As the overall economic pressures on many consumers continue, shopping for price and value are a priority for lower and middle-income shoppers, and while 2010 showed some shift to 'food away from home' from 'food at home' dollars, the continuation of the weak economy may cause a reversal of the trend, according to the 2011 edition of the Independent Grocers Survey, published by FMS Solutions and the National Grocers Association (N.G.A.).
According to the study, overall economic pressures have shifted gross margins to 25.68 percent, down from 26.28 percent last year. These reduced margins resulted in average net profit before taxes of 1.08 percent for all respondents, down 60 points.
When looking deeper at the results, the divide between the top 25 percent and the median of the operators is growing. The profit leaders showed an average 4.07 percent net profit before taxes versus an average of 1.08 percent for all respondents. As pressures mount on the consumer, the retailers will need to respond to the needs of their customers. The price pressure as a result of the economy and fierce competition in the market will continue to push margins down.
"The marketplace is becoming for many a darwinistic environment,” said Robert Graybill, president, FMS “We are seeing many operators either growing or disappearing. One in five respondents reported negative profits, while the top 25 percent reported strong results with an average of 4.07 percent. Consumers are forcing operators to function at peak efficiency so that pricing will remain reasonable in their eyes. A sloppy operator who relies on price to offset high shrink won't survive nor will companies that are overloaded with administrative costs that don't contribute to servicing the customer, as the customer can no longer afford to pay for those costs with higher prices."
Understanding relevant industry benchmarks and characteristics of best-in-class retailers – such as those delivered in the study -- greatly improves a grocers' ability to reduce costs and compete more effectively in today's environment, according to Peter Larkin, president and CEO of the National Grocers Association. "Fiscal year 2010 was a tough year for independent grocery retailers; however the resilience of the independent operator is clear,” he said. “Our industry has managed to push through one of the worst economic downturns in recent history and will continue to do so."
The full 2011 Independent Grocers Financial Survey is available for purchase at: www.nationalgrocers.org.
The N.G.A. is the national trade association representing the retail and wholesale grocers that comprise the independent sector of the food distribution industry.