The 2020 Independent Grocers Financial Survey, a joint study between the National Grocers Association (NGA) and FMS Solutions, found that 2019 was a solid year for independent grocers, which positioned them well for upheaval from the pandemic.
“Independent grocers started to see positive trends pre-pandemic, which is a great sign of the strengthening,” said Robert Graybill, FMS CEO and president. “While the overall numbers were up, it was the profit leaders once again driving those increases. Their financial performance and operational execution served as a building block to respond to the extraordinary spikes in traffic, sales and engagement during the COVID-19 pandemic.”
Photograph courtesy of FMS Solutions
With a strong economy and low unemployment fueling consumer spending, independents saw a 2.5% increase is same-store sales last year with more than half (56%) improving same-store sales growth, with multi-store operators seeing slightly higher growth than their single-store counterparts.
These robust gains were achieved based on higher inventory turns, at 18.7x for the total store, hand-in-hand with improved margins that reached 28% across departments. A focus on inventory management led to a reduction in total store shrink at 2.9%.
The tight labor market led to an increased 19.5% turnover rate among full-time employees and 63.2% for part-time staffers. However, personnel related costs and the total labor and benefits expenses decreased slightly to 15.7% of total 2019 sales. Rent, utility costs and a few other expense areas also were down, which helped reduce total expenses slightly to 28.8% of total sales.
Top 25 Driving Performance
The increase in sales and reduction in costs contributed to a significant improvement in net profit before taxes from 0.63% in 2018 to 1.05% in 2019. While the independent sector overall improved, the results show continued bifurcation in the market with operators in the top 25th percentile continuing to greatly outdistance their counterparts. They saw improved average profit, while the bottom 75 percentile did not see a change in profits.
Profit leaders averaged 5.3% net profit before taxes. The total store gross margin among profit leaders is 2.1 percentage points higher than that of the retailers in the bottom 75th percentile and total expenses, excluding the costs of goods and labor, were more than 1.7 percentage points lower.
Ahead of the pandemic, independent grocers were investing in their stores in 2019, increasing capital expenditures to 1.96% of sales. More than a quarter of independents remodeled at least one store in 2019. More importantly, independents invested in e-commerce, with 64% offering an online shopping component, up from only 32% in 2018, a move that positioned them well for the upcoming year when the pandemic ushered in a boom of online grocery shopping. Many (30%) offer both delivery and pickup, and 26% offer pickup only.
Well Positioned for 2020
The pandemic has been a boon to independents with two of the biggest weeks in grocery retailing occurring in mid-March and elevated everyday demand has driven gains well above the 2019 base level ever since. Shoppers are taking fewer trips, but are spending more per trip, which has spurred a 13.3% increase in total store sales for the first half of 2020.
“Alongside the important role in feeding America’s communities, the current pandemic has illustrated the agility and resiliency of independent grocers. As the supermarket industry continues to navigate these changes, independent grocers are in a unique position to find innovative and creative ways to better serve their customers,” said NGA President and CEO Greg Ferrara.
Among the changes the pandemic wrought include:
- 100% bought additional disinfecting and cleaning supplies.
- 96% provided employees with masks.
- 84% purchased and installed plexiglass shields in one or more departments or front-end.
- 66% changed store hours for sanitation, senior/first responder hours, etc.
- 85% paid overtime expenses during the pandemic, with 71% citing a lack of available employees prompting overtime for those willing/available to work.
- 85% paid hero pay and other bonuses and incentives, but 93% were non-permanent changes.