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2012 Oregon Profile: Grocery Industry Remains Competitive Despite State’s Flat Economy

2011 Oregon Profile The Shelby Report

Last updated on August 16th, 2012 at 12:08 pm

[gn_note color=”#66cc66″] The 2012 Oregon Profile originally ran in the April 2012 edition of The Shelby Report of the West. The profile will be published on theshelbyreport.com one month after it has run in print. [/gn_note]

by Kristen Cloud/staff writer

The pace of the economic recovery in Oregon is on par with much of the country, though the state’s high unemployment and housing crisis remain areas of concern.

Oregon’s unemployment of 9 percent is well above the national rate of 8.3 ­percent, and people “have stopped looking for work,” according to Northwest Grocery Association (NWGA) President Joe Gilliam.

“(The economy) is flat,” he says. “It’s struggling. I think it’s bottomed out, but there doesn’t seem to be anything exciting that’s going to bring ­anything back. A couple of companies are investing but it’s not much. Housing is still really bad here, prices are still super soft.

“…we had a lot of bubble markets here. The buying and flipping here a few years ago was out of control. People were making a ton of money and they really bought into the corrupt mortgage market. They believed that deal was going to last forever and they just got caught in it. And there were tons and tons of homes…foreclosures were ridiculous.”

This housing market dilemma has caused growth to slow since, ­according to the Oregon Office of Economic Analysis (OEA), “households are spending cautiously, banks are lending cautiously and businesses are investing cautiously.”

“As our resources sit idle they become less competitive, and the damage done by the recession becomes more permanent,” an OEA March 2012 “Oregon Economic Forecast” reports says. “The problem of long-term unemployment is most severe across much of rural Oregon, where many communities have yet to share in the recovery.”

What will turn the economy around, particularly in rural Oregon? Gilliam—who ­mentions Oregon has no sales tax, only an income tax—believes it all comes down to practical use of the state’s natural resources.

“There’s such an environmental war over the timber here,” he says. “The timber used to provide a severance tax so, when they severed the timber, that money went into the schools here, and there was a tax on it. We used a lot of money for schools and roads, county money and, when they stopped cutting trees, those counties and schools have really taken a beating in those rural areas. And, being a renewable resource, it’s not being used to its potential. And that’s where the war is here.

“If they would do that again and reopen some of these mills, you’d have great middle class jobs here and you’d have a strong economy.”

Gilliam reveals the state’s manufacturing sector lacks the kind of energetic ­entrepreneurism needed to upstart that important segment of the state’s economy.

“Everybody wants to open a coffee shop,” he quips. “That’s great, it just doesn’t ­produce that many jobs. And that’s the tough thing because, until we really take ­advantage of all our renewable resources and get those manufacturing jobs back, we’re going to sputter.”

Portland’s plastic bag ban costly to grocers

Portland’s plastic bag ban at grocery stores and pharmacies that took effect in October has caused a “massive increase” in the use of paper bags, Gilliam says. This, in turn, is costing the average grocery store between $50,000 and $60,000 a year.

“They’ve made the change (from plastic),” Gilliam says. “They’re focused on their business and being competitive,” though the Portland area, like many metro areas, is made up of many cities and towns.

As a result, Gilliam notes, there are areas where “there’s stores on one side of the street that can’t have plastic and stores on the other side that can. “There are no boundaries like there used to be; all the suburban areas have melted into one area. So it’s a distribution nightmare because you’re having to shift to just paper into one store so, ­instead of being able to do a standard order for all your stores, you’re doing custom ­orders for your Portland groceries.”

Several cities south of Portland—Eugene, Corvallis and Newport—are looking at ­implementing their own bag bans. Gilliam forecasts the plastic-to-paper switch being adopted in other cities as well.

Because of this, NWGA plans to again attempt to have a statewide policy on bags implemented that would put a 5-cent-per-bag fee on paper. The nickel fee charged to the consumer would stay with the retailer to offset the cost of the paper.

NWGA first attempted to have the policy passed last year but it failed to move forward due to a 30-30 tie vote in the Senate. The group plans to take the proposal back to ­lawmakers next year.

