Daily News: September 17, 2012

Fitch: U.S. Supermarket Sector Faces Margin Risk

In an excerpt from Fitch’s “U.S. Retail Credit Insights,” newsletter, the rating agency said the supermarket sector may be entering a period of heightened competition as SUPERVALU (SVU) accelerates its price investments, while discount and specialty operators continue to gain market share. SVU announced in July 2012 that it will be making additional price investments over the next 18 months, and financing these investments with additional cost reductions.

This announcement came in the wake of weak operating results, and reflects management’s desire to more quickly improve its price competitiveness in order to drive customer traffic and sales. However, Fitch expects SVU’s newly aggressive pricing posture will worsen sales and margin trends over the near term.

In the longer term, these price investments may not result in increased volumes, mainly because the entire grocery sector remains fiercely competitive as larger, better capitalized retailers such as Kroger, Safeway and Wal-Mart Stores continue to invest in price reductions.

To read the Fitch news release, click here.