Kari Moran
February 24, 2009
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KPCC business analyst Mark Lacter says supermarkets are expected to fare well during the recession, but that they're still doing some belt-tightening; and two well-known lenders are changing their names.
Kari Moran: On Tuesdays we talk about the latest business stories with Mark Lacter. Good morning, Mark.
Mark Lacter: Hi, Kari.
Moran: Well, there's been a lot talk about how people are eating out less these days because of the recession, or as Mr. Ben Bernanke would call it, the severe contraction in the economy. How are grocery stores faring these days?
Lacter: Well actually, this is one of the industries expected to hold up fairly well – you know, everybody has to eat, no matter how the economy is faring. But even supermarkets are tightening up.
Albertsons is closing nine stores in Southern California, Vons has reclassified a bunch of full-time workers to part time, Ralphs is demoting 150 meat cutters to clerks, which means their pay is going to be cut. All told, about 1,000 local grocery workers have been impacted, and it's kind of the same story in other parts of the country.
Moran: Are these cutbacks due solely to the recession, or are there other factors?
Lacter: Well, you know, some of what's going on is just a continuation of trends we've been seeing for several years – the big discount chains like Wal-Mart and Costco are trying to take away a portion of the supermarket business. Wal-Mart just reported higher sales for its grocery products.
Also, don't forget the smaller chains like Trader Joe's and Whole Foods. You know Kari, Southern California is one of the most competitive grocery markets in the nation, so the big chains really try to control costs.
Moran: Are shoppers cutting back because of the recession, do you think?
Lacter: You know, not necessarily cutting back, but shopping differently. Just as an example, more folks are buying the stores' private label products. They're cheaper than buying the brand names, and for the grocery chains, they actually provide a better profit margin.
The chains are also setting up more of those food bars that are very easy, very fast – it's another area that has a higher profit margin. One thing you will see less of are price wars. The chains have gotten very sophisticated about their pricing, so that they can be a lot more selective about what to mark down and what not to.
Moran: Now, considering the recession, here are a couple of business names that have gotten bad reputations – Countrywide and IndyMac.
Lacter: Yeah – the companies certainly conjure up some pretty bad feelings among homeowners who bought into promises that weren't necessarily kept. But now that they are under new owners, and there will be changes.
Countrywide, of course, had been on the verge of collapse when it was sold last year to Bank of America. And starting on April 27th, the Countrywide operations will be essentially renamed Bank of America Home Loans – it's part of a big consolidation that's gonna result in the loss of about 7,500 jobs.
The focus will be on new mortgage applications – remember that home sales have shot up in the last few months, largely as a result of lower interest rates, and of course all those foreclosed properties that have come on the market.
Moran: And IndyMac is also getting a new name – and a new focus. What's the new game plan for that bank?
Lacter: This is the Pasadena thrift that was taken over by regulators last summer because of all the bad loans it handed out. It was acquired by a group of private investors, and they plan to specialize in making jumbo mortgages – those are the loans of more than $625,000 that have really been tough to come by during the credit crunch.
The new owners also want to get into the loan modification business – you know, when the FDIC took over IndyMac, it began a mortgage modification program that's actually been quite successful. So the idea is to continue that program, and they also want to sell the expertise to other banks.
Moran: Hmm. So they're basically trying to repurpose their businesses.
Lacter: That's right. And as bad as the economy is, there is money to be made in real estate, and everybody is trying to figure out how to do it.
Moran: Yeah, amen to that. Thanks very much, Mark.
Lacter: Thanks Kari.
Moran: Mark Lacter is a contributing writer for Los Angeles Magazine and he writes a business blog at
LAObserved.com.
