Safeway Inc. chief executive Steve Burd today (25 February) suggested that food prices could start to rise again in the US in 2010 after a period of “unprecedented” deflation in the market.
Falling prices has been a hallmark of the US food retail scene in recent months and Burd cited deflation as a factor in Safeway’s falling identical-store sales in the last three months of the year.
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Fourth-quarter identical-store sales at Safeway fell 4.1%, leading to an 8.1% in quarterly revenues, which in turn hit Safeway’s underlying quarterly earnings.
Speaking to analysts, Burd said fierce competition among US retailers had driven down prices in 2009. He argued that the dairy, eggs, cheese and produce categories had accounted for “60% of the deflation”.
Safeway responded by cutting its “everyday prices” and Burd claimed the retailer had achieved “price parity” with its competition.
Burd said the price cuts had helped drive better volumes in the last weeks of 2009 but deflation was still weighing on revenues.
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By GlobalData“In the last four weeks, we had a marked improvement in volumes, which didn’t translate to an improvement in comps because deflation was so severe,” Burd said.
However, the Safeway boss predicted continued improvement in sales volumes until at the least the second quarter of 2010 and forecast that the company would see “moderate” inflation.
Safeway is holding an analyst conference next week, which led Burd to keep his powder dry on revealing more details on his forecast for inflation but he insisted the retailer would be able to pass higher prices on to consumers.
“In the main, inflation gets passed through,” he insisted.
