Independent Grocers

Will independent grocers turn it around in 2017?


Photo: Cubby’s Marketplace, Talkeetna AK/Facebook

May 26, 2017

George AndersonOperating independent grocery stores has never been for those who shrink from formidable odds. When it comes to today’s independents, that means going up against chain store giants such as Walmart and Kroger while dealing with changes in technology and consumer shopping behavior, not to mention deflation in key product categories and increased competition for labor and the associated costs that go with it.

According to the “Independent Grocers Financial Survey,” recently released by the National Grocers Association (NGA) and FMS Solutions (FMS), 2016 was a challenging year for the small guy.

Sales were down 1.62 percent in 2016 from 2015. Food deflation affected grocers in key categories, including dairy and meat, which hit independents squarely in the bottom line as net profits fell to 0.98 percent compared to 1.44 percent in 2015.

The survey of more than 100 grocers operating stores in 33 states found that independents managed to hold the line on margins at 27 percent. Labor and benefits climbed to 14.84 percent of sales last year, the highest level tracked to date.

Lower unemployment rates across most of the country helped drive up labor costs (12.63 percent of sales) while leading to higher turnover among associates. Turnover at independent grocers averaged 48.9 percent among part-time workers and 17.1 percent among full-timers.

“Low profit margins and constantly changing consumer preferences make it challenging even for the best operators,” said Peter Larkin, president and CEO of NGA, in a statement. “But as independents continue to invest in their local communities and work diligently to stay ahead of rapidly changing consumer trends, they are differentiating themselves in a fiercely competitive marketplace to become shoppers’ stores of choice.”

Independents identified as “profit leaders” among their peers averaged net profits of 4.70 percent before taxes. This group, which represents stores in the top 25th percentile, improved net profit performance in 2016. Profit leaders, according to NGA and FMS, tend to operate slightly larger stores generating a greater number of weekly transactions and higher average rings. These stores focused on fresh foods while aggressively managing inventories; reinvesting in their businesses while limiting debt.

DISCUSSION QUESTIONS: Is it more difficult to be an independent grocer in 2017 than it has in the past? What are the keys for today’s indies looking to differentiate from the wide variety of rivals competing in the grocery space today?

Nir Manor


There’s no doubt that every year that passes will make it more difficult for independent grocers to survive. The reasons are the retail environment is becoming more online and omni-channel focused. These are the technologies that the big chains adopt to help them compete. Both of these technologies are weak points for the independent grocer. Additionally, the consumer changes amplifiy the challenge. Independent grocers’ shoppers tend to be older people who shop based on old habits and personal service. This is less the case for younger generations.

The differentiation factors that independent grocers can use are the personal touch and the human experience. They can also play the “local community” card — sourcing local products that are healthier and fresher due to the advantages of smaller size.

Steve Montgomery


The short answer is yes, it is more difficult than ever to be an independent grocer. The competitive set they face is stronger than ever. They are competing with ever larger supermarket chains as the industry continues to consolidate. The concentration of buying power provides the large chains with a lower cost of goods, greater brand awareness and access to tools and capital that an indie cannot duplicate.

The independent grocer is also finding it harder to have a cost effective, reliable source of supply. This is playing out here in Chicago where Central Grocers has recently declared bankruptcy. Central supplied 400 independent grocery stores in the Chicagoland area.

What independent grocers bring to the market is the ability to define themselves by customizing their offers to meet the needs of their consumers. This may be in the products they sell or the manner in which they deliver it. For example one of Central Grocer’s customers, Sunset Foods, is known for its fresh products and its amazing customer service.

JJ Kallergis


Steve, I shop at Sunset Foods regularly as it is right down the street from my home. I have other options nearby that are marginally further for me to drive to like Jewel, Trader Joe’s and Whole Foods. Why and when do I choose to shop at Sunset? You hit it on the nail with the freshest meat, seafood and produce plus incredible customer service. And it is convenient for a quick trip to pick up milk or eggs. Their associates are always smiling and happy to help unload groceries from your cart and bag on the other side. So I agree with the comments so far that independents need to focus on what they can control — customer service, the local community card, limited and special offerings plus I would add prepared foods.

