Independents Withstand Inflation, Competition, Supply Chain Issues: Study

NGA/FMS research shows operators focusing on margin and expense management, investing in stores, associates and communities

Bridget Goldschmidt

8/21/2023

While marketplace challenges remain in 2023, independents are ready to meet them.

Despite such headwinds as inflation, competition and ongoing supply chain issues, independent grocers were able to hold firm in a challenging marketplace, according to the 2023 edition of the “Independent Grocers Financial Study,” research jointly produced by the National Grocers Association (NGA) and FMS Solutions that gauges’ indies operational and financial performance over the past year.

This year, a record 521 independent grocers operating almost 2,000 stores shared their results for fiscal year 2022, which runs through March 31, 2023. “Independent grocers’ knowledge of the marketplace, grit and nimbleness resulted in a solid year in most key metrics,” noted Robert Graybill, president and CEO of Fort Lauderdale, Fla.-based FMS.

In the face of inflation, shoppers looked for sales promotions, switched between stores and, most of all, bought fewer items. This negatively affected volume and unit sales, and inventory turns slowed, while shrink grew. “Same-store dollar sales still trended 4.8% above year-ago levels, but sales growth was below the rate of inflation for 77% of independents,” observed Graybill.

Out-of-stocks improved over 2021, but procurement was still difficult. Almost half of independent grocers sourced products from channels other than traditional wholesalers because of more favorable pricing.

“Inflation, competition and continued supply issues were just some of the challenges facing independent grocers in 2022,” said Greg Ferrara, president and CEO of Washington, D.C.-based NGA, the national trade association representing the independent sector of the food distribution industry. “However, independent grocers did what they do best: pivot to meet the ever-changing marketplace opportunities and challenges. Independents reinvested into their stores and built or expanded loyalty programs, e-commerce platforms and digital marketing.”

Employee turnover stayed high, averaging 57% in 2022. “Despite the challenges, only 35% have turned to automation solutions to fill labor gaps,” continued Graybill. “Independent grocers are known for customer service and are carefully evaluating the impact of consumer-facing automation.”

Indies handled increases in expenses much like their customers. The cost of goods, utilities, rent and labor all rose in 2022, though inflation-boosted sales obscured the increases when considering expenses as a percentage of sales. “Independent grocers compressed margins in 2021 to help consumers absorb the rapidly rising prices and remain competitive,” said Graybill. “Gross margins remained compressed in 2022, with an average total store gross margin of 27.5%.”

Smart margin and expense management led to net profits that stayed above pre-pandemic levels. “While down from 2020 and 2021 levels, net profit averaged a solid 2.9% of sales,” noted Graybill.

Every year, a group of retailers outperforms the rest of the field by a wide margin; they’re known as the net profit leaders. “Reflecting on the top 25th percentile provides independent grocers with an interesting blueprint for optimal expense, margin and profit management,” said Graybill. Profit leaders averaged 7.9% in net profits, 2.8 times the average among the rest of the group. Graybill added that these profit leaders demonstrated a strong focus on fresh, both in the contribution to sales and margin management.

While challenges remain in 2023, Ferrara asserted that independents are ready to meet them. “For many years, independent grocers have proven they are up to the test,” he observed. “More than anything, this year’s study shows that strong customer loyalty, combined with business savvy, means independents are set to survive and thrive in the remainder of 2023 and 2024.”