Proposed Taxes Pose Threat to States’ Grocery Industries
by Kristen Cloud/staff writer
The grocery associations in New Hampshire and Vermont are staying busy as the states’ legislative sessions are in full swing and legislators deal with numerous revenue tax issues—many of which would impact the industry directly.
In New Hampshire, the tobacco tax will go up 10 cents in June, from $1.68 to $1.78 per pack of cigarettes—essentially eliminating the 10-cent tobacco tax reduction that was passed in 2011. Coupled with that, the state’s new governor, Maggie Hassan, has proposed an additional 20-cent hike, which would make the cigarette tax $1.98 per pack, a $3 increase per carton.
“(This issue is) critical for us because we’ve been the low-price leader in the Northeast for some time on the tobacco issue, and this would put us on par, or even slightly ahead, of some of the surrounding states,” John Dumais, president and CEO of the New Hampshire Grocers Association, tells The Shelby Report. “We would lose some of our sales to (those states).”
Cross-border sales are imperative for New Hampshire to remain competitive and healthy, Dumais reveals.
“…Our state is very dependent on cross-border sales,” he says. “Because we have no sales tax and all the states around us do have a sales tax—that’s a substantial draw. We also have low liquor prices because the Liquor Commission has their own state stores and they promote the fact that they have the lowest prices in the Northeast, if not the whole country. That’s another draw. And, of course, the tobacco tax is a lower price.
“We draw people into the state with those lower prices,” Dumais adds, “and we now know that about 40 percent of our customer base comes from…out-of-state residents; they don’t reside in New Hampshire. And when they come here, because they’re coming from as far away as New York and New Jersey and Connecticut and other areas, quite often they’re buying more than what they’d normally buy. So we see that, in some cases, some price-sensitive products like tobacco or alcohol…that it’s as high as 60 percent of our total sales. There’s a lot at stake.”
New Hampshire’s governor and legislature are elected every two years. In addition to a new governor, Dumais notes that much of the legislature is comprised of freshman lawmakers.
“We have additional work of trying to help them understand what the dynamics are of any kind of legislation (and the impact it) can have on an industry,” Dumais says.
A proposed 15-cent-a-gallon gas tax increase was slated to come up for debate Feb. 27 (after press time). The Granite State’s current 18-cents-a-gallon tax is the lowest in New England. The gas tax in New Hampshire was last increased in 1991. The proposed increase would finance repairs of state roadways.
Neighboring Vermont also is facing a potential gas tax increase.
“Many of our members who sell gasoline are very concerned about a proposal to add 8 to 10 cents and automatically index it to inflation for the gas tax,” says Jim Harrison, president of the Vermont Grocers Association (VGA), which represents 375 retail members that collectively operate about 630 stores. “We’re already about 7 cents higher here a gallon than New Hampshire, so this would make us 15 to 16 cents more than New Hampshire.
“(It would be a) serious detriment along the eastern side of the state in terms of stores where gas is part of their mix and part of the reason for attracting customers. When you’re that far different (in price), it’s really hard to compete, and you just can’t take that kind of tax difference out of your margin and keep the customer happy.”
Harrison tells The Shelby Report that his group represents a number of convenience retailers and country stores that sell fuel, and “the gas tax is certainly a very, very important item.”
Another proposal in Vermont calls for a penny-an-ounce tax on sugar-sweetened beverages. The bill, according to reports, would raise an estimated $27 million to support state health programs and, supporters say, discourage consumption of products that contribute to obesity.
“That proposal has gained a lot of traction, a lot of momentum, over the last month,” Harrison says. “Last week (mid-February) it sort of hit a little bit of a wall when a committee voted 5-5, and therefore it didn’t advance.
“However, there are still other committees looking at that as a potential revenue source, so we’re very concerned about what that will mean for the price of beverage products if it is advanced.”
Labeling products that contain GMOs—genetically modified organisms—also is a topic of worry for the industry in Vermont, according to Harrison. He points out that proponents of the legislation in Vermont are even more incented now since a similar proposal, in the form of Proposition 37, was defeated in California on the November ballot.
“From our perspective, Harrison says, “it’s just totally inefficient and very cumbersome and very expensive to try to do state-by-state labeling—whatever the issue is, whether it’s GMO labeling or something else. Whatever it is, we believe you need to have national uniform standards.”
Grocers eager to enter New Hampshire
New Hampshire saw several new grocers enter the state in 2012. Among them: Trader Joe’s, The Fresh Market and Aldi. Whole Foods, according to its website, also has its first New Hampshire store under development. Other grocers, with roots well established in the state, are opening new stores as well.
• Monrovia, Calif.-based Trader Joe’s made its debut in New Hampshire in July with a 9,850-s.f. store at 262 Daniel Webster Hwy. in the Webster Square Shopping Center in Nashua.
• The Fresh Market, headquartered in Greensboro, N.C., opened its first New Hampshire store in June at 79 South River Rd. in the revitalized Bedford Mall in Bedford.
