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Is inflation the true cause of recent supermarket closures?
Some big name grocers have been closing store locations against the backdrop of record-breaking inflation.
Walmart closed three under-performing locations in April, in Louisville, Cincinnati and Bellevue, Washington, with plans to close two more soon, according to Eat This, Not That!
Whole Foods announced the impending closure of six stores, including ones in Chicago, Alabama, California and Massachusetts.
Kroger has closed two underperforming store locations so far in 2022, in Kentucky and Mississippi, and is relocating a third.
Piggly Wiggly has announced the closure of several stores in the 17 states in which it operates.
Particularly controversial for Whole Foods has been the closure of the chain’s location in the Englewood neighborhood on Chicago’s South Side.
The store opened to great fanfare only six years ago, according to the Chicago Sun Times. Alderwoman Stephanie Coleman characterized the chain’s decision to close the store as reneging on its commitment to the neighborhood and eliminating its only source of fresh foods and produce.
Amazon.com has not revealed if financial performance played into the decision to close either the Englewood or another in the Lincoln Park neighborhood of Chicago, but Whole Foods did recently report its first quarterly loss since 2015.
The inflationary economy may be forcing grocers to take a closer look at the profitability of individual locations. Inflation brings increased costs from suppliers, which makes it more difficult for retailers to protect margins, leading them to pursue their own cost-cutting measures.
The news of major enterprises closing stores comes a few months after reports that inflation was already putting small, local grocers out of business.
Community Foods Market in February was forced to close its doors in West Oakland, CA, due to inflation, according to an NBC Bay Area report. Inflation and associated costs constituted the last straw for the business, which was struck first by diminished foot traffic early in the pandemic and then supply chain disruptions leading to shorted orders and lags in delivery from suppliers.
Even before the pandemic and ensuing inflation, however, experts were anticipating significant store closures throughout the U.S. retail landscape due to the market being over-stored.
- Walmart, Whole Foods, and Other Grocery Stores Are Closing Locations Soon – Eat This, Not That!
- Englewood Whole Foods to close after just 6 years in neighborhood, leaving few healthy options – Chicago Sun Times
- Inflation Forcing Grocery Store Closure in Oakland – NBC Bay Area
- Did stores prove their worth during the pandemic? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you think inflation has played a role in recent store closures? How will continuing inflation affect grocers, particularly smaller ones, through the balance of 2022?
Poll
Loading …BrainTrust
Carol Spieckerman
President, Spieckerman Retail
Meaghan Brophy
Senior Retail Writer
There are many reasons why retailers close locations, and I’d be cautious about blaming it on inflation. Inflation is not new and, while our current inflation levels are historic, consumer spending remains relatively strong. There’s no doubt that inflation is causing consumers to change/moderate their spending, but they still buy food no matter what it costs.
This is one of the main reasons major retailers are increasingly focused on retail media. It may be one of the only ways to keep their heads above water and attempt to improve their margins. Retailers also need to negotiate better better prices with their suppliers, at least until inflation starts to level out. Another area of opportunity is to focus on their private label brands which some have been doing very successfully for some time. It’s good for them and good for the consumer.
In some cases, retailers are closing stores because they can. Armed with granular data, they can more easily assess which stores are lagging in productivity. Even so, inflation has created additional barriers to individual store profitability. The good news is that, as retailers hone their site-to-store chops, some markets and neighborhoods can be addressed purely digitally.
I’m with Mark Ryski – I don’t think it’s inflation per se, although that may be a catalyst for a reexamination of store performance. Nobody closes a store without giving it a lot of thought.
No, I don’t think it was inflation. I think it was continual out-of-stocks and the cost of doing omnichannel selling during the pandemic. Target, Walmart and Instacart made it easy to buy from home. And omnichannel isn’t going away.
“Supply chain disruptions early in the pandemic?” When was the last time you went shopping? Products go out-of-stock, completely unpredictably. The “why” is lost on me. Most recently, it was pet food. Now it’s starting to look like ice cream is the next victim.
