Independent grocers navigated a challenging landscape during fiscal year (FY) 2023, as outlined in the “2024 Independent Grocers Financial Study” released by the National Grocers Association (NGA) in conjunction with FMS Solutions. Although inflation moderated throughout the year, the residual effects of previous price hikes forced many consumers to adjust their shopping habits, emphasizing the need for grocery retailers to rethink their strategies.
The study reveals a significant trend: more consumers opted to shop at various stores while reducing overall expenditures. This shift in behavior led to a marked slowdown in inventory turns, decreasing from 18.4 in 2022 to 17.2 in 2023. This indicates that less efficient circulation of products is becoming a pressing issue. Furthermore, the industry-wide store shrinkage rate held steady at 3.0%, while same-store sales saw a modest increase of 1.8%. This growth was primarily due to a 1.2% annual inflation rate rather than increases in unit sales.
In light of these challenges, independent grocers have demonstrated resilience through proactive measures. On average, these stores allocated approximately 1.8% of their sales to capital improvements, focusing primarily on remodeling existing stores rather than opening new locations. This strategic shift reflects an adaptation to the financial landscape—reinventing spaces to enhance shopping experiences rather than expanding their footprint.
Another essential factor highlighted in the study is the customer’s changing approach to pricing. An overwhelming 70% of shoppers reported comparing sales and promotions across different stores, while 86% actively looked for in-store deals. This growing trend necessitates a robust commitment to loyalty programs and digital marketing strategies. Independent grocers are increasingly shifting focus to these areas, realizing that retaining and attracting customers hinges on engaging them through personalized experiences and appealing offers.
However, labor challenges persist within the independent grocery sector. The study revealed a staggering associate turnover rate of 39.4%, pushing many operators—over half (56%)—to adopt self-checkout technology as a means to enhance operational efficiency. These technological integrations are essential to managing labor costs and improving the checkout experience for consumers.
Despite the adaptation strategies employed, the financials present a concerning picture. The average store recorded approximately 7,647 transactions per week, yet the average spending per trip remained unchanged. With gross margins tightening to 27.7%, the operational expenses—primarily due to rising labor costs—skyrocketed to represent 15.6% of sales, the highest level recorded thus far. Consequently, net profits plummeted to a mere 1.4%, reverting to pre-pandemic levels, while EBITDA fell to 2.77%.
As the independent grocery segment encompasses about 1.2% of the nation’s economy, generating over $250 billion in sales and providing 1.1 million jobs, the repercussions of these financial trends extend beyond individual businesses. The findings from the “2024 Independent Grocers Financial Study” are based on a detailed analysis of responses from 127 survey participants who represent 654 store locations, alongside financial benchmarks derived from a larger database of 434 independent grocers with 1,531 locations.
Industry executives will delve deeper into these insights during the upcoming NGA Executive Conference and Public Policy Summit scheduled for October 28-30 in Washington, D.C. Such platforms will facilitate discussions on the ongoing challenges and potential strategies for recovery and growth.
Independent grocers are more than just storefronts; they are integral components of their communities and the national economy. With their ability to adjust and innovate amidst inflationary pressures, these retailers are positioned to not only survive the current economic landscape but potentially thrive by better understanding their customers and leveraging technology to enhance the shopping experience.
As these independent operators forge ahead, their experiences provide valuable lessons for the broader retail industry, underscoring the necessity of adaptability and innovation.
