What are the issues and trends keeping supermarket and convenience retailers up at night? Leslie Sarasin, president and CEO of the Food Marketing Institute (FMI); and Hank Armour, president and CEO of the National Association of Convenience Stores (NACS), presented their association’s research on the issues and trends impacting the industry last month at the PFMA Annual Conference in Bedford, Pennsylvania.
Sarasin presented FMI’s findings of the top five issues on supermarket retailers’ worry index. They are 1. Health care reform, 2. economy, 3. competition from non-traditional food retailers; 4. competition from traditional food retailers; and 5. food safety.
It’s no surprise that health care reform tops the list. According to Sarasin, in the 1970s, the U.S. looked like other countries with health care spending at approximately $380 per person. By 2014, health care costs skyrocketed to 17.9 percent of our total economy or $2.54 trillion.
The Affordable Care Act, passed by Congress in 2010, is significantly changing the health care industry and since the retail food industry requires considerable personnel to operate, the changes are creating difficulties.
FMI is actively supporting legislation that seeks to:
• Amend ACA’s definition of full-time employees as those who work 30 hours a week;
• Ensure Restaurant Menu Labeling is not expanded to include grocery stores; and
• Repeal mandatory auto-enrollment for health coverage.
The local and national economy is second on the worry meter. The number of Americans defining themselves as middle class fell from 53 percent in 2008 to 44 percent in 2014. Meanwhile, those defining themselves lower class rose from 25 percent in 2008 to 40 percent in 2014.
Sarasin shared a chart reflecting the annual revenue growth of 26 leading U.S. food retailers over the last five years.
“Mid market stores have, at best, experienced moderate growth, and in almost half the cases, recorded a loss,” Sarasin said. “The story is quite different on the high and low ends of the spectrum. Most upscale markets and value-driven markets have recorded strong revenue growth — with half in the double digit range.”
These middle consumers are either reaching higher for better quality and choice, or economizing and compromising on service and selection. This change is worrisome for these retailers and how they have traditionally marketed their business.
Retailers also need to worry about local and state government pushing legislation to increase minimum wage, paid sick leave and additional taxes.
Competition is number three and four on the worry index. Five years ago FMI started differentiating competition from traditional and non-traditional food retailers. In 2005, supermarkets captured 67 percent of the channel share and by 2013 their share was down to 51 percent. Supercenters captured a 22 percent share in 2005, which increased to 29 percent in 2013. In 2014, supermarkets gained some share back to 54 percent, while supercenters were down to 22 percent. Warehouse, discount, limited assortment and organic/specialty stores each lost a one percent of the channel share.
Consumers continue to explore various retailers for price, convenience and selection. One in 10 shoppers cannot name a primary store. They are weighing issues such as animal welfare, GMO-free, organic, locally produced, antibiotic free and others to determine what stores they want to patronize.
FMI’s Trends data found an increase in male shoppers and the rising millennial shoppers, who plan, eat and shop differently than their Baby Boomer parents. Competition is also increasing from tech-savvy shoppers who use their hand held technology to research and make purchases.
Food safety ranks fifth on the worry index. Ninety-one percent of consumers say they trust their grocery store to provide safe food products. That number increased from an 85 percent trust level in 2005. While 63 percent of consumers identify themselves as bearing the primary responsibility for ensuring the food they purchase is safe, 42 percent say their food stores are also responsible for making sure that it’s safe.
New regulations required by the Food Safety Certification and Modernization Act (FSMA) change the game for food safety compliance. Final rules will be issued in 2015 and 2016. FMI is working to sort through them and will provide retailers with detailed responsibilities. The stakes have never been higher for companies who are not in compliance. Retail food executives are even subject to jail time for through intent or negligence
The State of Convenience Stores
There was good news on the convenience store side of the industry in 2014 as store count was up by one percent and profits increased from 2013. The number of convenience stores rose from 151,282 to 152,794. Employee count increased from 2.20 million to 2.40 million. Inside sales increased by 5.3 percent from $204 billion to $214.9 billion, while fuel sales decreased 1.8 percent from $491.5 billion to $482.6 billion. Profits for in-store sales increased to 6.6 percent. Foodservice drove gross profits with an 11.1 percent increase. Meanwhile, cigarette profits were down by 3.1 percent.
