By Ron Margulis, Managing Director, RAM Communications
The National Grocers Association held their annual convention and trade show in Las Vegas last week and attracted five percent more attendees than last year. That, in and of itself, is an accomplishment in today’s trade show environment, but the show also provided insight into the current state of the independent segment of the supermarket industry, discussing things like the unique value proposition these operators are delivering to the market and how they are winning the battle with some chain stores.
During her State of the Association address, N.G.A. chairperson Carole Bitter announced that membership in the association is up five percent over last year and exhibits at the show were up 17 percent. Bitter, who is a first-class retailer with eight stores in western Pennsylvania, focused on the challenges and opportunities ahead, including achieving a level playing field for independent retailers and wholesalers.
“As Chairwoman, it has clearly been an exciting and productive year, as N.G.A. launched numerous successful governmental initiatives, educational and research projects, and operational services,” she said. “2008 will be a year of continued pricing pressures as economic instability, fuel, commodities and aggressive competition remain high.”
Ms. Bitter and several speakers that followed her covered a myriad of issues impacting community-based retailers and their wholesale suppliers, including labor costs, health care costs, loss prevention technology, energy costs and more. The workshops on sustainability, which features a laundry list of projects being undertaken by leading suppliers, and pricing technology were very well attended, as were the morning breakfast sessions – even a late night in Vegas didn’t keep theses grocers from a 6:55 AM start.
Competition was also in the air, but for once the main focus was not Wal-Mart, but that interloper from Britain, Tesco’s Fresh & Easy. Several dozen attendees visited one or more of the eight stores in greater Las Vegas and the feedback was mixed – some saying Fresh & Easy will be a formidable competitor when they get the kinks worked out and others asking what the big fuss is about.
Discussion Questions: What do you see as the greatest challenges for independent supermarket operators in the next few years? How do you expect most to fare during the presumed economic downturn?
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Discussion Questions
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If anyone can survive an economic downturn, it’s the small guy. Independents have the ability to cater to their individual markets more efficiently than larger chains. They can also provide better service and can build stronger customer relationships which is key in sailing through troubled waters.
It is really up to the owner to capitalize on this concept. A strategic plan is needed for the independent to establish itself as a key player in the community.
Pandering is not my normal purview, but in this case I have to jump on the bandwagon of commentators who think the American Independent is doing just fine overall. They continue to demonstrate that personal attention to the business and listening to their own communities is a strong competitive advantage.
Having said that, I’d like to push off on a point Ryan made. He called for “…adopting definitions more appropriate to their situation…” as an attitudinal change independents need to make. Being extremely fond of analogies (as a substitute for original thought–some say!) I’d offer this–the change independents need in how they define themselves is akin to the change that happens when retailers stop “selling private label” and start “marketing proprietary brands.” It’s a whole new attitude, the change is unmistakable, and people will pay for it.
The biggest challenge facing independents is COURAGE.
I would actually further define this as an acronym for survival as follows:
C onsumer shopping experience – make it unique;
O rganizational structure – don’t become top heavy;
U niqueness – not only product selection but service;
R etail pricing strategies – understand price sensitivities;
A rt and science of shelf management – it’s not just products;
G oing beyond the four walls – reach into the community;
E nergy and enthusiasm – it all starts with people!
Will operating an independent retail establishment be a challenge? You betcha. But my belief is that the strong will thrive if they continue to deliver on their promise of something special for their loyal patrons.
For more time than I care to remember I’ve been bullish on the independents. Each decade has brought its own challenges and this one promises to be no different.
The single greatest challenge to the independent retailer is defined by the limits of his or her imagination. I am convinced that “independent retailers” will provide the majority of innovations we’ll see in the retail food industry for the near-term future.
That said, the biggest challenge seems to be how will the independent movement define itself? For years I’ve argued that the major trade associations and many CPG companies have failed to provide an adequate definition of “independent.” As a result, as independent operators like KVAT became successful they somehow began being viewed as chains. The bottom line? Success meant a company couldn’t stay in the independent fold.
