2016 Independent Grocers Financial Survey - Study Highlights

Study Highlights Fiscal year 2015 was a turnaround year for many independent grocery retailers. Sales — A myriad of external factors made for a tough marketplace to aggressively grow sales. Independent grocers rated the impact of competition, the economy, healthcare costs and compliance, government regulations and interchange fees to have an increasingly significant impact on their businesses.
Weekly transactions per store per week were flat, putting more pressure on growing the basket in order to grow total sales. Up from 1.5 percent in 2014, independent grocers grew sales 2.1 percent in 2015. Additionally, significantly fewer retailers reported sales losses or gains below the rate of inflation.
Across the board, independents relied less on non-perishable sales, but saw a significantly higher contribution by fresh items, in particular meat and deli.
 Margins — The impact from competition by other conventional supermarkets caught up with supercenters as the top competitive threat to independent grocers. Despite the strong competition, retailers managed to slightly improve gross margins in the total store (27.26 percent) and most departments, in 2015. Multi-store operators, in particular, focused on margin improvement even if that meant below-average sales gains.
Expenses — Fiscal year 2015 marks yet another year of rising healthcare coverage costs among 71.0 percent of independents. Across all independent grocers, healthcare costs grew 10.2 percent. The ACA implementation complexity is increasingly driving independents to outsource compliance to payroll and other companies versus handling tracking in-house. Minimum wage increases combined with rising turnover is prompting concern over mounting labor costs. While independents managed to keep many operational expenses flat, the rise in labor and benefits line item caused total expenses to increase slightly.
 Profits and profit leaders —With same-store sales up, better margins and only a slight increase in expenses, the 2015 net profit result for independent retailers was much improved. While no means a record-setting year, independent grocery stores reversed a two-year decline in net profits. Each year, a group of retailers outperforms the rest of the field by a wide margin, the so called “profit leaders.” In 2015, these leaders averaged 4.09 percent in net profits, far ahead of the study average of 1.44 percent. Profit leaders placed a lot of emphasis on perishables, with higher sales contributions by produce, meat and deli. Additionally, profit leaders reported higher-than-average margins in these areas — driving fresh as an area of differentiation. They showed strong expense and shrink control disciplines in addition to a habit of reinvesting in their businesses. Many cited examples of store remodels, expansions, customer service training and other business fundamentals as ways to improve sales.
Operations —While the improvement in the economy helped drive sales, the recovering job market is causing employee turnover to start creeping up, particularly among part-time employees where turnover reached 42.2 percent. Independents focused on the fundamentals, including keeping inventory turns high and implementing programs to measure and curb perishable and theft-related shrink as much as possible. While shrink management programs are not yet widely implemented by independent grocery retailers, their payoff is evident in much lower than average shrink. Independent grocers also adapted their advertising allocation to marketplace demands by shifting funds from printed materials to digital, social and mobile marketing. Social media outreach has become the norm for independents of all sizes, with most citing several years of experience