Operating Income and GMROI Up, Profits Down for Grocers

Nov 26, 2003
George Anderson

By George Anderson

The Food Marketing Institute’s (FMI) Annual Financial Review, 2002-2003 released yesterday shows operating income and gross margin return on inventory (GMROI) for supermarkets
are at five-year highs but industry profit margins are down below one-percent for the first time in 10 years.

FMI’s study, which included responses from 147 companies operating approximately 12,000 stores found operating income increased to 3.34 percent for the year ending March 31,

The president and chief executive officer of FMI, Tim Hammonds, said in a released statement, “This figure reflects disciplined and efficient management at the store level. Supermarkets
are spending their dollars on technology to improve productivity and on the products and services that customers value.”

Mr. Hammonds attributed the rise in GMROI to 409 percent to “smart inventory management.” Mr. Hammonds added, “For over a decade, the industry has focused intensely on reducing
inventory costs. We’re now seeing progress, especially among the smaller companies.”

Progress was not as evident in the profit department with the industry’s net falling below one percent mark for the first time in a decade.

“The predominant reason had nothing to do with industry operations,” said Mr. Hammonds. “Large companies changed accounting practices and wrote off significant extraordinary
expenses. If these costs are discounted, industry profits were well within the recent range of 1.3 percent.”

FMI’s top executive did give this reminder. “Despite the industry’s resilience, competition continues to constrain both top and bottom line growth,” he said. “Price-driven competition
remains relentlessly intense, and today just about every retailer — from big box stores to gas stations — is selling food.”

The report is available for purchase ($40 for FMI retailer/wholesaler members, $102 for associate members and $120 for nonmembers), and may be downloaded at www.fmi.org/pub/
or by calling 202.220.0723.

Moderator’s Comment: What are your thoughts on the findings of FMI’s Annual Financial Review?

Net profits down below one-percent — Is there a better argument for grocers to find ways to differentiate other than price? [George
Anderson – Moderator

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