Of course the National Grocers Association has moved much closer to solving the problem by adopting language such as “community-based retailing” to describe its members but even this more expansive definition is sometimes linked back to old rhetoric as in, “independents and community based retailers believe…”
Who’s to say a regional or even multi-regional company can’t still be independent?
The same problem surrounds logistics-based definitions such as wholesaler supplied. And, speaking of wholesalers, for many independents that’s another challenge. Will the wholesaler of the future support independent banners in the same way they did in the past? That’s unlikely. Could many independents find their greatest competition coming not from Wal-Mart but their own wholesaler? Much more likely.
What’s needed is a renaissance in thinking about the independent movement. We have to drive a stake through the hearts of old thinking about independents once and for all and adopt dynamic, innovative definitions more appropriate to their situation. And, then independents need to rally around some collective “big ideas” about their future. Unless I missed it, there has been no dramatic clarion call rallying the independents to common cause. Being anti-Wal-Mart doesn’t meet my litmus test. Negation (no matter how necessary) is never as inspirational as affirmation.
Independents need to begin defining the terms of the debate. And–like this year’s battling political parties–they need to find practical ways to adopt a “big tent” view of themselves. It’s easy to be an underdog. The problem is that after awhile you might start believing your own press releases. Independents don’t have to apologize to anyone. The prize is theirs for the taking. All they need is a strong unified voice and a compelling argument. They’ve got the latter. It remains to be seen if they’ll find the former.
The greatest challenge for independent supermarket operators is being unique–truly unique–and service-minded. They must develop and maintain a magnet-like quality that will bring customers past other supermarkets and supercenters into their stores. It can be done but not easily. Just look at what Trader Joe’s and Whole Foods have done with uniqueness and service.
The current economic situation can be used to the Independents’ advantage IF they target their current customers and potential new customers with the right reasons to shop them. Emphasis on service and quality along with proximity to stores for quick trips, gas savings, etc, will keep them competitive.
Having attended NGA, I saw a group of dedicated, very competitive owners who are relishing the challenges of 2008!
Jericho has identified the other sore point.
Who said that at eleven stores you magically change identity? Well…Progressive Grocer and FMI said it about a thousand years ago. I’m not sure the 10 or fewer model was ever appropriate in the past but I’m absolutely sure it’s worse than meaningless today. Store count does not an independent nor chain make.
Our thinking MUST get more sophisticated if independents are ever going to enjoy the FULL credit they deserve. Just imagine how little things like trade budgets might be redistributed if–as an industry–we managed to jerk our collective heads out of the 19th Century and shed the “chains” that confine our thinking!
Not sure why responders didn’t really answer your questions, Ron. Maybe because Ryan moved the needle from the negative to the positive side of the dial. I resoundingly echo all the acknowledgments of strength and opportunity.
Regarding your questions, in my experience independents’ biggest challenge has traditionally been financing. If the economy continues on its current path, that could be a double whammy for independents. The other hit could be the loss of 5 – 15% of their business to lower-priced operators. This means that the independents’ relationships with financial institutions need to be solid, right now, to remain afloat after the storm.
Raftery has a good point. Independent retailers must be real solid right now. In other words, they must be able to account for all the cash they have on hand and have a positive sales record in order to qualify for the loans necessary to make needed competitive changes. Many cannot. Unfortunately, some of their cash is in coffee cans buried in the back yard, produced by an off-the-clock extra register that’s not included in financial reports. This makes the enterprise look bad on paper, and therefore not loan-worthy. I’ve worked with many Independent retailers who had the money to expand but who could not justify its existence to any bank from which they needed an ancillary loan. By diverting sales from their official reports, they made their businesses look bad from an accounting point-of-view. “No loan for you!”
Doron’s comment illustrates the problem. Why do some of us still automatically think of the independent as “the small guy” when in fact they might be the dominant force in their market?
The fundamental way an Independent Business, no matter what industry, differentiates itself is by presenting its customers outstanding exceptional value. By knowing its customers better and having the flexibility to be responsive to their needs, the Independent Business thrives.
