Blog: Dean BestSome of you are winning, too...

Dean Best | 12 January 2009

Amid all the doom and gloom over the global economy, it is sometimes easy to forget that, during a downturn, there are winners as well as losers.

Last week, while Marks and Spencer signalled that its problems are continuing, fellow UK retailer Sainsbury's suggested that it was a company firmly on the up.

Sainsbury's, the UK's third-largest grocer, revealed plans to create thousands of jobs in the wake of strong trading during autumn and the crucial Christmas trading period. The company's image as a quality retailer, combined with its aggressive promotions policy, has paid dividends, leading it to post healthy like-for-like sales growth of 4.5% in the 13 weeks to 3 January.

However, there is - perhaps not unexpectedly, given the economic climate - some pessimism around Sainsbury's strategy. There are questions over just how much Sainsbury's pricing strategy will affect profits, with one analyst arguing last week that investors will be "fretting" over margins. Sainsbury's has so far been coy over the impact on margins, although come May, when the company publishes its full-year numbers, you can be sure more light will be shed on the effects of its pursuit of value.

Wal-Mart, for one, has lowered its earnings forecast due to the "challenging" economic landscape. However, as some of the UK's top food analysts told us last week, value will remain the key driver for consumers in 2009 and manufacturers and retailers in any market focused on offering just that are more likely to navigate these choppy economic waters.

Elsewhere, the volatility in dairy prices means farmers faced a gloomy start to the year. Dairy giant Arla Foods is among those that have reduced prices, prompting consternation from farmers across Europe. Fonterra, meanwhile, has signalled that recent falls in the price of dairy commodities could be easing, although given the roller-coaster nature of prices in that sector, farmers, processors and retailers would be wise to watch the situation closely in the weeks ahead.

And just to hammer home how tricky it will be for manufacturers and retailers to thrive this year, the boss of Supervalu, one of the largest retailers in the US, last week predicted that tensions will grow in the next six months as grocers push for price cuts to meet flagging consumer demand.

"I look at the first six months as being the battleground," Supervalu CEO Jeff Noddle said.

And Noddle predicted that ultimately the retailers would come out on top.

"I don't think they [manufacturers] are going to be able to hold that very long," Noddle said. "I think they are going to be forced initially into more trade spending and then ultimately bringing prices down."


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