Are Supermarkets Aisles a Haven from Recession?
NEW YORK -- Salomon Brothers is putting out the word: "Now is the time to buy supermarket stocks."</br></br>Salomon's thinking, and that of Wall Street generally, is that even in a recession, people keep on eating. But this time the stocks aren't cheap. Going into the early-80s recession, shares of the major supermarket chains traded at about eight times earnings. Now they trade at about 19 times the past year's per-share earnings, meaning that the market is betting on growth even as a recession looms.</br></br>And as anyone who shops for groceries knows, the supermarket of today doesn't resemble the one of 10 years ago -- and therein lies a reason for investors to be wary.</br></br>What's on the shelves nowadays isn't as indispensable as in the past. In the prosperous 1980s, supermarkets added scores of fresh and prepared foods to the traditional array of canned and packaged goods, and profit margins exploded. Great Atlantic & Pacific Tea's gross margin on sales, for instance, surged to about 25% from 22%.</br></br>Where it once offered 125 items of produce, A&P now sells 300 fruits and vegetables -- including, says Michael Rourke, a spokesman, "things I hadn't heard of before."