Courtesy FMS Solutions
The 2019 edition of the annual Independent Grocers Financial Survey, a joint study between the National Grocers Association (NGA) and FMS Solutions, labels the fiscal year 2018 as an essential turnaround year for independent grocers.
Economic activity continued to improve in 2018, and in turn, more confident consumers increased their grocery spending. Sales gains were further boosted by mild food inflation. While consumer indicators were positive, the competition was rampant, and the regulatory and market conditions drove up labor and benefits costs.
Independent grocers grew sales by 1.7% amidst these harsh conditions and continued to implement cost-control measures in other areas to keep expenses in check. Margin management was paramount, and independents managed to hold the line on the total store and most departmental margins. This resulted in an improvement in net profit before taxes to +0.63% of sales.
“Independent grocers have faced some challenging factors this past couple of years, but the financial turnaround signals independents’ strength, resilience, and business savvy,” says Greg Ferrara, President and CEO of NGA. “Combined with in-depth knowledge of their local communities and shoppers, independent grocers are finding ways to carve out a strong niche in the marketplace.”
Labor Woes Intensify for Independent Grocers
The tighter labor market elevated independent grocers’ concerns and spending on staffing, hiring, retention, and benefits.
Employee turnover at independent retailers increased to 18% among full-time employees and 47% among part-timers. This was further compounded by great concern over increases in the minimum wage at the state and federal levels, resulting in labor and benefits reaching a study high of 16.7% of total sales among independents.
“Independent grocers’ best weapon in the race for the grocery dollar is people, great people,” says Bob Graybill, President, and CEO of FMS. “Independents are focused on rightsizing compensation and benefits and investing in employees to deliver a top-notch in-store experience.”
Omni-Channel Investment Rises
Independents recognize the need for keeping stores fresh and therefore increased capital expenditures to 1.9% of sales, with a continued focus on store remodels and openings. “An uptick in reinvesting gains into the stores is an important finding,” says Graybill. “Everything looks better when you modernize your stores, including your sales and profits.” Independent grocers also increased investment in e-commerce, which was offered by 54% of independents in 2018, up from 32% the year prior. Additionally, more independents offered both pickup and delivery.
Profit Leaders Provide a Roadmap for Operational Focus
In 2018, independent grocers continued to focus on inventory management, with more significant total store inventory turns (17.4x) and a reduction in total store shrink (3.0%) by implementing shrink management programs.
The profit leaders among independent grocers, those in the 25th percentile, had a stellar performance in 2018, averaging 3.8% net profit before taxes. Common traits among profit leaders include a high focus on fresh, particularly meat and produce, along with substantial margin, shrink, and expense management.