I agree with Paula. These decisions don’t come easily and quickly and supply chain issues still continue across the retail sector. As for the Whole Foods in Englewood, that was an experiment that just wasn’t sustainable in the long term. It’s a big commitment and I would have liked to see someone fill that space for the neighborhood.
Interesting. Speaking with grocery customers with only one question has opened our eyes wide. When we asked customers if the inflation of prices at their usual stores has created a significant move to choose another grocery store, the answers were around 30 to 50 percent.
I think they will be hugely disappointed when they find the same pricing in that other store.
Yep. Inflation is an equal opportunity limiter for all grocers to deal with, not just some.
I believe inflation played virtually no role in the closures. One real factor (or at least a scapegoat) is likely the labor shortage a.k.a. higher labor costs. But what these chains are really doing is culling the “D” stores from the pack. Like in nature, you must sacrifice the few to make the many stronger. People need to eat and supermarkets are the trough from which we all feed. Maybe the shift to online ordering has hastened the closures, but under-performers need to be closed.
As noted in the commentary, “Even before the pandemic and ensuing inflation, however, experts were anticipating significant store closures throughout the U.S. retail landscape due to the market being over-stored.” Let’s not conflate inflation with under-performing or poor operating stores.
True, inflation makes life more difficult for the grocer, but it is not a killer for a well-run operation. We all agree that grocery operations run on very tight margins. When as little as 10 percent of their business goes online, it creates a big hit on this highly leveraged business.
One wonders if these store closures were announced outside of historical inflation times if anyone would think that inflation was the cause.
In yesterday’s discussion about grocery chains, I mentioned that rising costs of goods and labor are putting pressures on a low-margin business to begin with. (And you can add supply chain costs to the mix, driven by rising fuel prices.) This is a bad combination with disappointing sales, so the chains in question are right to trim underperforming sites from their portfolios.
Is inflation part of the problem? Maybe, but so are factors like poor locations, increased competition and a host of other causes.
Blue Goose market, our local, indie-owned grocery store, closed after 90 years in March after a heroic try to provide customers with groceries and essential products during the pandemic. From what we could tell the owner did a better job than some of the larger chain grocers the store competed with. He listed a number of factors that contributed to the store’s closure including the pandemic, supply chain and employee issues. I am sure inflation played a part as well.
Frankly, I would add customer issues to this list because consumers are fickle. This retailer did everything humanly possible to become the go-to place to get product the big chains had trouble stocking. He was all over social media sharing what the was doing for customers and the community rallied, but when the pandemic was over I think they migrated back to the big grocery stores at the perimeter of town. We talk a lot about consumer loyalty on RetailWire and whether it actually exists, but loyalty is exactly what smaller grocers will need throughout the remainder of 2022 and beyond.
There are many, many factors in play in the grocery market that are affecting store performance. I don’t believe that inflation is one of those factors, at the moment anyway. Since the pandemic started grocers, and many other retailers for that matter, have been working on optimizing their store and fulfillment center networks. They have seen changes in how their customers are interacting with their physical and digital channels. They’re also having an extremely difficult time staffing stores.
As they start to look at market performance more holistically they’re finding opportunities to be more efficient. One of those tactics is streamlining stores. Walmart and Kroger turned in remarkable results through the pandemic. To think that inflation would all of a sudden cause them to close stores is missing the mark in my opinion.
Inflation – which isn’t just about the cost of products but also the increase in operating and overhead costs – is very unhelpful in the low margin grocery business. Retailers are carefully assessing the economics of stores against this backdrop. However there are plenty of other contributing factors, including the changes in where and how people shop because of the pandemic. Stores which once relied on strong traffic from commuters or office workers, for example, are suffering a bit more than those that serve local communities. On top of all this there is probably a dose – especially for Whole Foods – of poor forecasting and store location.
