Kansas, Missouri Grocers Hang Tough, Wait for November
by Terrie Ellerbee/associate editor
Missouri grocers, especially the independents, are hanging on through what many of them see as an economic recovery restrained by uncertainty on a national scale. They are doing what they do best in the meantime and hoping for better days to come.
One such independent is Hickman’s IGA. It has been in business for more than 50 years in Northeast Missouri. Jim Hickman heads the company he and his brothers bought from their father Bob in the 1980s.
Hickman told The Shelby Report that he is proud “we’re still here.” He said the company doesn’t expect any major change to the local economy, which he described as “fair,” at least until the November election.
There are six Hickman’s IGA stores ranging in size from 12,000 s.f. to 28,000 s.f. They are located in Paris, Perry, Bowling Green, Winfield and Mexico, as well as Vandalia, where a complete remodel is under way.
The company’s website states that “updating and modernizing have been the rule of thumb over the years, echoing the advice of their father: ‘You have to change with the times.’”
What has changed with recent times is shopper behavior—their reluctance to open their wallets and their propensity to shop multiple locations.
While Hickman’s IGA is used to competing with Walmart, the aggressiveness of dollar format operators adding food to their assortments is a new twist. In response, Hickman’s has added dollar departments to its conventional stores.
“So far, it seems to be encouraging,” Jim Hickman said. “The dollar stores have been a big trend that’s changed in the past two or three years, and we certainly have to find a way to compete with them and get our share of that dollar. We work very hard on that and we do a lot of things at store level to constantly try to increase sales.
Hickman’s IGA stores focus on the departments important to its customers: perishables. That’s where he sees opportunity.
“We put a lot of emphasis on perishables—meat, produce, and the deli, in particular,” Hickman said. “Our customers, while concerned about price still, quality is a big thing. We need to make sure we give that and also keep the price right.”
The newer stores offer services popular with customers, like check cashing, utilities payment and postal shipping. They can buy money orders and lottery tickets, and use Western Union services.
Hickman had high praise for the way the six stores are vital to the communities they serve, a trait many independent operators share.
“We encourage all of our store managers in each of the towns where they operate to get involved and be part of the community, and they all do a real good job of that,” he said. “We’re really proud of that as we’ve done that over the years.”
Retail changes adding up in Southwest Missouri
“Speaking for Southwest Missouri, we’re seeing a lot of change in the face of our marketing area,” said Bill Smillie, executive director of the Ozark Empire Grocers Association (OEGA).
The regional association has about 130 members, who are predominantly located in Southwest Missouri. Hy-Vee and Walmart have moved in and opened stores in that area over the past year.
Hy-Vee is a member of the OEGA and “a very formidable grocery chain,” Smillie said. Hy-Vee opened an 86,039-s.f. store at 1720 W. Battlefield Rd. that includes a food court with Chinese, sushi and Italian stations, as well as a Caribou Coffee Shop. The store also has a self-serve gas station next door.
“It’s very likely we’ll have more than one store in this market,” said Ric Jurgens, who at the time was CEO but has since retired (on June 1).
Walmart opened Missouri’s first Neighborhood Market store in Springfield on May 16 at 3150 W. Republic Rd., and a second opened on May 25 at 1320 S. Glenstone Ave. At least two more are coming to the city.
As established large chains and national mega-retailers move in, independents stores have paid the price.
Bill Smillie’s own store on South Glenstone Avenue in Springfield, Smillie’s Market, closed June 30. A note on the store’s Facebook page said on June 26: “Good-bye old friends.”
“Whether you like it or not, it’s just the way it is,” Smillie told The Shelby Report. “In our industry, the big are getting bigger, and you have to work harder to compete, so lots of changes.”
Smaller retailers are going out of business or being bought up by larger operations. Those that remain are working smarter. Some are picking up stores that other operators have closed, and others are focusing on remodeling and updating equipment.
They are getting ready, Smillie said, for better days.
“It will turn around,” he said.
“Independents, because of their size, because of them being one-store operators or maybe two-store operators generally, they have to work harder,” he said.
But for some, the recession and painfully slow recovery have taken their toll.
“Most of them are in small communities, which have been hit really hard by this economic downturn because maybe the one plant that was viable in that community may have closed,” Smillie said.
“The independents that are left … they have guarded their money and remodeled their stores, paid attention, and they’re looking out for the future, for the next 10 or 20 years.”
Smillie added that he hopes many of those smart independents are young, in their 20s or early 30s, and looking to build a business over a lifetime “to make things happen for the community, their family and their business.”
Federal issues burden economy, stall growth
Smillie and the OEGA work in conjunction with the Missouri Grocers Association (MGA). These days, the MGA tackles state and federal legislative issues.
