Source: iStock | J Golby
Have Independent Grocers Figured Out How to Beat Their Chain Store Rivals?
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
Rampant consolidation — including the proposed granddaddy of all mergers between Kroger and Albertsons — may lead some to believe that independent grocers are a dying breed. But in many ways, the proliferation of cookie-cutter chain stores only makes consumers appreciate small, locally-owned independents that much more.
A recent Fast Company article claimed that lockdowns and other pandemic changes “re-emphasized what makes [independent retailers] so resilient: the power of human connection, the thrill of discovery and the advantage of agility.”
Leon Merck, COO of Wisconsin’s Nilssen’s Foods, believes independents “mostly have advantages,” putting flexibility near the top of the list.
“We’re really in touch with the needs of the customers we serve in a way that big chains simply can’t be,” said Dave Ball, third-generation owner of Kansas City-based Ball’s Food Stores.
In tandem with their strong community ties, “Independents can also react very quickly to
changes because the decision-makers are all right here — there’s no bureaucracy — which is a huge advantage,” said Mr. Ball.
Larry Mihalko, president of Landis Supermarket, based in Telford, PA, admits keeping stores updated with the latest technology is a challenge for independents. Whether loyalty programs, e-commerce, self-checkout or digital coupons, “Adding and then maintaining any of those services requires a lot of dollars.”
Another challenge is their inability to buy at the same prices as their big chain counterparts. “No one likes to talk about it because it should be a level playing field,” said Mr. Mihalko. “But it’s not.”
Working with a wholesaler or being part of a cooperative can boost an independent’s purchasing power, as well as aid in staying competitive in areas such as customer insights and technology.
Mr. Ball still says one of his biggest hurdles is developing the next generation of leaders.
“Bigger chains have entire human resources departments for that, but as an independent, it falls on the store manager, who has a thousand other things to do,” he explained. It’s not
always easy to pull off, “But I want store managers out on the floor teaching, training and coaching — not behind a computer — because building relationships not just with customers but with teammates is what’s most important.”
Discussion Questions
DISCUSSION QUESTIONS: Are independent grocers getting better at leveraging their advantages to compete with chain store competitors? What are the keys for small grocers to remain successful in markets where they compete with rivals with more resources?
Poll
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Independent grocers can differentiate and succeed – the key is not to compete solely on price where the big chains have a major advantage. The blunt truth is that a lot of American grocery chains are not very good at creating compelling experiences. Even players like Kroger and Albertsons tend towards the functional and have many stores which leave a lot to be desired. That’s where the opportunity lies for independents.
To flourish against the chains requires a great wholesale partner and a focus on local products, customer intimacy, and prepared foods. Nobody knows your customer like you do, so laser-focus on them with the other three for a winning combination.
For millennials and Gen Z shoppers, experience is very important. Points for the independent grocer here, especially when it comes to produce and personal service. Roche Bros. is a good example, and their Brothers Marketplace concept is even more localized. With a smaller footprint and ultra local feel, they intentionally describe it as “a gathering place.”
As for tech, not all independent grocers need the latest tech, but they do need to spend tech dollars efficiently in order to compete with the big chains.
Independent grocers have always strived to differentiate their brand from the big chain and it continues to be critical for their success. Independents don’t have the luxury to compete on price so they need to be creative. Some of the key ways to accomplish this is with more localized products and produce, friendly and personalized service and the agility to adapt to new customer demands.
It’s not a level playing field; competing against bigger competitors often feels like fighting with one arm behind your back (actually, make that both arms tied behind your back). Yet, more resources do not always mean better decisions. In fact, independent grocers are often more nimble, faster to jump on trends, and in closer touch with their customers’ needs and wants. And, as the saying goes, “opportunities multiply as they are seized.”
