DOW JONES NEWSWIRES
Moody's Investors Services expects U.S. supermarket operator's revenues to be flat or slightly lower for the near future.
However, the credit ratings company said most of the sector should be able to maintain cash flow and service their debt at current levels.
While other retailers have seen some signs of sector stabilizing, supermarket operators have lagged amid a price war as they compete on discounts and promotions to attract consumers, who have changed their shopping habits amid the recession.
A number of supermarket chains have recently reported declining results, including Safeway Inc. (SWY), Supervalu Inc. (SVU) and Great Atlantic & Pacific Tea Co. (GAP).
Analysts, including Moody's, have predicted that the shift toward bargains could last beyond the recession. As consumers trade down, alternative venues and value players have benefited. Some customers have migrated to discounters such as Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT) or warehouse stores such as Costco Wholesale Corp. (COST) to purchase groceries.
In a sign of the times, Supervalu recently unveiled plans to double the number of its Save-A-Lot stores.
Over the intermediate term, Moody's expects that this year's cost cutting will continue to offset supermarket's reduced revenue and maintain a level of earnings stability. But it also noted that any fat has been worked out of the system and that if further cuts are required, they may cut into store services or renovations. The credit rater expects to see supermarkets reduce product selection options next year to control costs.
-By Tess Stynes, Dow Jones Newswires; 212-416-2481; Tess.Stynes@dowjones.com;