Grocers big and small tackle business challenges

People have to eat and that should be constant demand for grocery stores – large and small. But the challenges have never been greater according to grocery experts.

Grocery stores once had little competition and owners managed to carve out a solid living, providing full service despite thin margins.

Veteran grocers like Steve Morrow, manager of Allen’s Foods in Bella Vista, says times have changed as competition increased with more retailers vying for a piece of the grocery marketshare.

“There are more discount dollar stores offering basic foods and even the home improvement stores sell bottled water by the case,” Morrow said. “Each nips away traditional grocery store profits.”

Jack Sinclair, executive vice president for the grocery division for Wal-Mart, says even giants face challenges as they try to compete head-to-head in hundreds of markets across the country. Sinclair spoke at the Bentonville/Bella Vista Chamber’s WalStreet Series Breakfast on Wednesday in Rogers.

Sinclair said Wal-Mart is committed to compete on price with good selection and availability, but admitted that “there is no way we can offer all of the specialty items that some local stores do.”

That commitment includes a $2 billion investment in low prices over two years by the retail giant – whose annual sales are bigger than the four other largest grocery chains combined. He said Wal-Mart went back to using Neilsen Co. data to help fill the gaps where it can.

An Aug. 21 report from Nielsen Co. surveyed and tracked factors that impact grocery shopping worldwide.

The data show 83% of consumers say rising food prices are impacting their product choices. Roughly 50% of U.S. consumers say price is major influence in the products they buy and the venues they shop.

But that leaves 50% of shoppers who are were more concerned with health and safety, product availability and retailer loyalty programs.

Morrow said the consumers he sees and visits with daily at Allen’s Foods are likely among the group that want varied selections and put that slightly ahead of price.

FRESH AND LOCAL
“Fresh produce from local farmers has been a big hit this year with our customers like peaches and Apples from Vanzant farms in Lowell and homegrown tomatoes out of Pea Ridge. In grocery retail there’s nothing better than picking it one day and seeing people buy it the next. We worked with about 10 local farms this year and hope to expand that category in the coming months,” Morrow said.

Sinclair said Wal-Mart also works to have local to regional produce in its stores when possible.

“A hammer is a hammer, but food is a local thing. We know people want it and it’s the sustainable thing to do,” he said. “We are hoping that technology might help us do a better of job of that in future.”

Lettuce grown efficiently in California in fertile lands is shipped all the way to Maine, “and it’s not very good when it gets there because it takes a long time,” Sinclair said.

“What are the opportunities for us to invest in technology for things like hot housing that would allow us to get product closer to the customer rather than farther away, it’s part of our food strategy,” he added.

As food/commodity prices continue to outpace wage growth, grocers both large and small feel their thin operating margins being squeezed. Another dynamic likely to impact food prices in 2013 is the widespread drought of the past two years.

The Food Institute projects a family of four will pay roughly $350 more for groceries next year because of the drought. The increase breaks down to $6.75 per week. Produce and meat – more than two-thirds of the dinner plate – are both expected to cost more in 2013.

Morrow said grocers will be challenged because of the inflationary prices on commodities and will need to look for creative ways to help customers stretch their food dollars further.

ORGANIC FAVOR
Morrow said Allen’s expanded its line of organic food and glutten-free offerings last year, a food category that continues to hold its own amid a challenged economy.

“Our customers wanted more specialty selections and we are willing to provide them. I get dozens of requests each week and we are constantly adding items for customers who want specific products,” he said.

Nielsen data show delisting of a favorite product is also a major pain-point for consumers and impacted more shopper decisions than having a cheaper private-label choice. Both Sinclair and Morrow said shoppers expect the products they desire to be on the shelves when they want them.

Consumers are buying more organic food than ever before, spending approximately 25% more to eat healthy, even in challenging economic times, according the Organic Trade Association.

Sales of organic food totaled $29.3 billion in 2011. This sector is growing three to four times the rate of the overall food market and the success of Whole Foods and Fresh Market are further proof of this trend.

Sinclair said Wal-Mart has to balance its low price philosophy against a multitude of social / animal welfare debates, but the ongoing mission is to provide safe, affordable food in a sustainable way.

SHOPPER TRENDS
Both Sinclair and Morrow say shoppers do keep them guessing as consumer habits are constantly changing.

Sinclair said gas prices have a profound impact on core Wal-Mart shoppers. When fuel costs are down shoppers trade up to more expensive items and when gas prices escalate, they look for more private-label or cheaper alternatives.

He also discussed the SNAP customer – Supplemental Nutritional Assistance Program – that was formerly known as Food Stamps. He said many of these shoppers are waiting until midnight when the cards are loaded to feed their families. Basic commodities will fly off the shelves shortly after midnight and the following day.

Morrow said he has witnessed shoppers making more trips during the week buying enough food for a couple of days.

“We don’t see as many folks stocking up for two weeks or longer like we used to,” he said.

Another recent phenomenon in the grocery / retail business is the use and mining of social media to predict consumers wants and need in real time.

Morrow said one of the best things he’s done in the last year is start a Facebook page for Allen’s Foods. He said it has allowed him to post store specials, introduce give-ways and provided a platform for contests with a wide range of customers.

“I monitor the page myself, and it’s a personal exchange with our customers. While I am out in the store every day shaking hands, sacking groceries and actively talking with our customers the Facebook platform has been a great way to engage our customers in an ongoing dialog,” Morrow said.

He posts a daily special on Facebook and customers who mention it at the check-out stand get the lower price. He doesn’t have to re-label prices or change price displays, because the discount is given at the register and there’s no coupon to keep up with or redeem.

Morrow said when he posts certain products have arrived, folks rush in and get them – whether it’s locally grown produce or smoked babyback ribs hot off the grill. He made the decision to maintain the Facebook site himself, which takes time but has given him new shopper insights.

“Customers post recipes and share comments about products they use and those they want. We recently held a pet food drive for the local animal shelter which we noted on our Facebook page, we had about 430 comments from shoppers on this drive and the store gave 25 cents per comment in cash donations which was another $112 for the shelter.” Morrow said.

After more than 30 years in the business, Morrow says he’s still learning the trade.

Sinclair said Wal-Mart is constantly mining social media data feeds to make sure products people want now are available now. He said the day is coming when shoppers will scan their own items with their cell phone, bag the merchandise and go straight to the car.

Morrow says he likes providing local jobs to checkers and sackers who still bag groceries and take them to car for Allen’s customers.