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2011 Massachusetts Profile: State Continues Slow Recovery

Boston, MA
[gn_note color=”#b1cbde”]The 2011 Massachusetts Profile originally ran in the June 2011 edition of The Shelby Report of the Northeast. 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]

by Ashley Bates/staff writer

For Massachusetts and other New England states, current indicators are showing a slower economic recovery than expected along with rising fuel and food prices, which will continue to challenge the state’s grocery industry.

And the state budget for fiscal year 2012, approved by the House of Representatives on April 28, includes modestly more funding than recommended by the House Ways & Means Committee (HWM) in several areas, but largely follows the HWM proposal in implementing deep cuts across state government, the Massachusetts Budget and Policy Center reports.

The most significant amendments adopted were in health care accounts, specifically funding for a half-year of the Commonwealth Care Bridge program, which provides health insurance for 19,000 legal immigrants and adult day health services for the elderly and disabled.

The House also passed amendments to reduce cuts to education and public health. Tourism councils received extra funding to encourage visitors.

According to the Budget Monitor, tax revenue growth has begun to pick up as the economy emerges from the Great Recession. Over the past year the economy in Massachusetts has grown slowly and the unemployment rate has dropped slightly.

Economists released the latest Massachusetts Current Economic Index in March, which was 4.4 percent, and the three-month average for January through March was 4.8 percent, according to MassBenchmarks.

The index is a forecast of growth over the next six months, expressed at an annual rate. So, it indicates that the economy is expected to grow at an annualized rate of 4.4 percent over the next six months (through September).

MassBenchmarks is the journal of the Massachusetts economy published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston. MassBenchmarks also explained that the state’s economy is growing, but that growth is not translating into jobs.

“It’s just hard to see job growth,” said Michael D. Goodman, an associate professor of public policy at the University of Massachusetts at Dartmouth and an editor of MassBenchmarks. “I think we need to grow more. I think economic growth needs to be faster.”

Goodman said the recession has been especially hard on places like Springfield—urban areas with large numbers of unskilled workers who previously held blue-collar jobs.

The Beacon Hill Institute for Public Policy Research reported last Oct. 25 that after two straight years at the top, Massachusetts has slipped to third place in the Beacon Hill Institute’s annual State Competitiveness Report.

Massachusetts continues to show real strengths in its human resources, technology (with its large base of scientists and engineers and high‐tech employment) and business incubation, where Massachusetts draws the top ranking in terms of venture capital per capita, the report said.

Policymakers often compare Massachusetts’s performance with that of “leading technology” states.

The unemployment rate for March was 8.2 percent of the state’s labor force, according to the U.S. Bureau of Labor Statistics. A year ago the rate was 8.7 percent.

Struggles both in the job market and inflation make grocery stores’ job even more important, said Mike Stout, director license business development at Save-A-Lot Food Stores.

“Coming out of a recession and dealing with high fuel and food costs certainly impacts all retailers and more importantly the consumer,” he said. “These challenges mean that we have to be even smarter in how we operate our stores and distribution system.”

In light of rising costs, Save-A-Lot has put into place several initiatives to keep its stores profitable.

“As part of Save-A-Lot’s 2011 initiatives, we are focused on improving overall store performance by driving down costs and improving labor efficiencies,” he said. “We are also focused on driving our sales growth. In order to drive sales, we have several exciting marketing programs that will be launched from now through June that will reinforce our value proposition and everyday low pricing.”

Save-A-Lot also uses a streamlined distribution operation to keep costs down in its Massachusetts stores.

“We have a very efficient distribution and logistics system in place. For example, we use computer assisted weight and cube ordering to maximize capacity and efficiency for deliveries,” Stout added. “Fuel surcharges have increased in recent months and we are looking at ways to reduce this expense.”

Along with making sure grocery stores are operating on a strict budget, Stout and other grocery executives can’t lose sight of industry trends.

