In a business environment filled with serious, deep-rooted challenges, operators of conventional supermarkets find themselves in perhaps the most difficult position in mass market retailing.

In a business environment filled with serious, deep-rooted challenges, operators of conventional supermarkets find themselves in perhaps the most difficult position in mass market retailing.

Beset by competition from merchants in a variety of trade classes that realize the traffic-generating potential of selling food and beverages, grocers are under intense pressure.

For evidence of that pressure one need look no further than the Food Marketing Institute’s annual report on the state of the grocery industry. Based on survey results from 76 food retailers that operate more than 24,000 stores and other sources, the study shows that sales gains are very hard to come by. Overall volume grew just 0.12% in 2009, and comparable-store sales fell 0.82%. The figures are even more distressing on an adjusted basis. When inflation is taken into account, the industry lost ground for the second consecutive year, as total sales receded 0.4%.

The picture is little better as one moves down the balance sheet. Industrywide net earnings decreased from 1.43% of sales in 2008 to 1.22% last year. Twelve percent of stores suffered net losses. The FMI report notes that the profit performance marks the lowest point for the industry in an up-and-down decade.

Survey respondents are understandably worried about the future. The lingering impact of the recession is their top concern, with the intense competition and health care costs not far behind.

Despite the very real problems it tracks, the report provides some reason to believe grocers understand the need to alter their business model in order to keep pace with evolving consumer needs.

"Shoppers’ overwhelming focus on price and value has led to fierce competition among food retailers," says FMI president and chief executive officer Leslie Sarasin. "As a result, supermarkets are focused on trying to distinguish themselves from the competition by fine-tuning their private label strategies, SKU reduction and price differentiation in order to retain their current customers and attract new ones."

An emphasis on health and wellness is one of the primary means members of the trade class are using to set themselves apart in the marketplace. Supermarkets with pharmacies are ideally positioned to capitalize on the synergies between nutrition and health care. That platform is the most potent weapon the industry has as it works to get back on track.