2015
Independent Grocers Financial Survey
Presented by:
Bob Graybill | President & CEO | FMS
Jon Cline |title | FMS
2015 Independent Grocers Financial Survey©
1
Today’s agenda
 Review of the Independent Grocers Financial Survey
 2015 edition
 153 companies, representing a great mix of independents
1
Stores
2-10 11-30
31+
6.1%
46 Years — Average years in business
11.1% — Share with union staffers
13.5%
43.9%
68.9% — Share with loyalty program
36.5%
45.3% — S-corps & 36.0% corporations
2015 Independent Grocers Financial Survey©
2
Good regional representation
Northeast
was strongly
affected by
abnormal
fiscal year
2015 Independent Grocers Financial Survey©
3
Economic, operational and political conditions driving the business
landscape
THE BACKDROP
2015 Independent Grocers Financial Survey©
4
On the mind of the independent grocer
Issue
Impact in 2014
Issue
Expected impact in
2015-16
Competition
6.9
Competition
7.0
Economy
6.5
Staffing/hiring/
retention
6.6
Staffing/hiring/
retention
6.4
Healthcare costs
6.5
Healthcare costs
6.2
Gov. regulations
6.4
Food safety
6.2
Technology investments
6.2
2015 Independent Grocers Financial Survey©
5
1. COMPETITION
2015 Independent Grocers Financial Survey©
6
Competition
Avg. score
4.4
1. Supercenters
4.1
2. Conventional
supermarkets
80.5% of stores in the survey have a Walmart
supercenter in their direct market areas
Bodegas
3.7
3. Limited
assortment stores
Cash plus formats
Warehouse club stores
Convenience stores
3.4
4. Gourmet/specialty
stores
Drug stores
Commissaries
Farmers’ markets
2.5
5. Other formats
Meal assembly kits
Same day online delivery
2015 Independent Grocers Financial Survey©
7
Regional differences
Supercenters
Conventional
Gourmet
Other
Limited assortment
Drug
With increased
presence of Walmart
and online players
Supercenters
Limited assortment
2015 Independent Grocers Financial Survey©
8
The Walmart effect
The Walmart system
Discount Stores
Supercenters
Neighborhood Markets
Sam's Club
Small formats
3,288
2,256
Accelerated growth in Neighborhood Markets
 Small footprint fits in conventional space
 Pricing same as supercenters
1,075
632
508
407
74
579
112
2007
2008
2009
2015 Independent Grocers Financial Survey©
2010
2011
16
2012
2013
2014
9
Assortment-level competitive strategies
Sales up: 67%
SKUs up: 72%
Sales up 60%
SKUs up 56%
SKUs up: 60%
SKUs up: 44%
2015 Independent Grocers Financial Survey©
Sales up: 66%
SKUs up: 58%
SKUs up: 29%
10
Advertising strategies
 Ad budget: 1.3% of sales
 Move to more digital and social media
Advertising budget allocation
Newspaper (incl. FSIs, circular & RoP)
Direct mail/shared mail
Community donations
Social media/mobile marketing
Email/online marketing
Radio
TV
Billboards/outdoor signage
Other
2015 Independent Grocers Financial Survey©
2015
57.7%
14.6%
7.0%
6.2%
5.0%
4.3%
2.1%
1.1%
2.0%
2014
58.9%
14.5%
6.2%
3.6%
3.5%
6.6%
1.2%
1.3%
4.2%
Change
↓
=
=
↑
↑
↓
↑
=
↓
11
Ramping up social media efforts
Experience with social media
2015
2014
59.3%
51.9%
20.3%
24.7%
10.2%
13.0%
6.8% 6.5%
3.4% 3.9%
Just getting startedBeen using it for 6- Been using it for No experience, but No experience and
12 months
over one year plan to start soon no plans to start
2015 Independent Grocers Financial Survey©
12
Store development strategies
1.57%
Average store size: 34,478 sq. ft.
Average capital expenses as % of sales
Versus 1.61% last year
2013 capital expenses budget vs. 2012
↑
=
↓
49%
23%
27%
78.9%
2014 capital expenses budget vs. 2013
↑
=
↓
40%
43%
17%
2015 capital expenses budget vs. 2014
↑
=
↓
33%
40%
27%
2015 Independent Grocers Financial Survey©
Average selling space: 21,171 sq. ft.
