BrainTrust Query: What should New Orleans' grocers do roughly one year after Katrina?
By David Livingston, Principal, DJL Research
Even before Hurricane Katrina, New Orleans was never considered a normal retail environment for supermarkets.
Two of the country's most troubled supermarket chains, Winn-Dixie and A&P, were in the rare position of being the market share leaders. In most other markets, these chains had long been displaced as market leaders, particularly in Dixie where Wal-Mart typically rules.
The Crescent City was also unique in the number and popularity of independent supermarkets that prospered there. Many, in fact, had an almost cult-like following.
Since Katrina, the definition of normal has changed. As citizens of New Orleans became displaced after the storm, suburban populations around the city began to swell.
In those areas, Winn-Dixie store sales were comping up in the range of 30 to 40 percent while others saw increases generally around 15 percent. This, I believe, was due in part to Winn-Dixie's strong presence in New Orleans. Impressively, Winn-Dixie and others were able to achieve sales gains with fewer employees and shorter hours of operation.
In New Orleans, most of the supermarkets that reopened after the storm are clustered in the Uptown and Garden District areas near the Mississippi River.
A few other stores in Orleans Parish have opened as well but about half of the pre-Katrina supermarkets remain closed. Previously, these stores drew most of their business in from a one or two mile radius. Now, with many areas of the city void of supermarkets, it is not uncommon for customers to come from a five or six mile radius.
I don't think any supermarkets have yet to reopen in St. Bernard Parish, to the east.
Sales volumes appear to be quite strong at the stores that are open. This is due to the reduction in competition, the influx of recovery workers and former residents returning on weekends to do home repairs. In a normal market situation, new supermarkets should be opening.
Many that would like to reopen stores have not yet been able to due to a number of factors. Here's a short list of the many problems retailers are facing in New Orleans:
1. Many are still waiting for their insurance proceeds.
2. There are difficulties in determining how high off the ground new buildings will need to be in preparation for future storms.
3. Stores are developing new security measures to prevent a repeat of the severe looting that took place after Katrina.
4. Areas that suffered the most damage are being repopulated at a slow pace. Some reports have put into question if some areas, such as the heavily damaged Ninth Ward, will ever be fully repopulated.
5. There is a severe labor shortage and the new minimum wage is in reality about $10 to $15 per hour. This has occurred even though unemployment remains high. (I still haven't figured out why unemployment is so high with such a heavy demand for labor.)
6. Insurance costs have significantly increased.
I find myself wondering - if I were a retailer that had operated successfully in New Orleans prior to the storm - would I be better off focusing on reopening in the city or building stores in suburban areas where the population has gone? Winn-Dixie certainly makes an argument for the latter with sales in its suburban locations comping up to 40 percent higher.
Discussion Questions: What is your prognosis for the health of grocery retailing in New Orleans? How will the retail environment and surrounding areas change as a result of Katrina? What would you do if you operated a store or stores in areas hit by Katrina?