Costs, Labor, Deflation Factor as Grocers' Leading Concerns

Despite a new presidential administration that most in the industry regard as being more friendly to business and less likely to support a hike in the national minimum wage, the cost of doing business remains at the top of the list of things keeping grocery retailers up at night.

Jumping up a few rungs on the worry ladder since last year is labor (from fifth to second), and that’s really no surprise. As the workforce continues to transition from more seasoned employees to a younger generation with a decidedly different concept of the ideal workplace, retailers are looking for ways to make a mature grocery industry more appealing for a group that largely places corporate citizenry ahead of personal gain. As PG noted in its March 2017 feature on recruitment and retention, prospective employees want to know that they’re a good fit for a company, so retailers ought to spend as much time creating a delightful experience for their associates as they do for their shoppers.

The worry of competitive threats leapt to third place from 14th, obviously as a result of saturated markets and increased intrusion by other channels, especially online.

Dreaded price deflation dropped to the fourth-highest worry from third, but clearly was still a concern among retailers struggling to satisfy bottom lines with a cheap food supply. It even managed to catch up with The Kroger Co., which in part blamed deflation for the end of its 52-quarter streak of same-store sales growth. But it’s clear that the giant won’t be shaken.

“We are obviously disappointed,” Kroger Chairman and CEO Rodney McMullen said last month about the retailer’s Q4 results, which did see a rise in overall sales. “Kroger has always focused on executing against our long-term strategy. … We could stop all of these investments, given the headwinds our industry is facing. That might make our results look better today, but we are playing for the long term, and that requires being deliberate and determined.”

Meanwhile, companies like Ahold Delhaize (buoyed by its merger), Ingles Markets, Natural Grocers and Weis Markets posted Q4 gains, while others, like Smart & Final, Target and Whole Foods, slipped, with most still warning of continuing deflation.

Target sustained a huge blow with a third straight quarter of lower comps in Q4, which Chairman and CEO Brian Cornell said “reflect the impact of rapidly changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores.”

Making retailers less nervous than last year was data security, down to fifth after hitting second place in 2016 following a season of well-publicized data breaches. Food safety dropped two rungs but remained an important focus in a market where consumers are demanding increased transparency (as a separate concern, holding fast at 13th) about their food supply.

Other issues mentioned by retailers responding to PG’s survey included the cost of credit card transactions, which one respondent likened to “dealing with the mafia,” along with food costs and warehouse supplies.

The complete Annual Report of the Grocery Industry can be found in PG’s April digital edition.