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2011 Nebraska Profile: Grocers Tinker to Keep Customers Coming Back

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Nebraska is one of those rare states that has strong leadership armed with a plan not only to tackle its budget shortfall, but also to look ahead to brighter days.
[gn_note color=”#FFCC00″]The 2011 Nebraska Profile originally ran in the March 2011 edition of The Shelby Report of the Midwest. Due to reader requests we will be posting our Profiles from each edition of The Shelby Report. The profile will be published on theshelbyreport.com one month after it has run in print.[/gn_note]

Per capita income in the state soon will surpass the national average

by Terrie Ellerbee/associate editor

Nebraska is one of those rare states that has strong leadership armed with a plan not only to tackle its budget shortfall, but also to look ahead to brighter days.

Facing a deficit over two years of more than $1 billion and constitutionally bound to balance the budget, Nebraska is cutting spending.

Gov. Dave Heineman, a Republican, is against raising taxes or fees.

The state’s 49 lawmakers—Nebraska’s legislature is unicameral with just one legislative body: the senate—must develop the budget for the next two years with that in mind.

Next year, 2012, likely will be painful, but in the words of Kathy Siefken, president of the Nebraska Grocery Industry Association (NGIA), the state’s “recovery isn’t going to be nearly as expensive as other areas of the nation.

“We have leadership right now that believes that you don’t balance the budget by increasing taxes. You balance it by decreasing spending,” Siefken said. “When the state has a budget shortfall, generally speaking, we see fee increases, tax increases on alcohol and tobacco, income tax increases, those kind of things.

“Our current governor has said he will not support any tax or fee increase. We need to maintain our budget by ­cutting spending, and that’s what they’re doing. They seem to be in agreement. I believe that they’re going to come out with a good plan. The budget process has just started here,” Siefken said.

In addition to the governor’s reluctance to raise fees and taxes, Nebraska has a rainy day fund that it could draw from in fiscal years 2012 and 2013.

The state also has a plan in place to keep its highways up to par—an issue of paramount importance to independent grocers located in rural and remote areas of the state.

“Without those semis and good roads, grocery stores in rural Nebraska can’t survive, so that road infrastructure is very important to us,” Siefken told The Shelby Report. “The current taxing structure that we have for roads—it’s simply not sustainable because cars are getting better gas mileage, they’re going to electric cars. So the amount of dollars that we’re collecting on a gas tax is not sustainable. It’s going to continue to decrease.”

To offset the decrease, Sen. Deb Fisher introduced a bill that would, in two years, take one-quarter of cent sales tax and use it for the state’s highway fund. In two years’ time, it could bring in $125 million, “and that’s enough to start building roads again,” Siefken said. “I think it’s a good plan and it sustains our road infrastructure.”

Built into the measure is confidence that government will be pared down to a more manageable level—and that ­people will be spending money again.

That confidence seems well founded. The Nebraska Business Forecast Council reports that the state’s economy will grow steadily in 2011 and ­rapidly in 2012 and add jobs in nearly every sector. The expansion will be powered by record farm incomes and strong growth in Nebraska’s other industries, forecasters said.

The biggest news from the council is that Nebraska’s ­average per-capita income soon will surpass the national average for the first time in decades.

Eric Thompson, the bureau’s director, said per-capita ­income in Nebraska in 2009 was $39,277—or 99.1 ­percent of the national average.

“This is a significant milestone for the Nebraska ­economy,” Thompson said. “It underscores the progress that the state’s economy has been making over the last decade, even as the state continues to work through the con­sequences of the recent global recession.”

Nebraska’s Business Conditions Index, a leading ­economic indicator, climbed above growth neutral 50.0 for a third straight month in January. The index from a ­survey of supply managers dipped slightly to 55.7 from 56.4 in December.

Ernie Goss, director of Creighton’s Economic Forecasting Group, which publishes the index, echoed the sentiments of other forecasters.

“Nebraska has the third largest agriculture sector among the Mid-America states. This has been an important component of both overall and manufacturing growth with both durable and nondurable goods producers expanding at a modest, but improving pace,” Goss said.

Nebraska grocery retailers adjust to changing consumers

Grocery retailers in Nebraska have been tinkering with their names and formats, always improving to better serve ever-changing shopping behaviors. They have reinvested in their stores, Siefken said, and placed special emphasis on customer service.