Customers like myself will probably continue to migrate our wallet share on center aisle items like cleaning goods, paper goods and non-perishables to Amazon, Target and others that offer rock-bottom prices and the convenience of shipping or BOPIS. So my recommendation to independent grocers and the wholesalers that supply them would be to radically reconfigure the center aisle and add a more locally-sourced and differentiated product set that gets the community excited to shop there and support a local retailer and its suppliers. This would help them to more efficiently utilize their current footprints, benefit from quicker inventory turns and positively impact profits.

Richard J. George, Ph.D.


It has always been a challenge operating independently, beginning with battling the emerging chains and dealing with the Walmart effect (particularly Supercenters) and now extreme value retailers as well as Amazon and the like.

My advice to independent grocers is to think like a brand and act like a retailer. In doing so, these terrific organizations need to establish their own identity instead of attempting to simply emulate the big guys or the online competitors. Recall that when Walmart began to aggressively roll out its Supercenters, many independent grocers attempted to fight Walmart on Walmart’s terms, namely, price. This would have been akin to Mike Tyson entering a room where I was speaking and challenging me to a contest. If he said I could pick the challenge, would I have said, let’s box? The independents who got into the boxing ring with Walmart got destroyed. Those who found ways to compete against Walmart by creating differential advantages that Walmart could not emulate survived.

Now these survivors needs to fight on many fronts. My advice is the same as it was 20 years ago. Figure out what you can do that the giants can’t or won’t do. The primary difference from the Walmart Supercenter effect example is that technology has changed the game. Independents need to figure out a way to provide online shopping. The costs are great but the risks of not doing so are greater. This is where IGA, NGA and FMI can help. With help these independents will continue to thrive and grow in their niche markets.

Ian Percy


I am not worthy to be making a specific comment here — other than as a matter of principle. My observation is that independent grocers look exactly like the big guys only smaller and a little more expensive. And therein lies the rub. (I don’t know what that means, but Hamlet and my father used the phrase.)

Independents have a lot of cheerleaders including me. But they have to rethink the experience they offer consumers. I mean TOTALLY rethink it. Is there a different way to offer on-site, fresh-baked bread other than putting it on a shelf? What if customers picked their own lettuce while it was still growing? What if prepared foods were based on a recipe from great home cooks who live in the community — “Claire’s Bumbleberry Pie” — available only on Fridays? Nothing is more central to life and community than food — the last thing it should be is a bland commodity.

Art Suriano


The grocery industry is seeing many challenges, in part caused by the economic problems starting in 2008 as well as lifestyle changes with many customers wanting healthier food choices. Also more customers want shopping online services and home delivery. So it has become tough for the independent grocer to keep up. My advice is to focus on a particular customer who the grocer feels they can be successful with and build the business around that shopper’s wants. Smaller and independent grocers can provide better service and also more personalized attention. Combining that with the right product mix catering to a particular audience may give the independent grocer a competitive edge and a leg up on the bigger guys. In essence: “be different and be the best at it!”

Ian Percy

Art Suriano

Lyle Bunn (Ph.D. Hon)


While conducting interview research with owners/executives of small grocery chains it became clear that their inclination to compete on location and price was dominant, and that this would take them only so far. Point-of-sale and inventory systems that are the basis of operations require time and talent if they are to be used for any tactical advantage, but the resourcing of this was minimal. Factors work against independent grocers for the same reason that downtown stores are challenged by a nearby Walmart. But nimble-ness and friendly service can be their differentiator and strength. Local grocers can be fewer degrees of separation from their customers, and that holds great promise for those who play to their strengths.

Sterling Hawkins


Big retail players can sell product cheaper than many independents can buy it. Regardless of resourcing, independents competing on price is a no-win situation when that’s the case. SaaS models make most technologies economically feasible. And at the end of the day I’m with you Lyle, independents often have the advantage of culture and service.