No, I wouldn’t say they are getting better. I’d say they have always been great. When I first landed in trade journalism as a 20 something editor I immersed myself in the existing literature — a good deal of which sounded the death knell for independents. I was too dumb to get it. Everywhere I looked, the most creative forces in the industry seemed to be independents. That was a few more decades ago than I like to admit and nothing has changed. The best independents still outmaneuver chains in grocery, music, books, and a variety of other retail categories. I bet on them then. I bet on them today. And, I fully expect to keep betting on them until I shuffle off this mortal coil. As to the keys to independent success, here are a few; imagination, creativity, true differentiation, willingness to break the mold and take on risk, customer knowledge, and approaching the business from store level, not an office.
I was at Dorothy Lane Markets for a store tour last week and they are DEFINITELY getting better at leveraging their advantages over much larger chains. Operating in Kroger’s backyard in Dayton, DLM knows they can’t compete on price and doesn’t really try beyond making sure that the differences between their prices and those of the chains aren’t too big to be a turnoff. Instead, they use a combination of customer service and product assortment to attract and retain customers. They have some very solid tech, including the oldest loyalty program in the industry, and are digitizing their stores in a way that helps the shopper first and foremost. The owners’ care for the customer is the secret sauce. Hard to get a chain store manager to care about their shoppers the way an independent does.
We’re all “local” to the stores near where we live. The independent grocers who best take advantage of also being local have real opportunities to differentiate through local products from local sources, harvested in-season and transported across a couple of zip codes, not a couple of oceans.
Independents have demonstrated that there are “riches in niches.” They have developed unique points of differentiation that give customers reasons to bypass chain stores to shop with the independent grocers. If independents can stay close to their chain rivals on their top 100 items & provide products & services unique to the target market, permission to pass the chain store rivals becomes almost automatic. This article reinforces that all retail is local, allowing independents to trade on their community involvement.
Independents have more flexibity to make changes to stay relevant to customers.
If it’s not price, they can focus on the differentiators that show customers their perceived value proposition when they walk into their stores. Their success has allowed them to stay in the race for the customers’ dollar.
The McGuckins Hardware store in Boulder, CO is another good example of an independent finding its success by focusing on the unique specifics of its area. (Their success is chronicled in “Behind the Green Apron.”)
The value of local stores given here are all true — as are the threats from large stores. Independent stores need to avoid, though, endless appeals for shoppers to choose them just because they are “local.” If local is not made an advantage, shoppers will keep going to the major chains.
It is true that during the Pandemic many people reverted to local grocery stores and many liked them and have stayed with them for at least some of their purchases. The key part here is “some of” as time has passed people have gone back to the chain stores, especially for essentials and every day items where price is critical given the inflation we are living with. However, independents have retained some of that business because they are local, understand their local community, are part of it, they can can provide flexibility and interest by buying locally which is much harder for the chains. They also have staff who generally feel more loyal to the store owner and therefore better motivated to really help the customers. Yes Buying power is a huge asset for the chains, they have the latest technology and Multi channel capability but it is not the one way traffic it used to be.
Local focus and the personal touch have always been the twin superpowers of independent grocers. I don’t think they have just figured this out. They have always known.
The Paradox of Scale applies across the supermarket industry: “The larger the retailer, the more remote it is from its customers.”
Grocery giants are investing heavily in digital in an effort to simulate customer intimacy and create hard-to-match service standards. The largest chains are paying for this with alternative revenues from retail media.
Independents can’t play this game on their own, but they may be able to share in some of the retail media spoils through their affiliations with wholesalers or cooperatives.
I’d bet on independents to survive as a class. But individually they had best double-down on nimbleness and creativity if they want to withstand the next onslaught. Fortunately for them, their largest omnichannel rivals keep making their own businesses more complex to operate.
I’m just back from a national meeting of cooperative grocers. I was very interested to learn how that community has built partnerships with local growers and producers to create a food system that bypasses national brands and distribution networks. Before I attended, I wouldn’t have thought this would be possible. But here we are. Granted, its scale is tiny, but it can provide excellent products and competitive prices for its customers and their producers. What they have learned, and every small grocer understands, is how well they know their customers and, for coops, have communication channels to listen and react to what their customers want.