Lincoln-based B&R Stores Inc. rebranded its store at 111 N. 27th to Save Best from Always Low Price Stores (ALPS). ALPS is a franchise through Associated Wholesale Grocers. Save Best is a concept created by B&R. Both are low-cost stores, but Pat Raybould, president of the employee-owned chain, said Save Best Foods will offer a wider variety of products.

B&R has been investing in significant renovations to its stores. It also introduced a new website with new features for shoppers.

“Our goal with the new website was to focus on improving the site in areas that substantially increased the quality of our customers’ in-store shopping experience,” Raybould said. “As a result, customers can build online shopping lists and print coupons for products they’re interested in. Those are features that help customers save time in the store and keep money in their pocket. That’s shopping smarter.”

B&R Stores Inc. now operates four banners: Russ’s Market (named for Russ Raybould, Pat’s father, who founded the chain in 1962 along with Clayton Burnett), Super Saver, Apple Market and Save Best.

No Frills Supermarkets, owned by a seven-member ­management team and based in Omaha, opened its first No Frills Fresh store in 2009 and followed up with another in 2010. The store puts more emphasis on service and ­features an expanded farmers market-type produce section and a full-service meat counter as well as a deli, full-service bakery and pharmacy.

The second No Frills Fresh, which opened last June in Elkhorn, is 61,000 s.f. and the chain’s 18th store. When the second Fresh opened, the chain also introduced a line of private label products called Chef’s Own Brand.

Siefken said Nebraska’s independent retailers have “become more business savvy and they understand that customer service is what keeps people coming back in. When gas was at $4 a gallon, consumers finally understood that their local, independent grocer—their pricing wasn’t that far off from what Walmart was selling when you take the whole ­market basket. If you want to go in and buy just the sales items, that’s a little bit different story. But when you go in and you buy a week’s worth of groceries and you compare the pricing, our small independents are very competitive.”

The Nebraska retail grocery landscape features two ­typical formats, Siefken said.

The first is the mom-and-pop down the street. These independents make up the majority of operators in the state. They focus on grocery and find ways to expand their business, Siefken said.

She gave the example of a store that has “really geared up on home delivery.” That service benefits the elderly and others in smaller communities who have lost their grocery stores.

“I know that there are a couple of different grocers that have gone into those small towns with flyers and have set up sort of a remote business where they take orders and ­deliver to those towns once a week,” Siefken said. “They’re thinking outside the box and finding ways to pick up more business and grow.”

Pat Raybould is a perfect example of someone who was born into the grocery business. His father, Russ, handed him the reins in 1997. To compete with large chains—and ­competition from less traditional outlets like dollar stores—the chain taps into that inherent knowledge.

“The small independents are people who grew up in the grocery industry and they understand it, and frankly if they don’t understand it and they don’t do a good job, they’re not around very long regardless of whether Walmart’s there or not. But I think it made them sit up and take notice and I think it’s made all of us better retailers, the competition has,” Siefken said.

While Walmart has a presence in the state, its expansion has slowed significantly. Walmart hasn’t been building Supercenter stores because the population “can’t support that increase in square footage of retail,” Siefken said. But she is concerned that eventually it will come back, possibly with smaller format stores.

Siefken said there was a time when some small towns in Nebraska had three small grocery stores serving a population of 1,500.

“Now you’ve got one store left in those towns,” she said.

The second typical format, which Siefken said are more likely to be found in communities with populations of 50,000 ore more, are full-service supermarkets.

“They’ve got center store, and then the perimeter is coffee and pizza and Chinese food and a deli and bakery, a bank and dry cleaning—so they’ve kind of put everything under one roof in a lot of those big stores.”

Examples of these retailers would be Fareway Stores Inc. and Hy-Vee Inc.

Iowa-based Fareway Stores Inc. chose Nebraska City as the location for its 100th store, and it should open this fall. It will be located at 1738 S. 11th St., a former Pamida ­location.

Hy-Vee Inc., also based in Iowa, announced plans to change the name of its smaller format store in Lincoln. The Hy-Vee Heartland Pantry, which opened in 2008, posted on its Facebook page that its name will change, but no ­decision has been made. A posting said the change could be “a ways down the road yet.” The store is being renovated and when work is complete it will have a new kitchen with a dining area and a service meat counter.

Meanwhile, on the wholesaler side of the grocery ­business, Affiliated Foods Midwest, based in Norfolk, is ­celebrating its 80th year in 2011. The wholesaler opened a new distribution center recently in Kenosha, Wis., which has facilitated its growth. For its 2009-10 fiscal year, it paid record rebates to its members totaling $46.6 million in cash, an increase over the previous year of 8.4 percent.

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