“As many know, the supermarket industry is extremely competitive and cyclical,” he said. “Value is the trend today, which makes it very difficult for traditional and independent supermarket operators to compete on price and remain profitable. You are seeing conventional grocers undergoing SKU rationalization, expanding private label brands and seeking to reduce the size of their buildings; Save-A-Lot has already perfected these initiatives. In fact, we have grown our chain during good and bad economic times.”

Along with value, sustainability has come to be important to many grocery chains and independents.

Going Green

Becoming more important

The Massachusetts Food Association (MFA) has implemented “Green Guidelines” to prove it is addressing environmental issues.

MaFood.com reports that the Massachusetts food distribution trade understands the role industry can play in being a leader in adopting programs and creating public awareness that realizes significant environmental benefits, preserves resources and conserves energy as well as helps reduce costs in operations.

The MFA’s new campaign hopes to favorably impact the environment, increase public education and benefit local communities.

The MFA represents and promotes the interests of the Commonwealth’s grocery and supermarket industry and serves as an advocate for its members on the state and national level.

Stop & Shop, in keeping with current trends, has made sustainability a top priority. Stop & Shop operates 130 stores in Massachusetts (out of its total of 392) and is owned by international food retailer Ahold.

“We strive to be a sustainable company,” said Suzi Robinson, Stop & Shop representative. “Companywide we have several programs and processes in place: we offer reusable bags and recycling bins for plastic bags for customers to bring in their bags. We recycle over 50 percent of our waste (e.g. cardboard, paper, plastic, consumable waste, etc). We have one of the largest portfolios of LEED certified stores with over 50 LEED EB stores.”

Robinson added that when possible during new store construction, “we build them with white roofs and skylights to reflect light and harvest daylight. We can then lower interior lights for energy savings. With new and when feasible with remodel stores, we install LED lighting and more energy efficient refrigerated cases.”

Stop & Shop even has a store in Connecticut that has a UTC Power PureCell Model 400 fuel cell that can generate up to 95 percent of the store’s electricity. Composting waste also is a priority at all the Massachusetts stores.

While larger stores are competing for customers through value and other trends, smaller concepts that offer discount prices are flourishing.

Industrywide, Stout said discount grocery stores are enjoying success in the current market.

“Growth in the discount grocery segment is expanding at a very fast pace. Traditional supermarkets, which were the dominant players just a couple of decades ago, now capture a little less than half of the grocery market. The hard discount, limited assortment segment has seen the most growth in the retail sector,” he said. “Retailers such as Aldi, Dollar General and Family Dollar have all reported significant store growth. Save-A-Lot had a record breaking year in 2010, opening more than 140 locations. Our five-year plan is to double our stores to 2,400 locations across the U.S.”

Aldi recently open a store in Worcester, Mass., its fifth in the state.

Big Y also is making its mark on the Massachusetts market this year with plans to open a World Class Market in Holyoke, a 45,000-s.f. store that will be located in a former Atlas-Copco site. Big Y is making a $12 million investment in the community, a company press release stated. The store will employ between 150 and 175. A 2012 construction start is planned.

A Big Y location is under construction in Lee; construction is set to begin later this year in Franklin and Foxborough.

A Big Y World Class Market offers prepared meals including pizzas and rotisserie chicken dinners, cooked-to-order fish and chips, a broad selection of specialty foods including a wide array of organic and gluten-free foods, a full-service butcher shop and seafood direct from New England piers as well as an extensive produce department. Big Y produce buyers work with local growers throughout the year to sell as much local produce as possible.

Headquartered in Springfield, Mass., Big Y is one of the largest independently owned supermarket chains in New England. It operates 61 stores throughout Connecticut and Massachusetts with more than 10,000 employees.

Save-A-Lot also plans to add stores in the region.

According to David Hall, director of licensed development-North with Save-A-Lot, a division of Supervalu, the company is dedicated to eliminating food deserts in coming years throughout the Northeast.