Ron Margulis


All of grocery retailing is more difficult now than in the past. In fact, all retailing is more difficult now than in the past. More competitors, smarter customers, consolidating suppliers and much more all result in a constantly harsher operating environment. It makes me appreciate the fact that I was able to pursue interests other than my family’s supermarket business.

As for the keys to success for the independent grocer in 2017 and beyond, I’ll cite the mantra of my grandfather, a ShopRite Supermarket operator for years: “My job as a retailer is to make it as easy as possible for my customers to buy from me and as hard as possible to buy from anyone else.” More specifically, large chains are trying to implement technology that emulates what single store operators have been doing for a century — knowing the shopper. The independent grocer doesn’t need to make this investment in technology, they need to make the investment in time. Time for managers to get out on the floor and interact with the shopper and time to train front-line personnel to do the same. Time to search for products and develop promotions that will engage the shopper and time to understand their needs and aspirations. Then my grandfather’s mantra will come to fruition.

Ross Ely


The best strategy for independent grocers is to pivot toward the shopper. Understanding the purchase patterns and preferences of shoppers, particularly top shoppers, is essential to meeting their needs and maintaining their loyalty.

Independents need to out-hustle their larger competitors and one way to get there is to provide a superior experience based on an analysis of shopper data.

Tony Orlando


This is a discussion topic that I can really relate to, so allow me to gently rant.

Independents at one time, as all of us know, were the strength of the local towns all across the country. In my dad’s day the bottom lines were healthy. Times have changed bigtime and, with the exception of in high-income areas and in strong ethnic areas of major cities, independents are struggling for survival. For me personally I know my time is limited, as our county sinks into the abyss with no decent jobs, an aging population and a brain drain of our children who graduate from college and move out of the area at a rate of about 98 percent.

Being a charter member of NGA, I also have seen big changes in the design of the show floor, which is over 50 percent technology, and an increase in “foodie” booths, selling high-end jellies and produce, which is all good. Many here believe that to survive you need to do what Walmart doesn’t do, but in reality that will still make it difficult to survive if you can not try to compete on price to some extent. We have built over a dozen Dollar Generals in our county in the last five years and they also cater to the price shopper — I know as I share a common wall with them in my plaza. They have taken over half of my dry grocery sales and I have gotten rid of all diapers, formula, Pepsi, Coke, most household and paper products, and have trimmed my SKUs to keep what moves best for me at a discounted price.

That, my friends, is the reality in a small rural poor town, and trying to build an e-commerce platform that would deliver groceries would only add to the worsening bottom line, as we are not set up for this venture to do it properly and safely.

Some of you reading this may think I have given up, and that is simply not true. I was born for a good fight and my store — in a healthy economy — would thrive, with our perishable business and award-winning deli/prepared foods. I am just writing this to hopefully let you see inside of my situation, as a microcosm of what an independent supermarket has to deal with. This is not whining, it is just the simple truth.

The cost of goods situation is another story, but it adds to the “perception of value” and, again, it is another hill to climb for us. Bottom line, I don’t see a very bright future for many independents in these rural areas and, since I don’t own the building, I can walk away from this if I need to with no regrets, as I have skills to seek other opportunities — BUT I’d like to stay.

Have a great and blessed Memorial Day holiday everyone and God bless our troops, who have made this all possible in our wonderful country.

Ian Percy


Well shared, Tony. As we both sense, there’s a new day coming and we must become the creators of it!

David Livingston

4 hours 57 minutes ago

An independent grocer has always had to have an X factor that makes customers feel special. This is something large chains can’t do, other than perhaps Costco or Trader Joe’s. Oppressive high taxes, constantly changing health care laws, feel-good minimum wage increases, labor unions, plastic bag bans, calorie counts on deli items and other excessive government regulations are the monkeys on the backs of independents. Just take a look at the weekly newsletters of the state grocery associations. It’s all about fighting oppressive legislation that puts independents at a disadvantage.

