Indies Grappled With Inflationary Pressures, Rising Costs in FY 2023

Independent grocers faced a turbulent fiscal 2023, according to a new study from NGA and FMS Solutions.

Despite the easing of inflation, independent grocers continued to deal with the cumulative effects of higher prices, resulting in more restrained shopper spending, according to the “2024 Independent Grocers Financial Study,” a collaboration between the National Grocers Association (NGA) and Ft. Lauderdale, Fla.-based FMS Solutions. The study, which covers fiscal year 2023, highlights grocers' strategic responses to lower inflation, evolving consumer behavior and increasing operational costs.

In response to price pressures, a large majority of consumers shopped at various stores and ultimately reduced their overall purchases. These dynamics caused a slowdown in inventory turns, which declined from 18.4 in 2022 to 17.2, while the industry-wide store shrinkage rate remained steady, at 3.0%. Same-store sales rose slightly by 1.8%, but this growth was largely attributable to a 1.2% annual inflation rate rather than a unit sales increase.

To stay competitive under such conditions, indies continued to reinvest in their operations, allocating an average of 1.8% of sales to capital improvements. Investments focused mainly on store remodels instead of new store openings. With 70% of consumers comparing sales and promotions at different stores and 86% checking in-store sales, indies also invested in growing their loyalty programs and shifting to digital marketing. Labor challenges persisted, however, with associate turnover hitting 39.4%, pushing more than half (56%) of indies to rely on self-checkout technology to boost operational efficiency.

While transactions per store averaged 7,647 per week, spending per trip was flat. Gross margins were squeezed to 27.7%, as operational expenses, especially labor and benefits, soared to 15.6% of sales — the highest on record. Consequently, net profit plunged to 1.4%, a return to pre-pandemic levels, and EBITDA fell to 2.77%.

The “2024 Independent Grocers Financial Study” is based on responses from 127 survey participants representing 654 store locations, as well as financial benchmarks derived from FMS Solutions’ database of 434 independent grocers with 1,531 store locations. NGA will present an in-depth analysis of the study findings during a session at its upcoming Executive Conference and Public Policy Summit, set for Oct. 28-30 in Washington, D.C.

Based in Washington, D.C., NGA is the national trade association representing the retail and wholesale community grocers comprising the independent sector of the food distribution industry. The independent grocery sector is accountable for about 1.2% of the nation's overall economy and generates more than $250 billion in sales, 1.1 million jobs, $39 billion in wages and $36 billion in taxes, according to the organization.