“Save-A-Lot’s dedication to the communities that it serves bodes well for the future as the movement to eliminate ‘food deserts’ takes hold. Save-A-Lot historically has located in areas where other stores have closed or will not go,” Hall said. “You will find many of our locations in urban areas where there are food deserts. Our licensees feel like they can be part of the community by getting involved in the neighborhood and building relationships with their customers.”

In the state of Massachusetts, Save-A-Lot has approximately 13 stores.

Hall added that, “In the Northeast, we have opened 17 stores (eight licensed and nine corporate) in fiscal year 2011. We have plans for additional 30 licensed and corporate stores in the Northeast U.S. for fiscal year 2012.”

Item pricing, bottle bill expansion top legislative issues

Affecting each grocery store, new or old, in coming years are issues the MFA detailed in its 2009-10 annual report. (The 2010-11 report is scheduled to be released at the organization’s 30th annual convention May 27-30 at Mt. Washington Resort.)

Last year, more than 544 bills were signed into law during the Massachusetts legislative session. During this session, one of the largest issues grocery retailers have their eyes on is item pricing.

On May 4, the MFA released a report from the Massachusetts Legislature’s Joint Committee on Community Development & Small Business’s public hearing on the issue of price disclosure.

The hearing also included legislation sponsored on behalf of MFA to create a waiver process for food stores and food departments that no longer wish to item-price and instead would be granted the option to utilize price scanners throughout their stores if certain conditions were met and maintained, MaFood.com reports.

MFA representatives testified on a panel during the hearing, including Joe Alicandro of Stop & Shop, Jeff Dinneen of Roche Bros. and Steve Nordstrom of Big Y Foods.

Massachusetts is now the only state in the U.S. that has not granted relief from item pricing.

Michigan, the last remaining holdout state besides Massachusetts, did away with item pricing requirements earlier this year to allow retailers there to utilize technology for price disclosure.

The MFA’s stance is that the present law is a setup for failure because human error comes into play when a retailer is forced to place a price sticker on nearly every item for sale in a food store. Non-food stores in Massachusetts, which do not have to item price and can instead use scanner technology, have reached a 99.51 percent price accuracy rate as outlined in a recent survey conducted by the Office of Consumer Affairs and Business Regulation.

As of this report, the Joint Committee had not yet given the legislation a supportive or opposing vote.

Bottle bill expansion also is another issue that the MFA opposes. The organization is continuing to coordinate grassroots efforts to explain the negative effects on food store operations.

House Bill No. 890 seeks to expand the 5-cent deposit to include containers of beverages such as water, tea and sports drinks, which, according to MassRecycle Interim Executive Director Ann Dorfman, end up cluttering up parks, rivers and other public spaces, the Worcester Telegram & Gazette reports.

The current law encourages consumers to return empty soda and beer containers through the 5-cent deposit, with the objective to reduce litter and encourage recycling of aluminum cans and plastic and glass bottles.

Gov. Deval Patrick is projecting that the new bill would bring another $20 million in revenue to the state.

The state takes in close to $40 million annually from unclaimed deposits under the current law, according to the state department of revenue. The money goes into the general fund.

The proposed bill, which has critics in both industry and the legislature, has to be passed again by the Joint Committee of Telecommunications, Utilities and Energy. It cleared that committee for the first time in the last session.

The applicability and reasoning behind bringing dirty cans and bottles back to a food store was questioned by Brian Houghton, VP of MFA, in the report.

The proposed overhaul of the bottle bill also would increase the handlers’ fee for retailers and redemption centers from 2.25 cents per bottle to 3.25 cents.

Some cities across the state are in favor of the bottle bill expansion.

Pittsfield recently added its name to the growing list of Massachusetts cities and towns calling for an expanded bottle bill law, the Berkshire Eagle reports.