Armour shared lessons the industry can take from coffee. During the recession, consumers went on a hunt for value-priced coffee. Starbucks sales were declining and convenience store retailers thought it was a great opportunity to obtain some of their share. What c-store operators didn’t account for was that cold and frozen drinks account for 40 percent of Starbucks sales. McDonalds captured that business thanks to their McCafé brand, which offers cold and frozen coffee options.
Credit card expenses rose just 2.3 percent in 2014 thanks to the Durbin Amendment and lower fuel prices, of which credit card fees are a large component. Overall, there was strong growth inside the store thanks to broadening of the store offer.
Armour describes the industry as under transformation. Sales are down for quick service restaurants such as McDonald’s, Burger King and Wendys. Meanwhile, sales for chains such as 5 Guys Burgers and Shake Shack have increased.
“Consumers are getting bored,” Armour said. “They want to know what’s new, what’s hot. Those stores offer a better burger for an increased price.”
According to Armour, Taco Bell has grown thanks to menu innovation. Even chains like 5 Guys that are experiencing good sales can suffer when newer offerings opening nearby. He said 5 Guys closed its first store in Dupont Circle since store sales declined after a new store opened across the street.
The takeaway for convenience stores is that brands have short life cycles. Constant menu innovation is vital for success. Armour said “be convenient and fun!”
While competition and blurring channels will continue to be a worry for the convenience store retailer, government regulation should be the biggest worry.
“The government is much more a threat to your business than competitive activity,” he said. “Government Relations should be viewed as an investment in your business. The days are gone where we can be passive. Engage with your national and state associations and with your elected representatives.
Coordinated action at the state and federal levels is vital for successful public policy initiatives.
NACS considers the following issues to be the top advocacy issues in 2015.
• Menu Labeling — Armour calls the requirements “horrific” and said the law, as it stands now, will go into effect on December 1.
• Data Security — Industry should worry about a liability shift for consumer notification after a breach. The banks are pushing retail liability for notification.
• Internet gaming — States want to introduce an online lottery.
• 40-hour work week
• Swipe fees — focusing on the future which will include mobile payments and the “un and under” banked.
• Litigating swipe fee reform — opt-out of the group program; Supreme Court denial of debit reform appeal.
NACS is working to refresh the image of convenience stores by inviting lawmakers to spend a day in a store learning about the operation and talking to customers. So far, 25 Congressman have visited stores. The visits are making an impact as the lawmakers leave having a better understanding of the issues facing the industry.
Sarasin presented FMI’s findings of the top five issues on supermarket retailers’ worry index. They are 1. Health care reform, 2. economy, 3. competition from non-traditional food retailers; 4. competition from traditional food retailers; and 5. food safety.
It’s no surprise that health care reform tops the list. According to Sarasin, in the 1970s, the U.S. looked like other countries with health care spending at approximately $380 per person. By 2014, health care costs skyrocketed to 17.9 percent of our total economy or $2.54 trillion.
The Affordable Care Act, passed by Congress in 2010, is significantly changing the health care industry and since the retail food industry requires considerable personnel to operate, the changes are creating difficulties.
FMI is actively supporting legislation that seeks to:
• Amend ACA’s definition of full-time employees as those who work 30 hours a week;
• Ensure Restaurant Menu Labeling is not expanded to include grocery stores; and
• Repeal mandatory auto-enrollment for health coverage.
The local and national economy is second on the worry meter. The number of Americans defining themselves as middle class fell from 53 percent in 2008 to 44 percent in 2014. Meanwhile, those defining themselves lower class rose from 25 percent in 2008 to 40 percent in 2014.
Sarasin shared a chart reflecting the annual revenue growth of 26 leading U.S. food retailers over the last five years.
“Mid market stores have, at best, experienced moderate growth, and in almost half the cases, recorded a loss,” Sarasin said. “The story is quite different on the high and low ends of the spectrum. Most upscale markets and value-driven markets have recorded strong revenue growth — with half in the double digit range.”
These middle consumers are either reaching higher for better quality and choice, or economizing and compromising on service and selection. This change is worrisome for these retailers and how they have traditionally marketed their business.
Retailers also need to worry about local and state government pushing legislation to increase minimum wage, paid sick leave and additional taxes.
Competition is number three and four on the worry index. Five years ago FMI started differentiating competition from traditional and non-traditional food retailers. In 2005, supermarkets captured 67 percent of the channel share and by 2013 their share was down to 51 percent. Supercenters captured a 22 percent share in 2005, which increased to 29 percent in 2013. In 2014, supermarkets gained some share back to 54 percent, while supercenters were down to 22 percent. Warehouse, discount, limited assortment and organic/specialty stores each lost a one percent of the channel share.
