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Consolidation, culture change on horizon for independent grocers

Deflation, improving employment rates putting stress on bottom lines

In the wake of downward trending sales and deflation across all product categories, significant shifts in strategy might be the best remedy for North America’s independent grocers, according to the results of a newly released survey of independent grocers.

“In the old days, [independent operators] were all taught, if you fix your topline everything else fixes itself,” said Robert Graybill (pictured), president and CEO of FMS Solutions Holdings (FMS). Graybill feels now is the time to prioritize cost reduction and bottom-line health as opposed to the traditional focus of revenue generation.

“Ultimately, we have to figure out how to get the customer the same experience at less cost,” he said.

That need for change was highlighted in the recently released 2017 Independent Grocers Financial Survey, which was conducted by FMS and the National Grocers Association (NGA).

The report found that sales dipped 1.62% between 2015 and 2016. It also labeled falling unemployment and higher turnover as pressing issues for the industry because of their impact on compensation requirements.

Increased benefits and healthcare costs ranked second only to competition from other retailers as leading threats to an independent grocer’s stability.

There was some positive news amongst the findings, however. The top 25 percentile of profit leaders managed to grow year-over-year net profits at a rate of 4.7%. However, the ultimate takeaway was a need for consolidation and restructuring around the industry.

“While 2016 was a disappointing year for net profits, the independent grocer has proven its ability to recover in the past,” said Graybill, via a release that accompanied the report.

“We expect to see some continued consolidation as a result of tough competition from both online and new brick-and-mortar retailers, but the flexibility and ingenuity of the independent is clear by the results of the profit leaders and serves as a beacon of direction that others can follow to excel as well,” he said.

“With consolidation comes cost reduction and that’s not usually a thing you focus on,” Graybill said while expanding on his comments. He stressed that any staff trimming must stick to “non-customer centric” roles as the guest experience will need to remain a strength in the face of internet shopping and deflation.

“The supermarket business is not for the faint of heart,” said NGA’s President and CEO Peter J. Larkin in a statement. He also addressed the obstacles that are hampering the more than 100 retailers surveyed across the United States and Canada. “Low profit margins and constantly changing consumer preferences make it challenging even for the best operators.”

Graybill said that at least one of those changing preferences could be converted from a weakness to a strength. He feels that the growing demand for internet-based and digital shopping experiences can allow grocers to minimize their advertising budget without sacrificing effectiveness.

If Millennials want digital advertising, Larkin feels that retailers should be eager to adapt to the more cost-effective route of marketing.

Larkin also expressed optimism for the sector’s future.

“As independents continue to invest in their local communities and work diligently to stay ahead of rapidly changing consumer trends,” said Larkin in the statement, “they are differentiating themselves in a fiercely competitive marketplace to become shoppers’ stores of choice.”

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