That’s where Dan Shaul, state director of the MGA, comes in. Shaul was recognized earlier this year by the National Grocers Association (N.G.A.), which gave him its Leadership Award for his work on behalf of the grocery industry in the government relations arena.
There was some success in the most recent state legislative session, including a workman’s comp bill (HB 1540) that specifies that those who claim workman’s comp cannot sue their co-workers.
Other legislation the MGA had hoped for would have made changes to the “second injury fund,” which is used to pay disability claims for employees with previous injuries or health conditions who are re-injured on the job. The law was implemented when World War II veterans were coming home. Employers fund it with a 3 percent surcharge on their workman’s comp insurance, but the fund has become insolvent. That issue could be taken up in a special session this year or next.
Complex issues like that require educating rookie legislators, and in Missouri, thanks to term limits, there are a lot them. Senators are limited to two four-year terms and representatives to four two-year terms. Shaul said the most recent legislature had probably the largest incoming freshman class ever.
On the federal level, Shaul said his members are looking to November with a great deal of apprehension. They are concerned about what a second Barack Obama presidency might bring. His members have many questions.
“If he receives a second term, will his liberalism become unbridled and just run rampant through the administration? Where do we stand?” Shaul said. “What will his objective be now going forward if he’s given another four years and he doesn’t have to worry about re-election?”
There are concerns about taxes and what will happen with labor and the National Labor Relations Board (NLRB).
“What’s the federal government going to look like come late January next year?” Shaul asked. “Is it going to be drastically different or is it going to be the same?”
That uncertainty is like an anchor dragging down the economy, and because they are on the front lines, grocers see the effects firsthand.
“You look at what’s being sold in the stores. Is it ground beef or is it filet? Is it organic or is it not? Are people buying the higher priced items? I think that’s a great indictor, and right now we see a lot of ground beef going out the door,” Shaul said.
Until they have some modicum of certainty, grocers are unlikely to reinvest.
“A lot of them have a substantial part of their life savings wrapped up in their business, and they’re very concerned about that,” he said. “I would say that’s probably the one thing that’s holding us back in Missouri from having major growth in the grocery industry this year. I’m sure it’s very similar to other states.”
The answers to many of those questions is months away, of course, and Americans tend to have short memories, Shaul said. People have become used to high fuel prices (regular was selling for $3.27 a gallon on June 6 in Missouri), for instance.
“Our rationale, I sometimes think, has been altered,” he said.
As it draws closer, perhaps the election will be more defined, Shaul said.
“Maybe the country will feel better one way or the other,” he said. “And certainly after it we’ll at least have a direction of where we’re headed.”
Grocers also would like to see more people getting jobs, and it’s another case of people forgetting where the jobless rate used to be, even though Shaul said it seems that everybody knows somebody who’s been without work for a long time.
The unemployment rate in Missouri was 7.3 percent in May, low relative to the national rate of 8.2 percent in May. But in one week during May the state had more jobless claims than any other in the country.
The Missouri Journal reported that April was the first month this year when the state had more new jobs (6,000 non-farm payrolls) than people leaving the labor force (2,301).
Unemployment peaked at 9.7 percent in August 2009, and has been agonizingly slow to drop. It did not fall below 9 percent until February 2011. Historically, Missouri’s jobless rate has been 6 percent or less.
“Unemployment is tremendously high, way too high for an economy that’s supposed to be taking off,” he said. “I just find it disheartening to see people who want to work not being able to find it.”
Save-A-Lot bullish on Missouri/Kansas
Save-A-Lot, a Supervalu banner, has opened new stores in both Kansas and Missouri. There are more than 1,300 of the deep discount, edited assortment stores across the country in areas that are urban, rural and suburban. Save-A-Lot typically targets a demographic area where household incomes are less than $45,000.
“We actively pursue new store locations in neighborhoods largely overlooked by our competitors—locating in diverse neighborhoods, hiring from within those communities and stocking product tailored to the neighborhood,” said Mike Stout, director of license business development for Save-A-Lot.
The company said shopping in its stores can save customers up to 40 percent vs. a traditional supermarket, partly because of the efficiency of offering just 2,000 SKUs on average per store.
Save-A-Lot now has 64 locations—21 corporate and 43 licensed—in The Show Me State that, like their sister stores in Kansas, are supported by a dedicated distribution center in Edwardsville, Ill.
Two of the licensed locations opened in the past 12 months, said Dick Koop, license development manager, who is based in St. Louis. About 70 percent of Save-A-Lot stores are licensed to independent grocers.
