Albertsons is facing a difficult period as weaker consumer spending, declining profitability and a more cautious American shopper put pressure on one of the country’s largest supermarket operators.
The company recently cut its financial outlook after reporting a sharp decline in quarterly profit. The deterioration is significant because supermarkets normally benefit from the basic fact that consumers must continue buying food, even when the wider economy becomes difficult. But that does not mean shoppers spend the same amount of money.
The American grocery customer is changing. Households are becoming more selective, looking harder for promotions, switching to private label and reducing purchases that are considered less essential. Even consumers with relatively comfortable incomes are increasingly interested in value.
That creates a particularly difficult environment for traditional supermarket operators. Food inflation can push sales higher in dollar terms while hiding the fact that customers are purchasing fewer products. A shopper may spend $100 on a basket that previously cost $90, but that does not necessarily mean the retailer has gained a healthier customer.
Albertsons is also dealing with the consequences of a changing competitive landscape. Walmart, Costco, Aldi and other value-focused retailers continue to put pressure on traditional grocery chains. Consumers have become accustomed to comparing prices and travelling further when the savings are significant.
The company’s response is likely to involve a combination of tighter costs, changes to its store network, stronger promotional activity and efforts to improve the customer experience. Albertsons has also made changes to its marketing leadership, signalling the importance of reconnecting with shoppers.
The wider problem is that American consumers are becoming increasingly difficult to win. Supermarkets cannot simply assume that customers will continue paying higher prices because food is essential. Shoppers can change brands, reduce quantities, move to private label or take their business to another retailer.
Albertsons therefore faces a much bigger challenge than simply protecting quarterly profits. It must convince customers that its stores offer enough value to justify their money.
The supermarket industry is entering a period where having food on the shelves is not enough. Retailers have to convince increasingly cautious shoppers that every dollar spent in their stores is money well spent.