Years ago, the entire upper management team from our chain squeezed into a mandatory meeting. The CEO had one message: “Take nothing for granted.” He explained that a large competitor was moving into our market, and typically toppled even the best.
“Oh, not us,” we muttered. “We’ve been the top dog for decades. Our customers love us. We own the lion’s share.”
The presentation included a slide that listed the current top 20 food retailers and then compared it to the same list from 30 years prior. Only two retailers had survived over the decades.
“Right, just two,” the CEO said, as if reading our minds. “Us and (one other retailer).” He went on to explain that even though we were riding a long wave of success, we were also in a vulnerable position to lose huge market share.
Fast-forward to present day, and while the company fared well against the formidable competitor, it included painful changes, and twice as many added locations to retain top standing — but in the process still lost nearly 20 market share points.
Which is why it’s important to emphasize that grocers as a whole are not as permanent or profitable as some may perceive.
You’ve heard of razor-thin margins? That’s the grocery business. A typical chain (after paying for goods, rent, labor, energy, etc., and EBIT — earnings before interest and taxes) pockets just one to three cents on every dollar. That’s double-edge razor thin.
Oh, a chain can always raise prices if those pennies start to dwindle, right? We all know what happens next. That makes a chain less competitive.
Prices aren’t everything of course. A grocer has to focus on other facets to thrive and survive: Sales, quality, marketing, service levels (especially customer service), conveniences.
Internally, grocers must be vigilant by monitoring labor, minimizing shrink, controlling loss and inventory levels. It is likewise managed from the home office, through the distribution system and a hundred other critical control points. One to three cents.
Grocers, as their name implies, forge their destiny with lots of volume. However, all it takes is a few underperforming or mismanaged locations to start the downward spiral.
Perishables, notably produce departments, are key in carrying a store’s profitability.
That’s why pushing, promoting and supporting fresh produce, well, makes a lot of sense.
Armand Lobato works for the Idaho Potato Commission. His 40 years’ experience in the produce business span a range of foodservice and retail positions. E-mail him at [email protected].
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