LAS VEGAS — Independent retailers see the economic downturn as a potential opportunity to boost sales rather than as a cause for anxiety, according to a sampling of operators attending last week's National Grocers Association convention here.
“When the economy gets a little off-center, people think about buying food and eating more meals at home rather than heading to a restaurant or fast-food outlet,” Bob Harmon, vice president for the customer at Harmon City, Salt Lake City, told SN. “The impact of higher energy costs, higher health insurance costs and other increasing costs may make customers think about their purchasing patterns more than usual, and while they may make a choice for greater value in what they buy, they're still filling their baskets, and we haven't lost any rings per customer in terms of dollar values.”
The convention began as new data emerged last week indicating that the U.S. economy may have already entered a recession. The Institute for Supply Management's index of non-manufacturing business activity — regarded as a measure of the performance of the service sector of the economy — fell in January. It was the first time in 58 months it has done so.
The contraction of service-sector activity led many analysts and observers to speculate that the U.S. Gross Domestic Product might have seen negative growth in the fourth quarter and could decline again in the first quarter, meeting one definition of an economic recession.
Attendees at NGA said they see some concern reflected in their customers' behavior, but many operators said they are well positioned for a downturn.
Frank Kuhn, president of Mallard Markets, a single-store operator in Lehighton, Pa., said his customers are anxious about the economy “and trying to pay their fuel bills and higher energy costs while still being able to buy groceries.”
“But that's affecting us in a positive way, because we're finally seeing a swing from eating out at restaurants to coming back to the grocery store,” he said. “We're seeing larger basket rings than we were a year ago — an increase of about $2 per ring in some cases, although our customer count is down. So they're coming in less often, but when they do come in, they're buying more food that they intend to eat at home.”
Kuhn said he's not doing anything differently to meet changing consumer patterns. “We're sticking with the same marketing plan we've had,” he indicated, “though we are looking at adding hot foods, because people are so time-starved that they're looking for something quick to pick up in our store, and we see the value of selling them hot foods at the grocery store instead of sending them out to buy it at Boston Market.”
Carole F. Bitter, chairwoman of Friedman's Freshmarket, a six-store operation based in Butler, Pa., also said she sees more people shopping at her stores rather than spending the time and money to go to fast-food or quick-serve restaurants.
“So they're eating at home more, which is much healthier and less expensive, or carrying a homemade lunch to work with them,” she said. “And with less disposable income, it's certainly more important to spend some of that money at the grocery store than at a restaurant.
“We've been offering prepared meals through our delis for years, and that's worked for us over time and it's working for us now,” she told SN.
Archie McGregor Jr., owner of McGregor IGA stores, a three-store operator based in St. Maries, Idaho, said he views the economic downturn “as an opportunity for independents to be better than ever, because consumers are looking for loyalty and someone they can trust.”
Leo Braido, director of sales and marketing for Riesbeck's Food Markets, St. Clairsville, Ohio, told SN his company is approaching this year “with cautious optimism, given all the uncertainty involving the economy, the war in Iraq, the presidential election and the competitive pressures we face. What we're doing is trying to focus on our business and avoid distractions.”
Braido said he has not seen any trading down among customers at the 15 Riesbeck's stores. “What we are seeing is that they're doing less discretionary spending on items like soft drinks, salty snacks and ice cream, and we're feeling that a little bit.”
Johnny Farmer, owner of Farmer's Foods, a nine-unit operator based in Chase City, Va., said he's anxious about the outlook for his business this year “because of the trends we see in the economy. We cater to blue-collar people, and they are especially hurt by high fuel prices that are double what they were a year ago.”
To help consumers overcome some of these concerns, Farmer said his stores initiated a program in mid-2007 that enables them to earn gas credits based on what they buy — usually selected from items on promotion, he indicated.
“We're also seeing a lot of trading down to private label, so we increased our private-label allocation on the shelf a couple of months ago when it became obvious the economy wasn't going to turn around, and that seems to be working for us.”
Jim Baugher, general manager of Food Emporium, a one-store operator in Lynn-wood, Wash., near Seattle, also said he has some anxieties about the outlook for his business this year “because of the uncertainty over the economy and because certain aspects of our business are suffering as consumers have less to spend.”
Customers at his store have been buying fewer hardware items and other general merchandise over the last six months, Baugher said, “and as a result we're buying differently, bringing in fewer specialty foods like dipping sauces and high-end chocolates.
“Because we're seeing less frequency in those kinds of items, we're buying less deep, bringing in three varieties instead of six, for example. And we're also trying to find what price points will move some of these items better.”
One retailer who isn't worried about the economy is Steve Stumpff of Grocery Kart, Broken Bow, Neb., who told SN he expects his three stores to be “in good shape this year, because they are in rural, agricultural areas, and agriculture is making a ton of money. There's been an upturn in agriculture, which is much better than a downturn, so I'm not worried about the business.”