US supermarket group Safeway Inc has predicted that it will be able to pass higher costs along to consumers through price hikes, despite revealing yesterday (29 April) that food deflation had dented its first-quarter margins.
In its first-quarter earnings update, the grocer revealed that income tumbled by one-third in the first three months of the year, as margins came under pressure and same store sales fell 3.1%.
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Gross profit margins declined 31 basis points to 28.41% However, excluding the 26 basis point impact from fuel sales, gross profit declined just five basis points as the group increased its investment in advertising, Safeway revealed.
However, speaking to analysts during a conference call, executive chairman, CEO and president Steve Burd also confirmed that the group had felt the negative impact of food deflation.
“We were pretty confident that we would see inflation in cost of goods… but because we’re still in a relatively slow economy, we have not been able to immediately pass on those cost increases in the form of higher retails,” he said.
Deflation stood at about 1% for the period and was particularly notable in the meat, eggs and dairy sectors.
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By GlobalDataIn the second quarter, Burd predicted that Safeway would see deflation “marginally negative” or at about 0%, while the second half will “certainly” have continued cost inflation.
Nevertheless, Burd suggested that as the economy improves and the competitive environment eases Safeway will be able to pass higher costs along to consumers.
“From a competitive standpoint, I think that it won’t be long before the retails reflect cost of goods increases,” he suggested.
