FMS Solutions Holdings LLC (FMS) and the National Grocers Association (NGA) released their annual “Independent Grocers Financial Survey,” the latest edition covering fiscal year 2016. The study, now in its 12th year, found Independent grocers reported that their sales were down 1.62 percent in 2016 compared to 2015.
Food at home deflation across all categories, especially in meat and dairy, had a negative impact for US retailers. As a result, independent grocers' net profits were lower than one percent, at 0.98 percent compared to 1.44 percent in fiscal year 2015.
Margins held steady at over 27 percent and expenses came out at 23.04 percent of sales in 2016. Independent grocers were able to manage their expenses despite labor and benefits increasing to its highest percentage of sales at 14.84 percent. The top 25 percentile, or the profit leaders, managed to grow their net profits over the previous year, showing an increase of 4.7 percent.
“While 2016 was a disappointing year for net profits, the independent grocer has proven its ability to recover in the past,” said Robert Graybill, president and CEO of FMS. “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.”
Falling unemployment and a higher turnover is one reason independents' labor and benefits continue to increase. Independent grocers rated competition from other retailers as the biggest factor affecting their bottom line, and health care costs as the second most cited concern.
“The supermarket business is not for the faint of heart. Low profit margins and constantly changing consumer preferences make it challenging even for the best operators,” said Peter J. Larkin, president and CEO of NGA. “But as independents continue to invest in their local communities and work diligently to stay ahead of rapidly changing consumer trends, they are differentiating themselves in a fiercely competitive marketplace to become shoppers’ stores of choice.”
The survey covered over 100 retailers in 33 US states and seven Canadian provinces. The study's goals are to gauge the financial performance of independent grocers and put it context with economic, political, and competitive factors. This report also examines how the profit leaders operate their business differently, such as their inventory and shrink, and generate more net profit.