David Livingston

1 hour 11 minutes ago

It gets even worse for independents with the lessening of punishment for retail theft, paid sick leave laws, workers comp, debit swipe fees, polystyrene foam container ban, etc. I’m sure there are dozens more regulations that make it difficult for the independent to survive. Luckily we have the NGA, FMI, and various state grocer associations to lobby for the independents.

Shep Hyken


Independents versus big box stores is a David versus Goliath story. The “Boxes” have more selection at typically more competitive prices. They also have bigger parking lots, bigger stores and longer lines. The smaller stores have almost the opposite, although their prices can be competitive.

There is one secret (that’s not so secret) to competing against Goliath. Out-service the big stores. Take a page from the Ace Hardware playbook. They go up against big boxes that are sometimes five to ten times their size with an advertising budget that is 30 times the local stores. But, somehow Ace not only survives, but also thrives. They deliver a higher level of service. Their service is helpful and even personalized. Everybody is selling, for the most part, the same thing. Food and grocery items are a commodity. What’s not is the service and relationship the independent retailer can provide — and that is how you win.

Al McClain


Shep, I think there is another factor. All supermarkets and grocery stores don’t have to sell the same products. As shoppers leave the center of the store, operators have a fresh opportunity (pun intended), to differentiate themselves on the quality and variety of their produce, prepared foods, deli, meat and seafood. And, in-store events and sampling. It is time to get creative.

Tony Orlando


Al you are correct, but it still comes down to money. If the folks in your marketing area are poor, then it makes the success of any endeavor limited, as it is hard to fork over 4-5 dollars for an out of this world muffin. I know, as I make this stuff, and yes it sells, but it won’t fly out of the store like a fancy deli in the Boston suburbs. Doesn’t mean you shouldn’t create great dishes, because doing nothing guarantees failure. I’m glad I have been doing this for many years, and I have a following for these things, but it still has limits in my marketing area. A thriving economy raises all boats, and opportunities to make money are there for the creative folks for sure.

gordon arnold


It seems to me that small to medium grocery businesses may be going the way of doctors, as in specialists, and trade journeyman, now yielding to modular solutions. Add to that a younger generation expecting top dollar for their labor and the interest to learn any complicated business is almost nil.

Where I have seen success is independent businesses that have slowly morphed into small specialty grocers. Delicatessens, luncheonettes, and some of the private c-stores have had luck while many others just go away. There seems to be no substitution for hard work, patience and market knowledge. Small business grocery is not for heirs of family ownership with nowhere else to go, or the faint hearted.

Ralph Jacobson


Shoppers have more love for the local/quirky/independent retailer more than ever, or so it seems. The challenge is that far too many owners live their daily lives hoping that since “they built it, they will come.” They have GOT to use the fact that they’re independent as the competitive advantage. They should lean on their CPG suppliers for customized promotions that larger companies cannot easily duplicate. Service is the last bastion of differentiation. Make service the key to generating compelling reasons for shoppers to shop the store.

Craig Sundstrom

2 hours 56 minutes ago

Generally harder since the slow grind of competition tightens the screws a little more each year … as Tony’s frequent Field Reports attest. And while the internet has revolutionized much of retail, for grocers — particularly small grocers — the effects are nil.

I think there is an exception: in areas that are doing well, high incomes offer possibilities for personalized, upscale offerings that larger stores can’t really match. Sadly for the rest, by its nature this is a limited opportunity.

Ricardo Belmar


No question the grocery business is going through plenty of changes and upheaval – certainly no less than every other segment of retail. Yes, it is harder for independents to compete in this segment. However, that means there is also great opportunity to differentiate, and to be relevant to their customers. Adopting a “be local” approach and being integrated with the community in a way no national brand could will be key to an independent’s success. That most likely means emphasizing fresh food, and fresh prepared foods that highlight local and possibly organic sources. These grocers will really need to “think different” to keep their connection to their customers. Be different, be relevant, be local, and be the best at it.


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