Grocery Store Industry

The strategic analysis of the grocery store industry is presented in this section. Included in this analysis are (1) threats and opportunities, (2) the financial position of the industry, (3) a cost of capital determination, and (4) an industry performance forecast.

The economic recession in the United States that threatened grocery store sales is receding. In its wake, however, the economic recession has left an environment of increased price sensitivity among grocery consumers (Mulqueen, 1993, p. 1495). This increased price sensitivity on the part of consumers poses a significant threat to the grocery store industry. Rising wage costs and occupancy costs will be more difficult to pass along to consumer in such an environment, causing the attainment of a profit, much less a growth in profits, to be much more difficult for grocery store operators (Mulqueen, 1993, p. 1495).

As the threat of the recent economic recession is waning for the grocery store industry, so is the threat to the industry from warehouse stores (Mulqueen, 1993, p. 1495). As the novelty of warehouse shopping dulls for the typical grocery consumer, however, the appeal of the SuperCenter shopping format is gaining strength (Mulqueen

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ortunity open to these independents appears to be the forming of buying cooperatives among themselves Weinstein, 1993, pp. 157158). Financial Position of the Industry The financial position of the grocery store industry is presented in the form of a proforma balance sheet. This proforma balance sheet is presented in Exhibit 1, which may be found on the following page. As the data presented in Exhibit 1 indicate, the grocery store industry (as a whole) has a marginal 1.05:1 current ratio, and a vulnerable 0.7:1 acidtest ratio. Cost of Capital Determination The total capital of the industry is comprised of stockholders' equity and longterm debt. Total capital for the industry at the end of 1993 will be approximately as follows: LongTerm Debt $15,110 (millions) Shareholders' Equity 8,305 (millions)  Total Capital $23,415 (millions) ======= Longterm debt, thus, accounts for 64.5 percent of the industry's total capital, while shareholders' equity accounts for the remaining 35.5 percent. The mean annual interest rate on the industry's longterm debt is 6.94 perce
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Approximate Word count = 1281
Approximate Pages = 5 (250 words per page)

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