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Spartan Stores this week posted a modest sales increase during the third quarter of fiscal 2010 of $787 million, from $782 million in the year-ago period, as a result of incremental sales from the acquisition of VG’s Food and Pharmacy and the opening of additional gas stations.
The Grand Rapids, Mich.-based supermarket operator said that weak economic conditions, price deflation, competition and a shift toward private label sales offset the increase, affecting profits for the quarter, which were down to $26 million from $30 million in the year-ago period.
“We are pleased with our ability to profitably work through this prolonged weak economic environment,” said Spartan president Dennis Eidson. “Michigan has experienced a slight loss in its population base and has also led the nation in unemployment for 45 consecutive months. The state’s unemployment rate for the reported quarter was approximately 15 percent. Consumers remain cautious in their spending behavior, and we continued to experience price deflation. These issues, along with the competitive environment during the year and strong comparable-store sales reported in last year’s third quarter, have been the primary cause of our recent comparable-store sales trend.”
At the beginning of the fourth quarter, Spartan began implementing a comprehensive, multiyear supply chain optimization study, which Eidson called “another important step in our ongoing strategy of maintaining a low-cost grocery distribution operation. As previously announced, we have reached an agreement with the Teamsters Local 337 to transition our Plymouth, Mich., dry grocery distribution operation to our Grand Rapids facility. We expect the transition to be substantially complete by the end of our fourth quarter.”
During the past several years, Eidson said Spartan has “prudently invested capital to upgrade our distribution system technology, expand our produce ripening operations, upgrade our entire fleet of trucks and complete a major warehouse re-racking project at our Grand Rapids grocery distribution center that significantly increased warehouse capacity and improved space utilization. In addition to better customer service through a centralized Grand Rapids facility, this decision, along with our other cost reduction initiatives, will also ensure better alignment between the current level of business activity and our cost structure.”
Spartan also recently launched a customer loyalty initiative at its Glen’s stores, which has furnished important insight about value-oriented programs that resonate most of its shoppers. “Consumer perceptions, based on value ratings, have shown a significant improvement at our retail banners,” noted Eidson.
Among the highlights of its third quarter, Spartan completed a major remodeling project and closed a nearby store location, opened three new fuel centers, closed one underperforming store and sold a store to an independent customer. “Because we have made significant progress on our multiyear strategic retail capital investment program, we expect capital investments in fiscal 2011 to be significantly lower than the fiscal 2010 levels,” said Eidson, adding that the economic climate in markets where it operate will weaken slightly, but begin to moderate in late fiscal 2011. “We also expect that the rate of product price deflation will begin to temper during fiscal 2011. As a result of these factors and the cycling of competitive store openings, we look for the operating environment to improve late in fiscal 2011.”