Dive Brief:
- Weis Markets reported a 1.5% increase in comp-store sales for its third quarter ended September 30, marking its fourteenth consecutive quarterly gain, according to a company release.
- Total sales rose 15% to $854.3 million compared with $743.0 million in the same year-ago period. The gain primarily is attributed to the 38 Food Lion stores Weis acquired last year.
- Tempering the retailer’s positive sales report, however, was a 58% decline in net income, which came in at $4.4 million for the quarter.
Dive Insight:
“We are sort of a middle-of-the-road supermarket," Chairman and CEO Jonathan Weis admitted recently to PennLive.com. Unfortunately, that road has been difficult of late for Weis, leaving it very vulnerable in the evolving grocery landscape.
The regional grocer’s poor profit performance in Q3 is testament to how tough the retail grocery environment really is. Increasing competition from alternative formats, shifting consumer preferences and price deflation have all worked against these middle-of-the-road grocers in recent months. For its part, Weis attributes its 58.1% profit decline to several factors, including deflation, aggressive promotional and pricing programs, and inventory management issues on some recently acquired stores.
Although reports show food price deflation easing, it has had a major impact on the grocery industry this year. Many grocers have reported struggling with sales softness and underwhelming profit performance, and Weis is no exception. The retailer felt the deflationary impact in produce, deli and foodservice, bakery and seafood, according to its release — all perimeter departments that are also important margin-building categories, which obviously hurt the company’s bottom line.
On top of deflation, Weis also contends with price wars breaking out in this hyper-competitive environment. With 204 stores throughout a six-state Mid-Atlantic region, Weis competes with the likes of Giant, Harris Teeter, ShopRite, Walmart and Wegmans, among others. Lidl continues to expand along the East Coast, as well, and just announced its first location in New Jersey. Consequently, Weis has little choice but to be aggressive with such efforts as its Everyday Lower Prices and Lowest Price Guarantee promotional programs.
Weis has also faced inventory management challenges, with recently acquired stores impacting its profitability. The retailer bought 38 Food Lion stores and five Mars Super Markets locations in July 2016. Clearly some integration work remains, but building scale and the efficiencies that come with it should help boost company performance going forward.
It's important not to overlook Weis's 14 consecutive quarters of comp-store sales gains. This proves that, despite its struggles, many of its efforts — among them, store remodels and an increased emphasis on deli/foodservice and pharmacy — are paying off on the top line.
Additionally, Weis earlier this year opened a 65,000 square foot upscale concept store in Enola, Pennsylvania that features expanded organic and fresh offerings and services such as a juice bar, yogurt bar and an ice cream parlor. This could be a change agent for the company, especially if it can incorporate successful elements into other existing stores.