Fiscal year 2019 was a solid year for independent grocers. The financial performance and operational execution served as a building block to respond to the incredible pandemic spikes in traffic, sales, and engagement during the COVID-19 pandemic, according to the 2020 edition of the Independent Grocers Financial Survey, a joint study between the National Grocers Association (NGA) and FMS Solutions.
A strong economy in 2019 and low unemployed fueled consumer spending, including grocery shopping. Independent grocers increased same-store sales by 2.5% in 2019, and given mild inflationary levels, the real gain of +1.6% was the highest seen in many years, said the study.
Over 2019, 56% of independent grocers improved same-store sales growth, while 21% of independents held their ground. Gains were slightly higher among multi-store operators.
Close to four in 10 dollars were generated by perimeter departments, with an above-average contribution by fresh in larger volume stores, according to the study.
COVID-19 Sales and Changes among Independent Grocers
Coronavirus prompted two of the biggest weeks in grocery retailing in mid-March and elevated everyday demand has driven gains well above the 2019 base level ever since.
While shoppers have been taking fewer trips, they spend more per visit, resulting in total store sales for independents being up 13.3% through the first half of 2020. Large contributors are frozen foods, center store, meat and produce.
COVID-19 brought along many changes and expenses for independent grocers as well:
- 66% of independent grocers changed store hours for sanitation, senior/first responder hours, etc.
- 84% installed plexiglass shields in one or more departments or frontend.
- 85% paid overtime expenses during the pandemic, with 71% citing a lack of available employees prompting overtime for those willing/available to work.
- 85% paid hero pay and other bonuses and incentives, but 93% were non-permanent changes.
- 100% bought additional disinfecting and cleaning supplies and 96% provided employees with masks.
Reinvesting in Stores and eCommerce Was Crucial to Pandemic Success
Importantly, independent grocers recognized the need for keeping stores fresh and therefore increased capital expenditures to 1.96% of sales.
According to the joint study, more than one-quarter of independents remodeled one or more stores in 2019. Independents also invested in e-commerce, which was offered by 64% of independents in 2019, up from 32% in 2018. Many offer both delivery and pickup (30%) or pickup only (26%).
It was precisely this investment in the stores, marketing, advertising and e-commerce that allowed the independent community to welcome the surge of shoppers during the 2020 pandemic.
Inventory Management Played a Big Role For Independent grocers
These robust gains were achieved based on higher inventory turns, at 18.7x for the total store, hand in hand with improved margins that reached 28.0% across departments. Many independent grocers continued to focus on inventory management, accomplishing a reduction in total store shrink, at 2.9%, through the implementation of shrink management programs that focused on reporting, learning, and correcting each week.
Labor Market Caused Higher Turnover
Independent grocers managed these sales gains amid rampant competition and a tight labor market. Employee turnover at independent retailers increased to 19.5% among full-time employees and 63.2% among part-timers.
Yet, independents were better able to control personnel-related costs and the total labor and benefits expenses decreased somewhat to 15.7% of total 2019 sales. Additionally, reductions in rent, utility costs and a few other expense areas helped reduce total expenses slightly to 28.8% of total sales.
Rise in Profits due to Stellar Performance Among Profit Leaders
With increases in same-store sales and margins and a decrease in expenses, the net profit before taxes improved significantly, from +0.63% in 2018 to 1.05% in 2019. Behind the overall improvement in net profits, the study found that the independent marketplace grew more divided.
The profit leaders, those in the 25th percentile in net profit performance, pulled away further. Their stellar performance improved the average profit across independents, whereas the bottom 75th percentile did not change.
Profit leaders averaged 5.30% net profit before taxes. Common traits among profit leaders include a high focus on fresh, particularly meat and produce, along with robust margin and expense management.
The total store gross margin among profit leaders is 2.1 percentage points higher than that of the retailers in the bottom 75th percentile (“the pack”). Additionally, the leaders’ total expenses, excluding the costs of goods and labor, were more than 1.7 percentage points lower than the pack.
It was precisely this investment in the stores, marketing, advertising, and e-commerce that allowed the independent grocers to welcome the surge of shoppers during the 2020 pandemic, the NGA and FMS Solutions joint study concluded.
Information Provided By FMS Solutions.