Inflation isn’t the problem for an under-performing store. For years we on the RetailWire BrainTrust have been discussing retail being overbuilt. For a long time the conversation focused on malls, but it has become a problem for other retailers, and that includes grocery stores. While inflation may exacerbate the situation, it is not the root of the problem.
Inflation and rising costs normally drive more sales at grocery stores versus dining out. Although prices at the supermarket are increasing, lifting of restrictions is likely prompting more out-of-home activities. Further, with the growth of q-commerce there is less need to go to stores when deliveries are so convenient and can be serviced by central hubs versus having a larger store count. It may be a consolidation.
Inflation and global supply chain disruptions may have accelerated the recent supermarket closures. However there are many reasons outside of the inflationary period we are experiencing that a grocery operation will right-size their store fleets. Grocers continuously evaluate the store-level performances to ensure that each location is profitable, viable, and competitive.
As we navigate through a post-COVID-19 global supply chain disruption and inflationary period, grocers have a unique opportunity to:
Grocery is a tight-margin business, so rising supply and labor costs force grocers to re-evaluate the profitability of each store. However I don’t think inflation is the only cause. Supply chain disruptions, stockouts, pivoting to e-commerce and BOPIS models play a role here, along with changing consumer preferences. Inflation was just the final straw.
Store closures now affect grocery’s biggest players, proving that times have changed.
Inflation, supply chain chaos, lower consumption and a tight labor market have led to mounting costs. Just as retailers rationalize SKUs to optimize their assortments, these grocers have had to rationalize their fleet of stores to protect profitability.
Smaller grocers will get squeezed by inflation as they lack the negotiating power of market leaders. They will need to lean on stellar service, unique assortments and deep loyalty to survive intense pricing pressure.
The chains listed have the tools to navigate inflation. As much as it pains me to say it, the Whole Foods store in Chicago is a mismatch for the neighborhood. If Whole Foods stayed, it would be with the realization that this store will lose money. Smaller grocers typically don’t have data-based methods to navigate increasing complex inflationary pricing environment. Their sales and gross margins will suffer as a consequence.
No. Not inflation driven at all. The number of changing stores is tiny given the total number of stores and can be attributed to the normal closing, opening and repositioning stores that most large chains go through every year. Consumer sentiment is still higher than the benchmark and customers still need to eat. Inflation would be affecting all supermarkets at the supply level, not just select ones. Some larger chains may have some supplier scale advantages over smaller grocers, but these existed long before inflation.
I don’t think inflation is the cause. People still need to eat; they still need to buy food regardless of price. Besides inflation, other factors may play a part. For example, switching stores to one offering lower prices like Aldi; having groceries delivered to the home from other merchants than the local supermarket; having meal kits delivered to the home, thus reducing the need to buy some groceries at the store. For the local supermarket, it can be death from a thousand cuts.
Inflation is surely making things uncomfortable for grocers, and painful for customers. But inflation is likely the final straw or another side effect prior to closure.
Stores close mostly because it either wasn’t a market fit for the trade area to begin with, the brand wasn’t applied effectively, and/or it wasn’t executed well.
Grocers need to make sure they study trade areas before opening, that what they want to offer will be in demand and how the customer base will be built.
Inflation could well be part of this but the huge impact of people buying groceries online may have a part to play. New start-ups as well as consolidation of demand to dark and larger stores for online sales may result in taking critical mass of demand away from these stores.
Another consideration may be how these retailers measure performance of the stores — in an omnichannel world, the measures we used to use to determine if stores stay open are not as relevant as they were.
In the case of mega-retailers, I don’t see inflation as the primary reason behind the store closures. There could be many other factors affecting retailers’ store closing decisions. Sometimes it could be a part of their strategy as well. They open new locations to test the market and sense customers’ demands and shut them off when they don’t get the expected ROI.
Speaking of small retailers, they appear to be in trouble. Maintaining profit margins becomes challenging when they have to deal with both increased costs from suppliers and consumers having a limited budget.