The Cost of “FREE”dom….

Anyone who has spent significant time in the supermarket business knows that there is no such thing as a FREE anything.  Buy One Get One Free promotions are among the most costly promotions supermarkets offer,  FREE Turkeys at Thanksgiving are just about the most expensive promotion a supermarket chain can endure.  So is it also with federally mandated  no or low cost healthcare benefits and a host of other new regulations that must be incorporated in the P&L.

National chain restaurant operations and their franchisees have already gone public with counter measures to the new expected expenses.  Layoffs, fewer full-timers, reduced hours for associates, and even higher prices to consumers are among the early reactions we see restaurant chains discussing.

Supermarket chains are not immune to more of the same.  Look for subtle changes to service levels and higher prices to begin to be noticed.  These moves are unavoidable and in aggregate likely to be universal across much of the business world beyond supermarkets, risking throwing the economy back into a recession.  With recession or even a slow down, coupled with the devaluation of the U.S. dollar due to huge national debt, the landscape for supermarket sales and profit growth is tenuous at best.

These issues have been elevated in discussion in every boardroom since the re-election of the president on November 6th. President Obama has already stated that higher taxes for many who own small businesses and the continuation of a larger role for the federal government is very much on his agenda for his second term.  There is no doubt this will mean a challenging landscape for most traditional supermarket chains.  

Consumers will react to this as well. Expect that shoppers will continue to be increasingly conscious of price comparisons, deals, fuel programs and private label savings. Dollar stores, and other price formats will continue to flourish.  Those traditional supermarkets that can accommodate new pressures on their P&L, while somehow preserving services and customer experience, will once again posture themselves for growth when we do finally emerge from this financial abyss.  For those that are already struggling today, the impending new set of economic issues could be a death sentence.  It is times like these that strong senior management teams really earn their salaries.  IF they make the right moves, investments and expense reductions they will have increased their chances of navigating through this challenging environment.






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