The fortunes of the food industry have darkened since SN initiated its annual Financial Analysts' Roundtable in 1996, as a review of each year's discussion demonstrates:

y with high levels of consumer confidence and fuller employment. "Overall, it's just very clear sailing," one analyst said.

Analysts viewed the growth of Wal-Mart supercenters as a positive for the traditional industry because it forced it to operate more efficiently. According to one participant, "The supermarket business has been moving away from a buying mentality and reliance on inflation and more toward running the business where you have a better understanding of your costs and you're making intelligent merchandise and procurement decisions to remove costs and improve efficiencies."

Another noted that managements were focused on driving business through micromarketing and category management rather than price, "and consequently, they're seeing margin improvement. What scares me is things are so good, they can only go one way."

1997: Analysts were less bullish in their outlook, with sales momentum lagging and overcapacity becoming a major issue, though supermarkets were still making margin gains through greater efficiencies.

But alternative formats were becoming a bigger threat. "Clearly, volume growth is not happening, and other channels are taking business away from this one," one analyst pointed out, with others noting that acquisitions looked like a viable way to grow top-line sales as organic growth became more difficult.

Supermarkets were trying to differentiate themselves by promoting more creatively and using frequent-shopper cards rather than resorting to price-war techniques, the panel said. "[This] is one reason earnings have held up better," one analyst noted. "But every company must face the issue of how long it wants to keep pushing margins and rationalizing zero and negative same-store sales growth while they are adding capacity."

1998: Participating analysts -- encouraged by the acquisition by Albertsons of American Stores Co. and by Kroger of Fred Meyer Inc. -- were enthusiastic about the prospect that industry consolidation would create synergies that would drive better financial results.

However, they were very concerned about the new Neighborhood Market format Wal-Mart was about to unveil, fearing it would pose a serious competitive threat to most supermarket operators if it was rolled out as rapidly as the analysts expected it to be.

1999: Analysts pointed out that investors were beginning to lose interest in supermarket stocks, noting that the euphoria from the prior year's acquisitions was waning as the chains ran into integration problems. "Supermarkets and drug stores were probably the only games in town for a lot of U.S. investors [in 1998]," one analyst said. "But that, coupled with the excitement over the acquisitions, led those stocks to a pretty high level, and they've basically been giving it all back since the end of the year."

The panelists also expressed concerns that the Internet might be a bigger competitive threat to supermarkets than alternative formats.

2000: Wal-Mart was on everyone's mind.

With only eight Neighborhood Markets in operation, the analysts were still concerned about the impact those stores would have on supermarket valuations once Wal-Mart decided to roll them out aggressively. They said they expected 50 to 60 Neighborhood Market openings per year once Wal-Mart was able to line up the real estate.

They also expressed concerns about what would happen once Wal-Mart began opening supercenters in larger population centers.

2001: Interviewed weeks before Sept. 11, the analysts said supermarkets could not rely on the benefits of consolidation to boost sales but had to look at other areas, including fuel centers, pharmacies, natural foods and general merchandise.

They also noted that supermarkets had failed to trade down as the economy weakened and chided operators for not catering to the full gamut of consumers, including low-income shoppers, who were moving more and more toward dollar stores -- the first mention of that format at an SN roundtable.

2002: Analysts continued to criticize supermarket operators for failing to adjust their pricing to the slowed economy. "As retailers focused on integrating acquisitions and dealing with technology issues, they basically took their eye off the ball in terms of where they should price. So when the economy started to move into a downturn, they really weren't where they should have been in terms of pricing," one analyst said.

"They had allowed the gap with Wal-Mart to widen to such a degree that when people started to really feel the pinch and focus on price, they weren't in a position to offer value."

Panelists said supermarkets were trying to drive earnings growth by expanding gross margins, which kept them from being as price-sharp as they should have been.

Meanwhile, stocks continued to suffer, and analysts said they would continue to suffer as long as the chains were losing sales. "To gain sales momentum, some of the chains are going to have to give up some margin or stop letting margin grow," one participant said.

2003: Analysts expressed concerns that shoppers who had turned to discounters and other alternatives during the recession might never return to supermarkets once the economy recovered.

"Companies have all been cutting prices and are being more promotional, and we haven't really seen much sales impact from all those sacrifices," one analyst said. "And if everyone is sacrificing price at the same time, doesn't that just erode your gross margin permanently?"

Although the economy was showing signs of picking up, the presence of close to 1,300 Wal-Mart Supercenters posed a threat to recovery for supermarkets "as people see alternative formats as a reasonable place to buy food," one participant said. Besides, with Wal-Mart growing sales at 20% a year while supermarkets were struggling to gain 4% to 5% growth in what was basically a no-growth industry, one analyst said he was advising investors to stay away from supermarket stocks.

2004: Despite an uptick in the economy and a return of inflation, supermarket performance was still on a downward cycle, analysts said, with Wal-Mart continuing to capture most of the industry's sales growth and operators needing to invest in prices, promotion or service to reverse the negative trends.

However, although supermarkets were no longer regarded as a growth industry and unlikely to achieve anything more than single-digit improvements in earnings per share, cash flow was good and holding up well, they said.

They also said that while industry sales were unlikely to get worse, they were unlikely to improve significantly, and stocks were still heading downward.