By Jim Dudlicek / NGA Director of Communications and External Affairs
Inflation has dominated headlines and bottom lines over the past year, hurting volume and unit sales for independent grocers, Retailers dealt with increases in expenses much like their shoppers, but savvy margin and expense management resulted in net profits that remained above pre-pandemic levels.
In a recent webinar, Bob Graybill, president and CEO of FMS Solutions, analyzed the results of the latest edition of FMS’ annual Independent Grocers Financial Survey, conducted in partnership with NGA.
Reflecting record participation, 521 independent grocers representing nearly 2,000 stores shared their financial and operational data for fiscal year 2022, which ended March 31, 2023.
Here are some key takeaways from the presentation:
Independents are reinvesting in their businesses. Nearly half (48%) increased their capital expenditures; 34% remodeled one or more stores and 14% added new stores. They’re also continuing to invest in ecommerce, with pickup service leading the growth.
Supply chain challenges persist. 49% of independents say they lost sales because of procurement issues; 47% have had to source from alternate, non-wholesale channels due to more favorable pricing. Still, the average out-of-stock rate dropped to 17.5% from 24.3% in 2021.
Inflation fueled growth, but for most, it was price increases that drove gains, as units and volume were down. Same-store sales grew 4.8%, but adjusting for inflation made it a loss of 3.6%. Average weekly transactions topped 7,200, with an average transaction size of $33.59.
Strongest growth in share of sales by department was in produce (9.7%), deli (7.4%) and bakery (2.8%).
Total store gross margin was unchanged from 2021 as independent grocers kept margins compressed. While expenses increased, as a percentage of inflation-boosted sales they remained relatively unchanged. Total expenses as a percentage of sales fell 0.7%; top expense continues to be labor and benefits, with utilities a distant second. Staff turnover continues to run high, with 57% average store-level turnover; 35% reporting using automation to fill labor gaps.
While net profit and EBITDA were down, the ratios remain highly elevated from their 2019 levels. The profit leader average 7.9%, or 2.8x that of all independents.
Lessons from the profit leaders. Sales reflect a greater focus on fresh, particularly produce, meat, seafood and deli, with higher margins in fresh and center store. Leaders have tighter expense control, including the biggest cost areas of labor, benefits, rent and utilities. They curb shrink with shrink-management programs and drive higher inventory turns. And they invest to make assets work for them, with a lower debt-to-equity ratio.
Inflation is slower for food at home compared to food away from home, an opportunity to serve consumers finding themselves priced out of frequent restaurant dining. This is expected to continue for the rest of 2023. Still, shoppers are still paying as much as 30% more for grocers than they did three years ago, with low savings rates and high credit card debt contributing to the pressure.
Whether or not we’re officially in a recession, all signs point to consumers who are not confident in their spending: 37% say they are financially worse off than a year ago vs. 17% better, and 93% of consumers are concerned about food and beverage inflation. In response to higher prices, 93% are making at least one chance to their grocery shopping habits.
But there’s some good news, too. Consumers say there are plenty of reasons to splurge a little, with only 7% strictly sticking to their shopping list, leaving ample opportunity for incrementality. And despite the gloom, consumer confidence is actually growing, with the index surpassing 64 in June, up from 51.5 a year earlier.
What can you do? Keep up with price checks and increases, and manage the negative narrative on price gouging that is popping up (consumers continue to wildly overestimate grocery profit margin). Capitalize on reasons to splurge a little. Review sales-based bonus programs. Look at volume/units as a measure free of the impact of inflation, but also consider order fill rates and out-of-stocks. Continue to invest in marketing but consider a shift to digital vs. paper and loyalty. Present savings with private labels, bundling and restaurant comparisons.
For more exclusive insights, view a recording of the complete webinar here.
