This decline in gross margin by food chain companies was actually accompanied by a steady increase in the largest part of a food retailer's cost -- store labor. Incidentally, this chart shows store payroll only. When total corporate labor costs are considered, increased costs become even more dramatic, particularly in the context of declining margins. Typical total labor costs, including employee benefits, rose from 12.23 in 1967-68 to 13.61 in 1972-73. STORE PAYROLL Percent of Sales) Source: Cornell University, Operating Results of Food Chains, 1972-73 - - Given a gross margin decline on the one hand, and an increase in the most labor cost important component of the margin on the other, this chart showing a dramatic drop in net profits as a percent of sales will come as no great surprise. Incidentally, this chart shows only the most recent years. During the early 1960's the figures averaged nearly 1.50, about three times 1972-73, and which is considered "normal" by financial analysts. Source: Cornell University, Operating Results of Food Chains, 1972-73 - return on net This chart shows net earnings expressed in a different way worth. Again, it is worth noting that in the "normal" early 1960's, this number ran between 11.25 percent and 12.50 percent far higher than even the high point of this chart. - NET PROFIT (After Tax-Percent of Net Worth) Source: Cornell University, Operating Results of Food Chains, 1972-73 - Significantly, as indicated in this chart, the typical food chain during the 1972-73 period actually lost money on its store operations that is, the prices charged consumers did not bring in enough dollars to run the stores at a profit. This is the first time since these figures have been kept that this has been a negative number and means that the typical food chain depended on such ancillary functions as real estate transactions, cash discounts and interest credits to support its entire operation. NET OPERATING PROFIT Source: Cornell University: Operating Results of Food Chains, 1972-73 Not unnaturally, investors have reacted to figures such as these plus government jawboning and other rhetorical activities directed primarily against food retailers by bidding down the price of the equities of most food chain companies. As this chart indicates, the decline in food chain equity prices, for the reasons indicated, was far greater in 1973 than it was for the average publicly held company. 1973 STOCK MARKET PRICES |