Having said that, the biggest challenge the Independent Business faces is controlling their operating costs. These costs range from merchandise purchases to service costs for technology support, accounting services and legal fees. But there is a truly bright spot in this scenario. Many of the services a small business requires are becoming accessible over the Internet, from merchandise auctions to accounting services. This “federation of services” creates a situation where the cost to an individual subscriber will be less than the cost for direct service. This advantage used to be confined to chain stores who had the advantage of “corporate services.” With the universal reach of the Internet, independents can take advantage of centralized services without the operating constraints that come from being part of a larger corporation.
Viva the Independent!!!
The executives and staff at NGA should receive kudos for their foresight and leadership. They have brought excitement, best practices, hope and value to the small independent retailer and chain. NGA gets better every year.
I’m quite surprised, and gratified, by the generally positive expectations of independents. In any business, what’s between your ears is more important than all the rest combined. The reality is that the most successful supermarket in America is Stew Leonard’s–an independent. Sure, some people are beginning to take note and copy. But why didn’t Stew Leonard do more to expand the business? Probably not a lack of opportunity, but of the motivation to do it. Why go through all that when you are doing just fine, thank you.
The same is probably repeated in many independents across the country. On the other hand, ever seen an independent hanging on by their toenails–or slipping further? But then there is Winn-Dixie and Kmart, too.
Indies will struggle with the same issue the major, more traditional grocers have been contending with now for some time; developing their OWN brand and not being just a showroom for vendors.
This takes the ability to create value in areas other than price, like outstanding product, service, store design, music, great merchandising and even delivery.
They can do it. The great part is, even in slow times, people still need to eat…and eating at home looks more attractive than ever.
This year’s NGA convention was a solid one and its atmosphere reflected what I perceive to be the underlying vitality of the independent supermarket operator. Each time I attend this event, I come away convinced that the leaders of NGA member companies are the smartest people in our industry. Why? Because just to survive–much less prosper–they must be masters of so many disciplines.
Independents know their shoppers expect them to meet or exceed the service and pricing standards established by their much larger corporate rivals. They know their shoppers expect community involvement, tailored assortments, and modern amenities on par with those at deep-pocketed chains.
Successful independents are experts on finance, real estate, consumer psychology, merchandising, marketing, and human resources. They are intellectually curious about the grocery business and relentless in their pursuit of continuous improvement.
Like Ron, Ryan and most others above, I came away with a mostly positive assessment of the state of the independent grocer. If they keep their minds open they stand to remain a force to be reckoned with for many years to come.
There is no such thing as an economic downturn in the supermarket business. Everyone has to eat so business is always great. There is such a thing as poorly run retailers. Therefore, the economy is not to blame but rather incompetent retailers are. The biggest challenge I see with well run independents is the continuation of management when senior management retires. Often well run retailers are ruined when sold to national chains or private equity groups.
Independent grocers who own their real estate are much more likely to survive competition, management turnover, shifts in the public’s eating habits, and problems of the American economy. The #2 issue is for unionized grocers: what can you do, in conjunction with the union, to get the nonunion grocers organized by the union ASAP?
The definition of a chain supermarket is ten locations or more. Fewer locations, suiting the entrepreneurial spirit, denote “Independents.” This includes bodegas, health food stores, boutique eateries, and every self-started meat, produce, and convenience food seller who chooses the designation. (There are tax advantages.) Any increase in the number of Independents and the subsequent increase in attendance at the NGA Convention must include them and the significant influx of neighborhood Hispanic food business owners.
To me, Independents will always rule. My Independent food retail experience includes several years with Fleming Foods, SuperValu, and 7-Eleven. I know these guys a little bit and admire them tremendously. Guts, personality, quality, and a little shopper romance. Historically, the heart of successful Independent ventures. From my point of view, it was about the meat guy. The butcher was always the heart and soul of Independent supermarkets, and they were most often chosen by wholesalers to plant new stores (“I’ve got a nickel and a nail and my brother can weigh beans”). You could look it up.
Independent supers are mostly about romance, though. Female shoppers are made to feel good about being there, aside from saving three cents on a couple of items to justify their choice of stores. The owners and butchers make sure they feel cared-about and receive maximum attention.