Consumers continue to explore various retailers for price, convenience and selection. One in 10 shoppers cannot name a primary store. They are weighing issues such as animal welfare, GMO-free, organic, locally produced, antibiotic free and others to determine what stores they want to patronize.
FMI’s Trends data found an increase in male shoppers and the rising millennial shoppers, who plan, eat and shop differently than their Baby Boomer parents. Competition is also increasing from tech-savvy shoppers who use their hand held technology to research and make purchases.
Food safety ranks fifth on the worry index. Ninety-one percent of consumers say they trust their grocery store to provide safe food products. That number increased from an 85 percent trust level in 2005. While 63 percent of consumers identify themselves as bearing the primary responsibility for ensuring the food they purchase is safe, 42 percent say their food stores are also responsible for making sure that it’s safe.
New regulations required by the Food Safety Certification and Modernization Act (FSMA) change the game for food safety compliance. Final rules will be issued in 2015 and 2016. FMI is working to sort through them and will provide retailers with detailed responsibilities. The stakes have never been higher for companies who are not in compliance. Retail food executives are even subject to jail time for through intent or negligence
The State of Convenience Stores
There was good news on the convenience store side of the industry in 2014 as store count was up by one percent and profits increased from 2013. The number of convenience stores rose from 151,282 to 152,794. Employee count increased from 2.20 million to 2.40 million. Inside sales increased by 5.3 percent from $204 billion to $214.9 billion, while fuel sales decreased 1.8 percent from $491.5 billion to $482.6 billion. Profits for in-store sales increased to 6.6 percent. Foodservice drove gross profits with an 11.1 percent increase. Meanwhile, cigarette profits were down by 3.1 percent.
Armour shared lessons the industry can take from coffee. During the recession, consumers went on a hunt for value-priced coffee. Starbucks sales were declining and convenience store retailers thought it was a great opportunity to obtain some of their share. What c-store operators didn’t account for was that cold and frozen drinks account for 40 percent of Starbucks sales. McDonalds captured that business thanks to their McCafé brand, which offers cold and frozen coffee options.
Credit card expenses rose just 2.3 percent in 2014 thanks to the Durbin Amendment and lower fuel prices, of which credit card fees are a large component. Overall, there was strong growth inside the store thanks to broadening of the store offer.
Armour describes the industry as under transformation. Sales are down for quick service restaurants such as McDonald’s, Burger King and Wendys. Meanwhile, sales for chains such as 5 Guys Burgers and Shake Shack have increased.
“Consumers are getting bored,” Armour said. “They want to know what’s new, what’s hot. Those stores offer a better burger for an increased price.”
According to Armour, Taco Bell has grown thanks to menu innovation. Even chains like 5 Guys that are experiencing good sales can suffer when newer offerings opening nearby. He said 5 Guys closed its first store in Dupont Circle since store sales declined after a new store opened across the street.
The takeaway for convenience stores is that brands have short life cycles. Constant menu innovation is vital for success. Armour said “be convenient and fun!”
While competition and blurring channels will continue to be a worry for the convenience store retailer, government regulation should be the biggest worry.
“The government is much more a threat to your business than competitive activity,” he said. “Government Relations should be viewed as an investment in your business. The days are gone where we can be passive. Engage with your national and state associations and with your elected representatives.
Coordinated action at the state and federal levels is vital for successful public policy initiatives.
NACS considers the following issues to be the top advocacy issues in 2015.
• Menu Labeling — Armour calls the requirements “horrific” and said the law, as it stands now, will go into effect on December 1.
• Data Security — Industry should worry about a liability shift for consumer notification after a breach. The banks are pushing retail liability for notification.
• Internet gaming — States want to introduce an online lottery.
• 40-hour work week
• Swipe fees — focusing on the future which will include mobile payments and the “un and under” banked.
• Litigating swipe fee reform — opt-out of the group program; Supreme Court denial of debit reform appeal.
NACS is working to refresh the image of convenience stores by inviting lawmakers to spend a day in a store learning about the operation and talking to customers. So far, 25 Congressman have visited stores. The visits are making an impact as the lawmakers leave having a better understanding of the issues facing the industry.
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