Food retailers have a lot of questions heading into 2013.
Will the economy improve? Will consumer confidence improve? How much inflation will there be? What new taxes and regulations will they face?
SN surveyed supermarket and wholesaler chief executive officers around the country about their outlook for the year ahead, and those questions loomed large.
Supermarket CEOs are also concerned about the ever-increasing level of nontraditional competition, but many CEOs are cautiously optimistic, citing growth from new stores and from new digital and technological initiatives.
“When I think of this coming year, I think there are a lot of places people can go to buy things, so [we] have to give them reasons to come to us,” Pat Fox, owner of Fox Bros. Piggly Wiggly in Hartland, Wis., told SN. “So we have to continue to focus on doing the things we do well — delivering quality in the perishable departments, a quality experience for our guests, and also supporting the community.”
Uncertainty about the economy, the “fiscal cliff,” employment and other factors have all conspired to create an uneasy consumer environment in recent months, industry executives told SN, which is further clouding the outlook for 2013.
Such uncertainly has also made business planning difficult, noted Jay Campbell, president and CEO, Associated Grocers of Baton Rouge, La.
“You can imagine a person who is planning an expansion, an acquisition, a ground-up [new store construction] or any other type of consideration as it relates to their business, and not knowing what rules they have to play by,” he told SN.
New Stores at K-VA-T
Steve Smith, CEO of K-VA-T Food Stores, Abingdon, Va., said inflation, shopper-friendly initiatives and the effect of several new stores should lead to better sales in 2013. However, he said he was concerned about how consumers will hold up, citing continued uncertainty about the economy.
“I wish I had a crystal ball and could be more accurate, but I would figure to expect around 5% [sales growth in 2013],” Smith said. “You try and figure in what you think the inflation rate is going to be — we missed out on that this year, we thought it was going to be higher than it actually was — but we do think we’re going to see some inflation [in 2013], certainly in the proteins.”
K-VA-T, which operates 93 Food City supermarkets and 11 Super Dollar discount stores, has a busy schedule of projects for 2013, which will help sales as well, Smith said. Projects include two brand new stores, three replacement stores, two expanded stores and several major remodels.
Smith said Food City would also introduce new advancements in its e-commerce and mobile capabilities this year.
“We are going to see some things that consumers will like,” Smith said. “We are going to roll out a coupon-to-card application in the first quarter that I think our consumers will really like. We are also working on some mobile phone applications that people will like. Also we will be doing some online ordering with perishable departments. We’ve had rudimentary systems in the past but this will be a more robust system allowing people to make cake orders and party orders easier than it has been in the past.”
Smith admitted his optimism has been somewhat tempered by consumer uncertainty resulting in less momentum than he would like going into the new year. As a result, he said Food City would continue to emphasize value.
“I think the biggest challenge is the uncertainty we are facing right now,” he said. “People don’t know what’s going to happen to the taxes, and their cost of living, given what the government is going through right now. Unemployment is going to continue to plague a lot of locations, ours included.
“It boils down the economy, and how people feel about it, and whether we’re going in the right direction. And being on the sales floor through the holidays, I just don’t get the sense that people have a lot of confidence we’re in a rebounding economy,” Smith added. “We’ll see how it goes but I think 2013 will be another tough slog.”
Positive Sales at AG-Baton Rouge
Jay Campbell, president and CEO, Associated Grocers of Baton Rouge, La., said he expects the company’s network of independent supermarket operators to see sales and market share growth in the year ahead, although he cited several challenges.
“It is a tough environment out there right now because there are so many different competitors that all sell the same grocery products that we sell, but I think our stores have done remarkably well,” he told SN.
He noted that same-store sales on a unit-volume basis are up so far in the current fiscal year, which ends in May, compared with a year ago.
“We are going to see some internal growth from our current customers. We are pretty confident in that,” he said. “We are continuing to see them grow market share in their various areas.”
In addition to the challenges posed by competitors in AG’s territory along the Gulf of Mexico, Campbell said independent retailers are also concerned about the impact of legislative issues — especially the costs associated with the Affordable Care Act.
“I would say the biggest challenge right now is the expansiveness of the health care bill,” he said. “What does that really mean and portend for the entrepreneur in America? I think everyone is trying to wrap their arms around the steps they need to take, trying to figure out what costs they will incur as part of this quite burdensome bill.
“I think there is a lot of uncertainty around exactly what are the parameters, what are the timelines, what are the costs going to be, and what is the bottom line impact going to be on businesses. Any businessperson just wants to know: What are the rules of the game?”
Changes in tax laws were also largely an uncertainty until last week, when Congress agreed to a package of increases to stave off the “fiscal cliff,” but also preserved some tax incentives for business investment.
