Indie Grocer Survey: Challenges Down to Deflation
According to the 12th annual Independent Grocers Financial Survey by FMS Solutions Holdings LLC (FMS) and the National Grocers Association (NGA), independent grocers’ sales were down 1.6 percent in fiscal 2016 compared with 2015.
Food-at-home deflation in all categories, but particularly in meat and dairy, had an adverse impact on U.S. retailers. This led to net profits of just 0.98 percent, versus 1.44 percent in fiscal year 2015.
Margins remained steady at more than 27 percent and expenses were 23 percent of sales in 2016. Indies were able to manage their expenses despite labor and benefits rising to their highest percentage of sales, at 14.8 percent. The top 25 percentile, or the profit leaders, grew their net profits over the prior year, logging a 4.7 percent gain.
“While 2016 was a disappointing year for net profits, the independent grocer has proven its ability to recover in the past,” noted Robert Graybill, president and CEO of Pasadena, Md.-based FMS. “We expect to see some continued consolidation as a result of tough competition from both online and new brick-and-mortar retailers, but the flexibility and ingenuity of the independent is clear by the results of the profit leaders and serves as a beacon of direction that others can follow to excel as well.”
Falling unemployment and higher turnover contributed to indies’ growing labor and benefits costs. Survey respondents rated competition from other retailers as the biggest factor affecting their bottom line, with health care costs coming in second.
“The supermarket business is not for the faint of heart,” asserted said Peter J. Larkin, president and CEO of Arlington, Va.-based NGA. “Low profit margins and constantly changing consumer preferences make it challenging even for the best operators. 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.”
The survey, which involved more than 100 retailers in 33 U.S. states and seven Canadian provinces, aimed to gauge the financial performance of independent grocers and place it context with economic, political and competitive factors. The report also probed how the profit leaders operate their businesses differently, such as their inventory and shrink, and generate more net profit.