The N.G.A./FMS 2010 Independent Grocers Survey Independents Protecting Top Line Sales
Shoppers and Trends
September 26, 2010
This year, the Independent Grocers Survey began tracking the top 25% of respondents in net profit before taxes. This group showed results that were more than double the general population with a 4.10% net profit before taxes.
Whether you are at the high end of profits or not, you have managed to weather some of the worst economic storms in history. In addition to the overall economy, actual health care costs increased 12.54% in 2009, adding to the pressure to generate operating cash flow.
Cash flow has become even more important to businesses as 41% of respondents stated their businesses were influenced by a lack of capital in 2009. This lack of capital impacted remodels, acquisitions, and sometimes actual operating cash required to do day to day business.
Today’s consumer, in many cases, is shopping for value and has turned more dollars to food at home. Price competition is heating up and private label has established growth in many categories across the store. For a long time, consumers sought out stores with a less price sensitive attitude, but now many are looking for additional value.
Sales data from U.S. Census Bureau sound a positive note for grocery stores and supermarkets for their percentage growth in sales. Sales for grocery and supermarkets have been trending up over the prior three years while supercenters and wholesale clubs have been experiencing a four year decline. Drug stores and pharmacies who have been infringing upon the grocery business with expanded formats to include dairy and frozen have seen a three year trend downward. For the previous decade, the 2008 year is only the second year on record in which the grocery and supermarket segment outpaced the growth of pharmacy and drug stores; 2008 is the last available year that the Census Bureau released in March 2010.
Gross margins declined from the prior year’s results for both single and multi-store operators. This decline in gross margins should not come as a surprise as the American consumer was buried in a recessionary mindset in 2009. Concerned about their job security, loss of retirement fund value and equity in their homes, the consumer began a search for value and was willing to compromise on service to some degree.
Single stores continued to outpace their multi-store counterparts by 1.05% on the gross margin line. However, single store operators saw the greatest decline in gross margins of 1.27% below the prior year when compared with the decline of 0.37% for their multi-store counterparts. Both groups of operators are facing fierce competition and a need to create a perceived value to the recession consumer.
Gross margins for grocery stores/supermarkets and supercenter/club stores remained relatively flat with declines of 0.2% and 0.1% from the prior year respectively. In 2009, consumers began to shop based on value, and retailers responded with hotter pricing. Drug stores should expect to see the trend of growth in pharmacy store sales decline as it pertains to groceries as most are priced for convenience.
Overall sales increased 3.94% – down from last year’s increase of 4.31%. However, last year’s survey results were greatly influenced by CPI Food at Home Inflation. Sales per customer increased over the prior year’s disappointing results for respondents as a whole and individually by group for single and multi-store operators. While the increase outpaced last year’s survey results, comparisons were mixed with single store operators performing better and multi-stores slightly down.
Increases in sales per customer can help make your front end more efficient and drive overall increases in your stores profitability. If consumers are using your store strictly as a convenience or to selectively shop your ad, you are not driving the customer loyalty to improve upon your basket size as a whole. With the jumps and dips in CPI-Food at Home categories, another great way to track your customer trends is the average number of items per basket versus the average sales.
Net profits before taxes slipped 20 basis points for all respondents with multi-store operators seeing a 12 point gain and single store operators slipping a significant half of a percent or 50 points. Both groups saw dramatic drops in gross margins, but multi-store operators made up much of their losses in margin with reductions in major expense categories. With the significant amount of price competition and value seeking consumers, margin declines were not a surprise. However, the sales increases from more shoppers reducing their visits to restaurants showed up with solid sales gains. Despite an overall drop in profits, the top 25 – managed an impressive 4.1% net profit before taxes, while public companies reported an average of 1.31% net profit before taxes. Independents have shown their ability to compete in this economically challenging environment.
Those companies in the top 25% of net profits outperformed their counterparts on many fronts. These organizations outpaced their peers by 1.77% when it came to gross margins and followed through with better than average reduced expenses. When comparing all the major expense categories in the survey, this group outperformed all respondents by 1.02%. The two biggest variances were in rent and labor, with rent representing a 0.49% negative variance and labor nearly a full percentage positive variance. While these numbers do not include all expenses, it gives a solid indication where the extra profits were derived from when coupled with the margin variation of 1.77%. The combination of the two makes up more than the net profit before taxes difference of 2.42%.
The increase in sales dollars for the 2009 fiscal year coupled with a near one percent decline overall in the expense categories for all respondents helped retailers hold strong despite the decreases in margins and increased competitive pressures. The upcoming 2011 survey, which recaps the current year, will show the results of an even more challenging year. With deflation, continued unemployment, continued foreclosures, and a rising national debt, the battle weary American consumer will be a challenge to lure in the door. However, as the independents in this industry have shown, it is a challenge they can overcome.
The 2010 Independent Grocers Survey is available to N.G.A. members at a cost of $75 and to non-members for $300. If you would like to purchase a copy of the survey please contact Jennifer Brant at firstname.lastname@example.org or call 703-516-0700.