Data Points: Tax Changes Impact Retailers
“The uncertainty of it has been hanging around for such a long time, it really has been quite disappointing,” Campbell said. “You can imagine a person who is planning an expansion, an acquisition, a ground-up [new store construction] or any other type of consideration as it relates to their business, and not knowing what rules they have to play by. It’s quite amazing the position that businesspeople have been placed in by our own government.”
As far as plans for the coming year, Campbell said AG of Baton Rouge plans to “just stay focused on doing everything we can for our owners, and make sure that they remain the shopping preference in their marketplaces.”
Among recent innovations was the rollout of a smartphone app for retail customers that allows them to conduct business with the wholesaler.
“We use our retailers as a guide,” Campbell explained. “They tell us what they would like to be able to do, and we look at how do we make that functional for them.”
New Competitors for Fox Bros.
Pat Fox, president and owner of Fox Bros. Piggly Wiggly, Hartland, Wis., said he expects new competitors will make 2013 a challenging year, but said his chain of six Piggly Wiggly stores near Milwaukee can succeed if they execute on service and quality initiatives.
“We haven’t sat down to do our budgets yet, but based on what we’ve seen from the fourth quarter we expect to see a sales increase in 2013,” Fox told SN in early December.
“One of the biggest challenges in the Milwaukee market is going to be the large number of stores coming into the market,” Fox said, citing expected arrivals from new competitors including Wal-Mart, Woodman’s and Meijer. “Some of the impact will be in 2014 and not 2013, but we expect we will feel some of it in some of our locations in 2013. So one of our big challenges is to be gaining market share amid all the competitive pressure that will go on.”
Fox said his stores would distinguish themselves through customer service, a community focus and on specialty perishable items including proprietary bratwursts made at an in-store smokehouse. That operation will expand to additional products in 2013, Fox said.
“We are going to focus on marketing and growing the product lines we do in the smokehouse; we’re going to do a ham and some other things we don’t currently do now. That’s important for us because our bratwursts have become a signature, something we’ve won awards for, and you can only buy them from us.
“When I think of this coming year, I think there are a lot of places people can go to buy things, so you have to give them reasons to come to us,” Fox added. “So we have to continue to focus on doing the things we do well — delivering quality in the perishable departments, a quality experience for our guests, and also supporting the community.”
New Initiatives at Unified
“For our existing members that are strong retailers, whose results were pretty much flat in 2012, we expect growth of 2% to 3%. We’re also contemplating several corporate initiatives, which, if they are successful, could add 1% to 2% on top of that.
“But many retail members are experiencing added competition — from Wal-Mart Neighborhood Markets, from dollar stores and from so-called ‘e-commerce solutions,’ which don’t affect all categories within the stores but do impact certain categories, including supplements and some non-perishables like HBC.
“Given that added competition, we would not be surprised if some members have difficulty achieving any sales growth at all. So on a net basis, we’re expecting growth of 2% to 3%, but it’s hard to predict the impact of all the variables.”
Plamann said he sees two primary challenges to Unified’s ability to meet its goals: taxes and health care.
“We’re concerned about the uncertainties on our members of implementing elements of the Affordable Health Care Act. Many of them are of a size where they have a choice between taking the penalty or providing the care necessary.
“So we see uncertainties about tax changes and health care, and the direct impact on our business will play a large role in the results we’ll ultimately see.”
Plamann said Unified is contemplating several initiatives. “We’re continuing to work hard to expand our Market Centre business, which encompasses specialty foods, natural and organics, gourmet foods and ethnic foods, and we have some initial efforts under way to grow that business dramatically by exploring partnerships with other co-ops across the U.S. — to see if we can expand the business, not by warehousing products for others but by helping them establish similar businesses by providing marketing and other services to help them get into these businesses and share the distribution activity.
“We’re also looking hard at how we can provide additional support services to companies other than our own members. We’re not sure yet what those opportunities might be, but one thing we’re considering is expanding our logistics expertise. We plan to do a feasibility study during the next few months.”
Inflation a 'Wild Card' at Karns
Scott Karns, president of the seven-store Karns Foods chain in Mechanicsville, Pa., said he hopes to maintain sales and benefit from some inflation in 2013, but confessed the degree of inflation, particularly in meats, is a wild card.
“In same-store sales, we’re looking at about 2.5% growth,” Karns told SN. “We’re certainly anticipating some inflation. We’re looking to match sales year-to-year after inflation.”
While Karns said he would welcome some inflation, “part of the challenge is going to be on the protein side of meat — poultry and beef. The question is where those markets are going to go given the drought last summer and the reduction of herds. We’re kind of concerned there could be more inflation there than what the market is expecting, and how that will affect things.”