In the nearer future on the legislative front, construction of a redemption center network for the Oregon Bottle Bill continues. Two redemption centers already have been built and the third is under way in Salem. The Salem location, according to Gilliam, is a “higher volume, higher speed model and it’s part of a pilot project that was

passed by the state.

“It’s going to take about five grocery stores offline so they don’t have to do bottles anymore,” he says. “And it’s going to be an important experiment because, if we’re doing it right, it opens doors for us to essentially go ahead and build out the ­network and take roughly, we hope in the end, about 300 stores offline and have about 45 redemption centers around the state that will take in bottles and cans.”

The Oregon Bottle Bill, enacted in 1971, was passed in order reduce litter and increase recycling. It requires cans, bottles and other containers of carbonated soft drink, beer and water sold in the state to be returnable with a minimum refund value.


Price of rising fuel will be passed along to consumers

The plastic bag ban in Portland isn’t the only issue proving expensive for grocers. The state’s high gasoline prices are hard hitting as well. And it’s likely to get worse—to the point of impacting consumers’ pocketbooks at the checkout stand.

Regular fuel in Oregon averaged about $3.98 a gallon at the time of this report and premium was more than $4.

“Collectively, we have the biggest truck fleet in the state,” Gilliam says. “We run every day all day long stocking our stores.”

The consumer will ultimately be the one to pay the price, he adds.

“There’s no way to hide that kind of cost. When fuel starts going to $5, and they’re talking about it peaking out at $5…you’ll see that immediately in the price of goods. There is no way to hide that kind of price hike.

“And not only grocery, but moving any kind of cargo,” he says. “That’s huge. Essentially, if gas goes to $5 a gallon, you’re talking at least about a 40 percent increase in 120 days.”

In addition, Oregon is one of only two states (New Jersey being the other) that does not allow self-serve, meaning it’s illegal to pump your own fuel.

“On top of that, we have a minimum wage that goes up every year based on (Consumer Price Index, CPI),” Gilliam says. “So, we don’t allow you to pump your own gas and we pay folks based on CPI to pump gas. So, right now, $8.80 is the minimum wage here; and you can imagine the labor costs that are required by law because they don’t allow self-serve.

“So, our gas prices are always going to be higher because we have a disassociated labor cost.”

Naturally, public transportation also has seen a spike in users due to the rising fuel prices.

The effects of increased ridership on the state’s public transportation system will be felt in the grocery arena, too.

“We run a cart retrieval service and the number of carts will go up because people will get their stuff and walk to the bus with all their stuff in the cart and leave the cart at the bus stop or take it back to their apartment,” Gilliam says. “They’re walking because they won’t be using their cars, so we see an increase in cart retrieval.”

Often, 30 or 40 carts will be retrieved at a time from one apartment complex, he says.

Food stamp use at all-time high

Like many states across the U.S., Oregon—with a population of approximately 3.4 million—is seeing record numbers of people using food stamps. More than 20 percent of Oregon residents are currently enrolled in the Supplemental Nutrition Assistance Program (SNAP). That participation is up between 30 and 40 percent and the highest Gilliam can recall in state history.

“It’s changed the way we stock up the grocery stores, it is huge that that many people are using those benefits.”

Walmart Neighborhood Market eyes Portland area

Walmart’s first all-grocery Neighborhood Market in the West is expected to open in Beaverton by late May.

The 43,000-s.f. store at 17275 NW Cornell Rd., which is being renovated, will hire about 95 people, The Oregonian reports. It will offer fresh produce, frozen foods, meat, dairy and organic foods, along with a pharmacy and some household items. The ­newspaper says the giant retailer also is looking at two other locations in Beaverton for a Neighborhood Market, one at 8225 SW Apple Way, which it expects to open around October; the other at the former Haggen location at 9055 SW Murray Blvd.

Gilliam says Walmart plans for 15 of the Neighborhood Market concepts in the Portland area.

“They’ve looked at buildings in Beaverton, in Lake Oswego, in West Linn—but they’re looking at where there were former grocery stores and infilling there.

“The thing Walmart has struggled with, particularly in the Portland area, is people don’t want a Walmart in their neighborhood. And they’ve tried to come in and put their regular footprint in and the neighborhoods have basically prevailed and said ‘we don’t want you here, we don’t want your traffic’ and pushed them out.”

