Moody's Investors Services expects U.S. supermarket operator's
revenues to be flat or slightly lower for the near future.
However, the credit ratings company said most of the sector
should be able to maintain cash flow and service their debt at
current levels.
While other retailers have seen some signs of sector
stabilizing, supermarket operators have lagged amid a price war as
they compete on discounts and promotions to attract consumers, who
have changed their shopping habits amid the recession.
A number of supermarket chains have recently reported declining
results, including Safeway Inc. (SWY), Supervalu Inc. (SVU) and
Great Atlantic & Pacific Tea Co. (GAP).
Analysts, including Moody's, have predicted that the shift
toward bargains could last beyond the recession. As consumers trade
down, alternative venues and value players have benefited. Some
customers have migrated to discounters such as Wal-Mart Stores Inc.
(WMT) and Target Corp. (TGT) or warehouse stores such as Costco
Wholesale Corp. (COST) to purchase groceries.
In a sign of the times, Supervalu recently unveiled plans to
double the number of its Save-A-Lot stores.
Over the intermediate term, Moody's expects that this year's
cost cutting will continue to offset supermarket's reduced revenue
and maintain a level of earnings stability. But it also noted that
any fat has been worked out of the system and that if further cuts
are required, they may cut into store services or renovations. The
credit rater expects to see supermarkets reduce product selection
options next year to control costs.
-By Tess Stynes, Dow Jones Newswires; 212-416-2481;
Tess.Stynes@dowjones.com;