Capital Spending for 2010

This recent article in Supermarket News caught my eye.  In it, reporter Jon Springer looks at the capital expenditure programs publicly available  for a sampling of 15 major grocery retailers in North America.  It tells an interesting story:

  • The total capital expenditure budget for these 15 retailers is about $9.6B in 2010.
  • In 2009, the capital expenditure budget for these companies totalled $10.1B.

The 5% drop in capital expenditure is slightly mis-leading as the article points out that many companies, coping with the economic storm in 2009, underspent their budgets to conserve capital.  However, the important thing to stress is that while retailers are investing, that rate of investment pales in comparison to the levels of expenditure seen before the financial crisis of 2008.

The context of this capital expenditure is the dramatic change in consumer behaviour and a mad scramble to offer the customer what she wants: value.  Across North America, retailers are building or converting stores to a discount model.  Delhaize is aggressively rolling out its Bottom Dollar format.  Wakefern is growing its PriceRight store count.  In Canada, Sobeys has introduced a new store format, FreshCo.  Other retailers are following suit.

Even in the best of times, supply chain projects must compete for limited capital with investments at retail.  This year, that competition will be even more fierce as companies focus on re-tooling their retail formats for the new consumer landscape.  This means that supply chain professionals will be challenged to deliver the very best project proposals if they hope to see investment flow into supply chain infrastructure.

Meanwhile, the changes in marketing focus will mean existing DC operations will have to adapt to new store formats where a smaller SKU base and higher volumes per SKU will be the norm.  In many cases, the pick lines will continue to support the traditional, higher-SKU store formats and this will likely induce many operators to consider different operating strategies to manage the varied formats.