The city council recently endorsed a resolution urging the state legislature to add water, sports drinks, flavored tea and other on-the-go beverage containers to the nickel deposit list.

The current bottle bill, passed nearly 30 years ago, primarily covers soda and beer cans and bottles.

Pittsfield is among 16 of Berkshire County’s 32 municipalities, and is counted among 181 of the state’s 351 total cities and towns petitioning state lawmakers to approve the expansion bill still pending in the House and Senate.

Mayor James M. Ruberto said Pittsfield backing the legislation is a “no-brainer” given the city is a state recognized green community. Pittsfield hosts one of the largest private utility solar panel projects, saves thousands of dollars each year by using energy efficient street lights, and promotes bicycling over driving whenever possible to reduce fuel consumption.

“Pittsfield and the Berkshires are green and this only adds to our desire,” Ruberto said.

Bottle deposit supporters claim expanding the law will increase the state’s recycling efforts. Massachusetts Public Interest Research Group (MASSPIRG) cites how 80 percent of the beverage containers under the current law are redeemed at 5 cents apiece compared to 22 percent of non-deposit containers being recycled.

“If the expanded bottle bill passes, what we take out of the waste stream would fill Fenway Park to the Green Monster seats (33 feet high) in one year,” said Mark Walsh, MASSPIRG’s Berkshire coordinator.

Ruberto added in the report that, “The state estimates it takes about $1 per person each year to clean up bottles that become litter.”

However, bottle bill opponents view the proposed expansion as an unnecessary added cost in tough economic times for the retailers saddled with the responsibility of collecting the redeemable bottles and cans.

“The retail store is not meant to be a trash bin. Bottle redemption is a messy operation,” said Bill Rennie, VP of the Retailers Association of Massachusetts. “Curbside recycling is a more effective and appropriate way to reduce waste.”

Environmental issues are such a hot topic with the MFA that the group created a Sustainability Sub-Committee to address environmental issues.

There has been continued progress through the Massachusetts Department of Environmental Protection to reduce disposable bag use, increase their recycling rates and increase reusable bag use.

Surveys have shown that in the last three years, there has been a 25 percent reduction of disposable bags. The goal is a 33 percent reduction by 2013.

Liquor licensing increases have been a state issue for many years. The MFA is hoping that the House and Senate Chairs will come to an agreement to increase licensing to retailers.

MaFood.com says that the MFA has continued discussions with the package store association to reach a compromise on increasing the number of licenses, as they sought support from the grocery industry to repeal the sales tax on alcohol.

Allergen Awareness Regulations and Calorie Count Disclosure also are top priorities for legislation. New WIC food packaging also has been on the agenda.

Along with new packaging there are hopes for a WIC Cash Voucher Exchange Program, in which vouchers would be distributed for fruits and vegetables.

On the federal level, the MFA has been a part of the interchange fee legislation and is supportive of the legislation becoming law.

Whether or not these legislative issues are approved with favorable laws, the future of the grocery industry will continue on the path of value, environmental awareness and closely watching economic indicators.

“Consumer spending has definitely decreased during the last two years which has impacted all retailers, including us. Our customer has probably been more impacted by the economy than any other consumer segment,” Hall said. “At the same time, we have seen consumers shift from shopping at traditional supermarkets to formats such as Save-A-Lot and other discount chains which has played to our benefit and to the consumer’s benefit as well.”

For Save-A-Lot, even tough economic times have produced profits and a bright outlook for the future.

“We ended our fiscal year Feb. 26, 2011, and opened a total of 142 Save-A-Lot locations. This year, we plan to open 210 Save-A-Lot locations in various parts of the U.S.,” Stout said. “So far this year we are off to a great start as our sales trends are improving. We have made strong strides toward accelerating profitable new store growth with the objective of doubling the size of Save-A-Lot by 2015. We have also improved overall store performance by driving down costs, reducing shrink and increasing productivity. As we move forward, our company is very focused on driving sales and new store growth.”

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