“The economy has been improving in the major metropolitan areas of St. Louis and Kansas City,” Koop said. “However, people are looking for work and are moving out of some of the smaller towns trying to make ends meet. Gas prices, although they are starting to fall, some have been very high and impacted the working people of both states in a large way.”
Save-A-Lot encourages growth by offering licensees a minimum $200,000 in cash incentives toward each new stores project, Stout said.
And that’s not where the incentives or assistance ends.
“Over the past few years, federal, state and local government have become more aggressive in providing financial incentives to encourage the development of grocery stores,” Stout said. “Save-A-Lot has been working aggressively in capturing these government incentives for our licensees, which has been very effective in lowering the overall development costs of a new store.”
Koop said Save-A-Lot is “aggressively looking” for locations in both states.
“We are one of the fastest growing grocery chains in the U.S., opening more than 200 stores across the country during the past two years,” Stout said. “Missouri is a key state for us as we are based in the St. Louis area. We believe we have the right business model and the time is perfect for further expansion in both Kansas and Missouri.”
Kansas attracts a variety of formats
Save-A-Lot has eight locations in Kansas—two corporate stores and six licensed stores operated by independent retailers.
Koop said the biggest opportunity in the Kansas market is that there are “quite a few towns that fit our format and are need of a cost-savings opportunity.
“Although we offer savings every day, it is a fantastic time for Save-A-Lot to enter these markets where we can make a difference in the consumers’ lives,” he said. “The biggest challenge is finding enough retailers to carry out our aggressive growth strategy.”
Koop said the company would like to “move much quicker. In order for us to grow quickly, we will need to increase the number of retailers.”
Another edited assortment format, Aldi, will build a $5 million, 16,000-s.f. store at 39th Street and Prospect in Kansas City.
Walmart brought its edited assortment Neighborhood Market stores to Kansas as well. For the first time ever, Walmart opened three new Neighborhood Market stores on the same day in the same city—in Wichita on Nov. 2, 2011. Another one opened there on April 25 this year. More are coming.
Walmart also plans to open a 150,000-s.f. supercenter at the former Mission Mall site in Kansas City.
The state also has attracted natural and organic grocers. The Fresh Market opened its first store in the state on June 20 in Wichita. The 22,000-s.f. store in Bradley Fair shopping center is the company’s 117th, and marks the 22nd state for the retailer.
Natural Grocers by Vitamin Cottage opened in a former Borders bookstore in Wichita. The Colorado-based chain opened its first Kansas store on Nov. 11 in Lawrence.
Dillon Stores has broken ground for a new store in Salina. The 76,000-s.f. store will replace the Dillons store that first opened in 1971 at 2012 S. Ohio. It will feature a Chinese kitchen, sushi, a beverage center, a larger fuel center and a drive-through pharmacy.
McCormick: Retailers under pressure
Jon McCormick is president and CEO of the 117-year-old Retail Grocers Association of Greater Kansas City (RGA). The RGA boasts approximately 375 members, and also manages the Kansas Food Dealers Association, which has about 220 members. It represents retailers in Northern Missouri and the state of Kansas. The RGA is a member of the Missouri Grocers Association (MGA), and the two “share the border and we share retailers,” McCormick said.
The two states have much in common. Both are in Walmart’s backyard. The first “Hypermart USA” was located in Kansas City in the 1980s. Walmart abandoned the concept in 1990, when it converted the 270,000-s.f. store to a Walmart Supercenter.
Missouri and Kansas also share common concerns on the state level as federal money dries up for states, he said, and they both have to be ready for legislation that may harm the independent grocer.
“I think that legislators across the country are all sitting down trying to figure out how to take care of ourselves,” McCormick told The Shelby Report. “The federal government is abandoning the states financially, and they are going to have to bear more of the financial burden as we go.
“Then that’s going to trickle down to the businesses in the state and, of course, our supermarket operators are key to all the communities, whether it’s Missouri or Kansas. It isn’t just the metropolitan areas that are under pressure; it’s those rural cities that are under the most pressure.”
Economic growth is flat in both states as well, he said, for the same reasons Dan Shaul with the MGA gave.
“Everybody’s paralyzed because they do not know what to expect going forward from both the federal and state levels from a regulatory or a legislative standpoint,” McCormick said.
He said there is stagnation and a lot of pressure downward. Customers who were buying ground round are now buying 70/30, for example.
“Retailers are still selling the same number of items, or the same pounds out of the meat department, but they’re selling the lesser-cost items to customers who are buying lower-priced items, and it is putting pressure on the retailer,” McCormick said.
“Even with that pressure, there are retailers, because of the cost of money, who are investing in their stores,” he said. “To finance or remodel costs less today than it did five years ago.”
That might be the only bright spot in the economy right now, he said.