• Discount grocer Aldi made its entry into New Hampshire last March when it opened a 17,000-s.f. store at 541 South Broadway in Salem.
• Whole Foods reportedly has its first New Hampshire store under development for Nashua, according to the Austin, Texas-based company’s website. NashuaTelegraph.com reports that the closest Whole Foods stores are in Andover and Bedford, Mass.
• Market Basket, a privately held chain based in Tewksbury, Mass., continues its expansion in New Hampshire. The New Hampshire Business Review reports that, “with the addition of Manchester and Londonderry stores, Market Basket added more square footage than any other retailer in all of southern New Hampshire between June 2011 and April 2012.” The company currently has 28 New Hampshire locations with plans, the Business Review says, to open a store this year in Bedford. Also, the report continues, “an 80,000-s.f. grocery store proposed in North Conway has been rumored to be a Market Basket.”
• Dumais reports that New Hampshire continues to see growth in the dollar store segment.
“I think they are (doing well),” he says. “As we’ve seen in other parts of the country, everyone’s…concerned about the federal government and where we’re heading with that—the fiscal cliff is not resolved yet, we don’t know where our taxes are going to go yet. We don’t know for sure where the health mandate’s going to go or how it’s going to impact everybody. All those things are just making everybody more conservative.”
Grocery growth steady in Vermont
It appears that Vermont’s approximately 630,000 residents will soon have more options when it comes to where they buy their groceries.
• Mike Comeau, an independent operator who owns Village Market of Waterbury in Waterbury and Richmond Market & Beverage in Richmond, plans to open a store in a former Grand Union in Johnson in late spring or early summer. The GU store, Harrison says, closed in 2011 due to flooding. Since then, Johnson has been without a grocery store.
“There’s quite an investment being undertaken to make that facility less flood prone,” Harrison says, “and to rebuild it.”
• Aldi, which currently has one store in Vermont—in the southern city of Bennington—has started construction on its second store in the Green Mountain State. The 17,800-s.f. store in Rutland is scheduled to open in the spring or summer at the site of the former Smith Buick GMC on South Main Street. A third Vermont Aldi is expected to open later this year at 768 Putney Rd. in Brattleboro, according to the Rutland Herald.
• Trader Joe’s hopes to open its first Vermont store at 200 Dorset St. in South Burlington. Plans are in the preliminary stages.
• Vermont is slated to get its fifth Walmart, and first Supercenter. If permitting goes as planned, the Walmart Supercenter in Derby—near the Canadian border in the northeast corner of the state—could begin construction in early 2014.
• Hannaford, a Delhaize banner, is in the process of building a new store to replace its current Bradford location along Route 5. When complete later this year, the new store will be nearly three times the size of the current one, WCAX.com reports. Hannaford, Harrison says, is among Vermont’s three largest supermarket operators, along with Price Chopper and Shaw’s.
As for Shaw’s (a Supervalu chain that is among the retail banners the company plans to divest to Albertsons LLC’s parent company), it, as well as Star Markets, will be led by Shane Sampson, according to an announcement made by Albertsons LLC in February. Sampson is the former VP of marketing and merchandising for Albertsons LLC’s Southern Division. He started with Albertsons in 1983 and was a division president in the Intermountain and Florida divisions for Albertsons Inc. He is returning to the company after having held the role of SVP of operations at Giant Food.
“We haven’t seen any change here (with Shaw’s) in Vermont,” Harrison says. “Obviously, their transition is scheduled to take place in the coming month and all indications are that they will continue to participate with the (VGA) and get more focused on their food retailing.
“But it’s not an easy marketplace out there,” he adds. “Competitors aren’t sitting by the wayside and going to let them take more of their business. It will be interesting to see how it happens, but hopefully for the folks at Shaw’s it will be a positive move in that some of the distractions with headquarters and problems at that end will be behind them and they’ll be able to focus on the business at hand.”
Cautious on economy, but seeing some positive signs
The unemployment rates in both New Hampshire and Vermont remain below 6 percent, well less than the national rate of 7.9 percent. Nevertheless, both Dumais and Harrison are guarded about the economy.
“We haven’t had any population growth,” Harrison says of Vermont, “so it’s obviously a zero-sum game.
He says for retailers it comes down to reinvesting and finding their niche in the marketplace. Those who do will “find ways to get their share of the pie.
“Remaining the status quo sometimes is not a good strategy and you find yourself on the short end of business, of the potential that’s out there,” Harrison says. “Small stores continue to struggle overall. We have lost some of our treasured country stores in the past year and that’s a challenge; some have found new ways to do business and broaden their market mix, but it is a struggle for some small stores in this economy.”
New Hampshire’s Dumais agrees.
“We’re still treading water here,” he says. “I think everyone’s a little concerned about where the economy’s going and what their pocketbooks are going to do, but, at the same time, we still see that we have some activity that’s very strong—especially with the winter events that are happening (skiing and other seasonal activities).
“So hopefully we’re going to get some answers soon that’ll give everyone a little more assurance,” Dumais adds, “and bring back some sales that we’ve been losing.”