With the emerging competitive forces and disruptions, the risk of remaining idle is stagnant growth and irrelevance. Most independent grocers have partnered with wholesale distributors for their procurement, distribution, and merchandising needs. However, deliberate disruption is a strategic path to sustainable growth and success in these uncertain times. Independent grocers and their wholesale distributor partners can achieve competitive advantages without disrupting daily operations. The most successful companies can self-disrupt while continuing to deliver and execute against their brand promise.
Self-disruption requires accelerating your speed of execution and your agility to adapt and capitalize on new opportunities. There are five key areas where independent grocers and their wholesale distributor partners could strengthen their collaboration model to de-invest to reinvest, drive sustainable change, reduce the cost to serve, increase revenues, and improve profitability:
▪️ Enhance digital technological capabilities to meet the needs of a competitive landscape
▪️ Drive cost improvement opportunities in micro-fulfillment, logistics, and transportation
▪️ Rationalize assortments, increase private labels, drive localization and profitability
▪️Optimize procurement processes, resulting in a lower cost of goods
▪️Identify opportunities to enhance member services and reduce cost-to-serve
Successful independent grocers create a distinct point of difference when compared with large competing chain stores. Customer service is better, community involvement is better, and shopper engagement is better. Shoppers appreciate the personal touch.
Independent do well by playing up their local roots and flexibility (from not having to answer to “The Street” relentlessly). Traditionally they’ve been at a technological disadvantage, but micro-sizing has narrowed that gap somewhat. Still a disadvantage, of course is lack of financial leverage (both in purchasing power and financing)
But an independent always faces a conundrum: how much can it grow before we call it a “chain” , and it (presumably) loses the very attributes that allowed its success ??
Though independent grocers may lack the luxury to compete purely on price point, independent grocers possess the unique capability to outperform large-scale chain stores in several ways, notably through their agility, customer intimacy, focus on local products, and by crafting distinctive shopping experiences.
Independents have the ability to operate with more freedom than their large-chain counterparts, which often leads to a more creative, customer-centric approach. They are often faster at identifying and adopting new trends, due in large part to their closer connection to their customer base. Embracing this agility to adapt to evolving customer demands, and coupling it with technology that enhances the shopping experience, can help independent grocers outmaneuver chain stores, even if it may initially seem like an unequal competition.
Moreover, independents have proven their proficiency in leveraging niches, such as exclusive local products, unique services, or in-season produce sourced from nearby locations. These strategies are more effective than large chains, because they evoke a sense of community and local connection.
From a historical perspective, independent grocers have always been a powerful and innovative force in the industry, and this doesn’t appear to be changing any time soon. With their distinct advantages and persistent creativity, independents have continued to defy pessimistic predictions and remain competitive in an industry often dominated by large chains.
Independent retailers always have a service and in-store experience edge over big chain retailers. When you have skin in the game you think differently. Larry Mihalko nailed it when he said indies don’t compete with chains on a level playing field price-wise.
During the pandemic our local grocer did everything possible except maybe stand on his head to care for customers, in fact he probably did that too. He had product no one else could get because he was at it 24/7. Sales were strong but as soon as the pandemic was over many of the shoppers he gained went back to their old habits. As good as he was he couldn’t compete on price.
The best economic benefits are tied to scale. From price advantage to the amortization of optimization technology to retail media networks that boast 80% margins, larger grocers have the definitive advantage and will continue to do so at even greater rates.
With the technological advancements and increasing availability of real-time, hyper-local data, independent grocers have access to the critical insights they need to remain competitive with pricing strategy. While not all independent grocers have the capital to invest in resources that offer full-category retail pricing, promotion and assortment insights, there’s a significant level of data publicly available to help arm them with the information they need to keep up with industry price changes and remain competitive. Datasembly’s Grocery Price Index measures weekly changes in pricing for grocery products using data collected from over 150,000 stores and over 200 retail banners that span over 30,000 zip codes across the United States. The tool is free to use and accessible to anyone, anywhere, so grocers big and small can uncover unparalleled category specific trends and data.