesses.
Kroger makes it clear they are going to mercilessly drive name brand product prices down with a surge in their private label business. (A little known fact is that Kroger is also one of the largest food and consumer products manufacturers in America. Something that has served them well as a competitive advantage in the private label business.)
Anyone who has ever worked with a grocery or discount retail chain knows these are probably the world's most brutal negotiators. Margins are pennies on the dollar and they typically don't miss a penny. Because of that, they are also the world's most efficient allocators of capital. No spending without a clearly quantifiable return on investment. Maybe a committee of grocers should manage the TARP program and the auto bailout. For that matter, maybe they should run the government. That's only partly a joke.
I remember reading some time ago that a few in the financial community were stating that cheap food prices were gone forever - citing examples of sky high prices at grocery stores. I don't know about your experience but many grocery items have already dropped substantially in price. Name brand consumer product and food companies can expect to get taken to the wood shed on price by Kroger, Wal-mart, Safeway, Target, Albertsons and other retailers as input costs moderate. In other words, the price increases rationalized by rising commodity prices are going to be taken back. That is bad news for the defensive consumer staples businesses.
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