Karns said he expects a sales boost as a result of opening a new store in late spring or early summer — Karns’ eighth overall. And he said the chain will invest more in digital marketing in 2013 — in part because its major advertising vehicles have also gone that route.
“We expect this year that our marketing will go more electronic than it has in the past. Our local newspaper is going from a seven-day format to a three-day format, so that’s kind of changing our advertising strategy and we’ll be spending more on a digital capacity,” he explained.
Aggressive Growth at Coborn's
Some retailers are fortunate enough that their challenges for the year ahead relate to fulfilling aggressive growth plans.
Chris Coborn, president and CEO of St. Cloud, Minn.-based Coborn’s Inc., said the company’s expansion plans in North Dakota have inspired him to project sales growth of 6.8% in 2013, to about $1.3 billion.
That will include an estimate of about 2% same-store sales growth at the 47-store chain, he told SN.
In July, Coborn’s announced plans to build five new stores in the fast-growing Bakken region of western North Dakota.
“North Dakota is a prime market for Coborn’s to expand,” said Coborn, who noted that the company already operates six stores in the state, including three in the Bakken region. “Building five new stores in the Bakken will strengthen our brand across North Dakota and will bring new fresh food options to these rapidly growing communities.”
In addition, late last month Coborn’s also said it has acquired Mike’s Super Valu, an independent store in Watford City, N.D., and said it would transfer its employees to a new Cash Wise store Coborn’s is building in the same city. Terms were not disclosed. The new Cash Wise store is expected to open this summer, Coborn’s said.
“Mike’s Super Valu is a strong store with an outstanding team of dedicated employees,” Coborn said in a statement about the acquisition. “They have a long history of being a part of the city. They know their customers and the market, and are very involved with the community. Their understanding and involvement in Watford City will be invaluable as we move full steam ahead with our North Dakota expansion efforts.”
Coborn told SN the key challenges the company faces for its plans in the year ahead include construction timing and grand openings, as well as finding enough employees to staff the stores in the Bakken region.
Other initiatives the company has planned include cost optimization, “which ranges from managing our workforce, to streamlining our reporting, etc.,” Coborn said.
Wal-Mart Pressures Pro & Sons
Mike Provenzano, chairman, president and CEO of Pro & Sons Ranch Markets, Ontario, Calif., said he expects his company’s sales to be flat in 2013. Pro’s operates 11 upscale Hispanic-oriented stores — seven in Phoenix, two in El Paso, Texas, and two in New Mexico (Albuquerque and Las Cruces).
“Sales are looking pretty flat for 2013 — we don’t see any real growth,” he told SN.
One of the main reasons, he explained, is a more aggressive stance by Wal-Mart, particularly with its Ad Match program (that compares its prices vs. those of the market leader in each region in which it operates).
“Wal-Mart has really gotten its act together with the Ad Match program, which is causing a lot of havoc for conventional retailers. Wal-Mart is attacking conventional operators more than ever before with that program.
“In addition, Wal-Mart’s new management team is doing a better job merchandising the stores than ever before.”
But it’s not just Wal-Mart that’s making it tougher to operate, Provenzano added. “Competition in general is tough, with everyone chasing that dollar.”
Among his primarily Hispanic customer base, the first two weeks of each month are strong, he noted. “The welfare checks go for about 15 days, so the third week of the month is usually OK but the fourth week is bad. And now we’re seeing nationalities other than Hispanic depending more on government welfare.”
Among the general population, “people spent a lot of money shopping in December, but they will be hurting when the bills come in January.”
Provenzano said he expects to see employment improving in 2013, with minimum wages going up in several areas, including Albuquerque. “But that just means the retailer has to become more efficient to make up for that extra payout,” he added.
Unified Grocers, his Los Angeles-based wholesaler, is doing what it can to help independents like himself with more input on sales and marketing, “and we’re looking for more of that kind of support from our wholesaler,” Provenzano said.
“But a wholesaler can do only so much. Street money isn’t what it used to be, and brokers keep cutting back, with fewer people visiting corporate offices, so we think the first quarter will be especially tough and we’ll be flat coming out of it.
“Hopefully I’m wrong, but I see no opportunities for much growth.”
He’s also concerned about taxes on businesses going up, “and no one knows what impact Obamacare is going to have on us.”
Among his plans to keep sales up are “doing a better job of marketing and stressing healthy foods and fresh alternatives — basically just communicating more with consumers, particularly the next generation of shoppers.
“We plan to start to do more with local communities and the chambers of commerce and to work more with schools and neighborhood groups.”
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