By changing its strategy and looking at planning for the grocery only Neighborhood Market in buildings that previously existed as grocery stores, the land approval process is less stringent.

“It really hard for the city to say ‘you can’t have a grocery store here’ when they’ve already approved it for that use.

“I think it’s a little more efficient way,” Gilliam says of the strategy. “Do they get their big footprint, the big box they’d like to have? No, but if they do infill 15 locations it’s probably enough volume for the business to make sense to them.”

Still, nothing’s a done deal. Walmart continues to meet resistance from Portland area residents, even with the Neighborhood Market concept.

“People generally don’t want them in their neighborhoods,” Gilliam says. “They have the lowest favorability of any of the grocers in the state…they’re significantly lower in terms of favorability at how people feel about them.

“If there’s a big box, (Oregon residents would) rather have a Fred Meyer or a Costco or a WinCo…there’s a better feeling about who they are, what their mission is. Theirs are just much higher marks. People also really like Safeway up here, they like Albertsons—their favorability is all over 70 percent, which are great numbers.”

Others have big plans, too

Despite Walmart’s plans to penetrate the Portland area, several traditional grocery chains are scheduled to open new stores in the Beaver State.

Safeway, originally founded in Portland, will open a 55,000-s.f. store at 2800 SE Hawthorne Blvd. on March 21. It was built on the site of a smaller Safeway that had been in the Southeast Portland neighborhood since 1963. Safeway, along with Fred Meyer (Kroger Co.), also originally founded in Portland, is among the state’s top 10 employers.

Portland-based New Seasons Market plans to open its 13th store in the Eliot Neighborhood on the northeast side of the city in 2013. The 30,000-s.f. store will bring more than 150 new jobs to the area.

“We strive to build community inside and outside of our stores—by employing local residents, ­providing goods and services to our neighbors and supporting local and regional producers and suppliers,” said New Seasons Market President and CEO Lisa Sedlar.

One of New Seasons’ founders, Chuck Eggert, retired in February. While he will serve as a consultant for the company for the next three years, Eggert also will continue to operate his food and beverage production company, Pacific Natural Foods, based in Tualatin.

Another grocer, Mike Zupan, CEO of Zupan’s Markets, is ­expected to open a store in Lake Oswego later this year. The $3 million 20,000-s.f. store will serve as the anchor tenant in Lake Grover Village, formerly Lake Grove Shopping Center. Its opening will add to several other Zupan’s Markets in the Portland metro area.

Mike Zupan’s father, longtime Portland grocer John Zupan, died from injuries

suffered in a traffic accident in August. John Zupan, who counted Fred G. Meyer as one of his first bosses, was a “pioneer in the city’s now-celebrated food scene,” The Oregonian says.

Boise, Idaho-based WinCo Foods, which operates 16 stores and two distribution ­centers in Oregon, has found success in the state over the years. It experienced a “good” 2011, according to Michael Read, VP of public and legal affairs. And, though it has not immediate expansion plans in the state, Read tells the The Shelby Report that the employee-owned company always is on the lookout for opportunities.

Gilliam: ‘food deserts’ a misused term

Gilliam says it’s hard for him to imagine a food desert with 15 new grocery stores planning to set up shop, referencing Walmart’s Neighborhood Market plans in the Portland area.

He calls the term “food deserts” a buzzword.

“I think it’s kind of one of those things being misused here,” he says. “Because Detroit had a food desert, now everybody thinks they have a food desert. And we’re not even close to those kinds of distances that some of those inner cities that have collapsed. We have grocery stores everywhere.”

Statewide, Gilliam says there currently are about 500 traditional supermarkets operating. Many of those are along public transportation routes.

“I think what’s hard for people to understand, the politicos especially…we had a grocery store close in southeast Portland, an Albertsons store closed,” he says. “If people aren’t in there shopping, that’s when the store closes. If people would shop there, the store would stay open. But they choose to go, whatever distance it is, for product selection, price, who knows what it’s for. It’s kind of this thing that people just don’t understand…if people would shop there, there’d be a grocery store there. Someone would open one there. “So, these self-proclaimed food deserts are a little hard to understand here. It’s not like Detroit where the whole economy just collapsed.”

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