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Pa. Profile: Food Merchants Doing Well Despite Fierce Competition

Pa. Profile, Rutter's video gaming room.

by John McCurry/contributing writer

Pennsylvania food merchants are faring well in spite of constant fierce competition. While there are closures and other challenges, both with independent grocers and chain stores, there has been considerable growth expansion, especially in the convenience store area. Those are the observations of Alex Baloga, president of the Pennsylvania Food Merchants Association (PFMA).

“Generally, competition is stiffer on a whole number of levels, whether online or the sales expansion by non-traditional food retailers such as dollar stores or pharmacies,” Baloga said. “There are all sorts of competitors you wouldn’t have seen 10 or 15 years ago, and that creates pressure on traditional retailers. Even in craft stores or home improvement stores, there is a food section.”

Shoppers are looking for different outlets, different experiences and different opportunities to purchase food, Baloga said.

But the good news, he says, is a recent national study found that five retail stores open for every one that closes. Food, drug, convenience and mass merchant stores have experienced the most growth. There is plenty of reason for optimism, according to Baloga.

“The retail industry is holding its own, and PFMA feels there will continue to be more growth than closures in the future,” he said.

Current trends favor enhancing the shopping experience for customers.

Pa. Profile Alex Baloga PFMA
Alex Baloga

“There has always been an emphasis on customer satisfaction, but the overall customer experience is coming to the forefront where different products and services are tailored to different customers, whether it is a different generation or a specialty item,” Baloga said. “There are a lot more organic and specialty items along those lines. It is all about keeping up with the demands of the customers, which are always evolving.”

Merchants are making a lot of changes to attract shoppers. Baloga cites as an example Rutter’s, which recently opened its first video gaming terminal (VGT) at its store in York. The convenience store chain plans to open terminals at its stores in Port Royal, Duncansville and West Manchester in September, with more scheduled to open in 2020. Other stores are adding in-store restaurants.

“You are seeing people look for different outlets, different experiences and opportunities to purchase food,” Baloga said. “Stores are involving the community, holding more events and providing rooms people can use for meetings. There are more prepared food offerings. There are even health centers and dietitians in some stores. Again, these are efforts to improve the overall experience to the customer and being as much of a one-stop shop as possible.”

Another shift in purchasing habits involves online ordering, pickup and/or delivery. Shoppers are increasingly ordering products on their smartphones and picking up the items at the store or having them delivered to their homes. Baloga said while online shopping is a growing part of the industry, it still represents a relatively small portion of overall sales.

“Believe it or not, younger people seem to prefer going into stores. They like shopping online, but they like the experiential aspect of going in stores. Online shopping is definitely changing the industry, but I’m not sure it’s as dramatic as some people would like to think.”

Health, transparency and CBD

Organic, gluten-free, vegan and locally sourced options are important to consumers, Baloga said. Consumers want to know the origin of their food. To that end, stores are offering more transparency. This increasingly involves the posting in stores of the farm that produced the vegetables.

Baloga said CBD-infused products are a major emerging issue in Pennsylvania, but there are more questions than answers. As such, Baloga constantly receives questions from members on the topic.

“There is a lot of confusion as to what is acceptable and not,” Baloga said. “The PFMA has taken more of an informational role in trying to advise members of what is going on and what may be coming, but also exercising caution in moving forward too quickly with these products because there are a lot of unknowns.”

PFMA is encouraging members to obtain as much information as possible and be as cautious as possible before moving forward with CBD products. PFMA is waiting on the FDA to establish regulations, especially regarding CBD in food and drink.

“There is uncertainty, but there is an extreme amount of interest, especially with food merchants,” Baloga said. “This is one of the hottest potential products out there and has the potential to explode on the retail scene in the future.”

Regarding the issue of single-use plastic bags, Baloga said Pennsylvania recently passed a law that was included in legislation tied to the state’s budget. It preempts municipalities and the state from passing bag ordinances or container ordinances. That issue is on hold on the municipal and state level until next July. Currently, there is only one municipality—Narberth—that passed a bag ordinance. Westchester passed an ordinance but did not make it effective until after the preemption expires.

The preemption puts the issue on hold, which is what PFMA supported, Baloga said.

“PFMA does not think this is an issue that should be town-by-town, city-by-city, municipality-by-municipality,” he said. “We support having a conversation statewide.”

Baloga cites other issues the PFMA has been working on. The organization has been supportive in pushing on the federal level the U.S/Mexico/Canada Agreement, which he said is a major issue for Pennsylvania since it is an agricultural state.

“It is important to get that in place,” Baloga said. “PFMA supported the Pennsylvania Farm Bill, which does a lot to help further issues on the dairy industry and agriculture, which are important issues for PFMA members in the retail community but also in the CPG companies that we represent, as well as our wholesalers and customers. That has been a major initiative. That legislation was passed. We are trying to continue to make changes to the beer and wine wholesale and retail systems in Pennsylvania.”

PFMA also seeks to make changes to the Emergency Declaration Process and price-gouging laws. Baloga said PFMA was able to get legislation passed last session, but it was vetoed by Gov. Tom Wolf. So, that effort continues.

The association was successful in getting legislation passed in the House establishing business Commerce Courts, which has been a major issue for years. The bill must still be passed by the state Senate. A Commerce Court hears cases on corporate acquisitions, mergers, dissolutions, liquidations or other matters concerning corporations, limited liability companies, trusts, sole proprietorships and corporate partnerships.

Overall, the economy in Pennsylvania is doing well. Consumer spending is up. Retail sales have increased dramatically over the last several years. U.S. retail has increased $565 billion in sales since January 2017.

“Growth in the food retail industry has been steady,” Baloga said. “Labor is always a challenge. PFMA members have increased their pay and benefits to retain talent. Pennsylvania has lagged behind the rest of the country as far as unemployment rate and growth, but overall, things have been moving in a positive direction.”

Baloga notes that Pennsylvania is home to many of the highest regarded c-stores in the country, such as Wawa and Sheetz. They continue to expand and offer more products, services and experiences for customers. The size, scope and scale has increased significantly.

Pennsylvania is seeing considerable store expansion, particularly from international firms such as Lidl and Aldi, which Baloga said are entering the marketplace in a big way. Other openings include Giant Food Stores, which opened its new Giant Heirloom Market in the University City neighborhood of Philadelphia on Aug. 2. The store, located at 3401 Chestnut Street, is the second Giant Heirloom Market in the city. It is located between Drexel University and the University of Pennsylvania.

The new 9,950-s.f. store is open 6 a.m.-10 p.m., seven days a week and employs approximately 50 full- and part-time partners.

Two more Giant Heirloom Markets will open before the end of the year. The Northern Liberties site will open its doors at 1002 North Second Street, across from the Schmidt’s Commons in the fall, followed by the Queen Village location at 201 South Street by the end of 2019.

According to Carlisle-based Giant, while Heirloom Market stores occupy a smaller footprint than a traditional Giant store, they maximize space and the customer experience with selections and features uniquely curated for the neighborhood they serve.

The new 9,950-s.f. University City store, for example, caters to the convenience and needs of its academic neighbors by offering a wide selection of grab-and-go meals for breakfast or lunch or to take home for an easy, nutritious dinner. The University City store also planned to accept payment by DragonCard and Penn Card.

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