The 2020 Independent Grocers Financial Survey, from the National Grocers Association (NGA) and FMS Solutions, found that independent grocers have fared well generally amid the coronavirus crisis, thanks to strategic investments they made in 2019.
“Independent grocers started to see positive trends pre-pandemic, which is a great sign of the strengthening,” noted Robert Graybill, CEO and president of Baltimore-based FMS, an accounting solutions firm that works exclusively with the retail grocery industry. “While the overall numbers were up, it was the profit leaders once again driving those increases. Their financial performance and operational execution served as a building block to respond to the extraordinary spikes in traffic, sales and engagement during the COVID-19 pandemic.”
In 2019, the economy was strong, with low unemployment driving consumer spending, including grocery shopping. Independent grocers saw same-store sales rise by 2.5% in 2019, with 56% boosting same-store sales growth. Gains were a little higher among multistore operators. Nearly four in 10 dollars were generated by perimeter departments, with an above-average contribution by fresh in larger-volume stores.
These solid gains were attributable to higher inventory turns, at 18.7 times for the total store, together with improved margins that hit 28% across departments. Many indies continued to focus on inventory management, achieving a reduction in total store shrink, at 2.9%, by deploying shrink management programs that concentrated on reporting, learning and correcting each week.
Indies were able to increase sales gains despite tough competition and a tight labor market. Employee turnover at indies rose to 19.5% among full-time employees and 63.2% among part-time workers. Yet indies proved better able to control personnel-related costs, with the result that total labor and benefits expenses declined somewhat to 15.7% of total 2019 sales. Further, reductions in rent, utility costs and a few other expense areas helped lower total expenses slightly to 28.8% of total sales.
With increases in same-store sales and margins and a decrease in expenses, net profit before taxes rose considerably, from 0.63% in 2018 to 1.05% in 2019. Beyond the overall increase in net profits, the study found that the independent marketplace became more divided. The profit leaders, those in the 25 percentile in net profit performance, outpaced the rest by wide margin. Their strong performance boosted the average profit across independents, while the bottom 75 percentile didn’t change.
Profit leaders garnered an average of 5.3% net profit before taxes. Among the common traits of profit leaders were a high focus on fresh, especially meat and produce, as well as strong margin and expense management. The total store gross margin of profit leaders was 2.1 percentage points higher than that of the retailers in the bottom 75 percentile, identified in the survey as “the pack”. Also, the leaders’ total expenses, excluding the costs of goods and labor, were more than 1.7 percentage points lower than those of the pack.
Crucially, indies understood the need to keep stores fresh and therefore boosted capital expenditures to 1.96% of sales. More than one-quarter of indies remodeled one or more stores last year. Independents additionally invested in e-commerce, which was offered by 64% of them in 2019, up from 32% in 2018. Many operators offer both delivery and pickup (30%) or pickup only (26%). These same investments in their stores, marketing, advertising and e-commerce enabled indies to accommodate the onslaught of shoppers during this year’s pandemic.
Coronavirus drove two of the biggest weeks in grocery retailing in mid-March, and higher everyday demand has spurred gains well above the 2019 base level ever since then. While shoppers have embarked on fewer shopping trips during this time, they spend more money per visit, with the result that total store sales for indies were up 13.3% through the first half of 2020. Large contributors to this increase are frozen foods, center store items, meat and produce.
COVID-19 caused many changes and expenses for indies as well. All of those surveyed bought additional disinfecting and cleaning supplies, and 96% provided employees with masks. Eighty-four percent purchased and installed plexiglass shields for installation in one or more departments or at the front end. Sixty-six percent altered store hours for sanitation, senior/first responder hours and other pandemic-related reasons. Eighty-five percent paid overtime expenses during the pandemic, with 71% noting that a lack of available employees led to their offering overtime to those willing and/or available to work. Eighty-five percent paid “hero pay” and other bonuses and incentives, but 93% described these as temporary measures.
“Alongside the important role in feeding America’s communities, the current pandemic has illustrated the agility and resiliency of independent grocers,” pointed out Greg Ferrara, president and CEO of Arlington, Virginia-based NGA, the trade association representing the retail and wholesale grocers that comprise the independent sector of the food distribution industry. “As the supermarket industry continues to navigate these changes, independent grocers are in a unique position to find innovative and creative ways to better serve their customers."
This year's survey had a total of 210 respondents representing more than 1,000 store locations.