Remodels drive store development:
• 21% opened 1 or more stores
• 12% closed 1 or more
• 50% remodeled 1 or more
13
“Right for the business” is top driver
Deciding factor in capital investment allocation
68.0%
16.2%
13.8%
Right for the business Generating or protecting Return-on-investment
sales
2015 Independent Grocers Financial Survey©
1.0%
1.0%
Tax benefits
Cost savings
14
2. THE ECONOMY
2015 Independent Grocers Financial Survey©
15
Uptick, and uncertainty, in many key indicators
5.3% in July 2015
6.2% annualized 2014
Noted exceptions, such as
teenagers (16.2%)
Record # not in labor force
6.0%-6.7%: GA, AZ, AL, CA,
LA, SC, MI, NM and AK
Stock market shows
long-term gains, but
big recent losses
Housing market
is struggling
GDP showing solid gains
2014
Q3 +4.3%
Q4 +2.1%
2015
Q1 +0.6%
Q2: +2.3%
>6.8%: DC, NV, WV
2015 Independent Grocers Financial Survey©
16
And consumer caution persists
CPI 2014: 2.4%
With noted category
exceptions, such as meat
SNAP beneficiaries still
> 45M
% of sales double-digits
for some retailers
2015 so far fairly flat
Monthly benefit of $125
Consumer confidence >100,
But spending remains
subdued
40%
“downtrodden and cautious”
(IRi)
Gasoline prices remain
down; HH savings of $750
2015 Independent Grocers Financial Survey©
17
3. STAFFING, HIRING & RETENTION
2015 Independent Grocers Financial Survey©
18
Independents turn to PT employees
 Turnover stable in 2014, but increases expected
Turnover
Overall
Single-store
Multi-store
Full-time employees
12.4%
8.9%
17.2%
Part-time employees
38.5%
25.1%
57.0%
 Independents report rising share of PT employees




2012: 55.9%
2013: 56.8%
2014: 59.4%
2015: 65.2%
2015 Independent Grocers Financial Survey©
1-store
56.8%
2-10
62.3%
11-30
68.9%
31+
79.7%
19
4. HEALTHCARE COSTS
2015 Independent Grocers Financial Survey©
20
Healthcare costs prompt concern
1.6%
Average cost of healthcare as % of sales
Up from 1.5%
Increase over prior year
2011
7.0%
2012
7.6%
15% reduction
2015 Independent Grocers Financial Survey©
2013
10.1%
19% steady
2014
4.4%
66% increase
21
The 30-hour rule
Method of tracking non-fulltime employee hours
2015
44.2%
2014
50.0%
32.4%
25.0%
13.5%
8.8%
Internal/manual Payroll company Internal software
process
2015 Independent Grocers Financial Survey©
11.5%
5.9%
Other
5.8%
2.9%
Health insurance
broker or provider
22
Staffing, turns, transactions, lane types and shrink
OPERATIONAL BENCHMARKS
2015 Independent Grocers Financial Survey©
23
Transaction size grows
Transactions per store per week
2012: 10,972
2013: 10,702
2014: 8,479
While down, much of the decline driven by:
• 2-10 stores
• Northeast
Transaction size
2012: $23.88
2013: $24.38
2014: $26.75
Single stores: $25.21 vs. 31+ stores: $32.17
Loyalty program: $30.14
2015 Independent Grocers Financial Survey©
24
Inventory turns flat for total store
Total store inventory turns
2007
18.6
2008
18.0
2009
18.0
2010
2011
2012
2013
2014
Dry grocery: 11.9
Dairy: 30.7
18.6
Meat: 35.6
Produce: 50.6
16.1
16.4
17.2
17.0
2015 Independent Grocers Financial Survey©
25
Operational shrink
 Some level of operational shrink natural in grocery
retailing, but…
Independents total store shrink 3.0%
Best-in-class total store shrink
1.5%
Understanding
how to close
the gap
Goal: avoid losses due to inefficient processes
2015 Independent Grocers Financial Survey©
26
2015 Shrink levels
MEAT
DELI
8.0%
4.2%
DRY
GROCERY
1.7%
DAIRY
2.8%
TOTAL
STORE
SHRINK
3.0%
2015 Independent Grocers Financial Survey©
PRODUCE
5.4%
27
What are achievable improvements?
Total store
Dry grocery
Dairy
Produce
Meat
Deli/Prepared foods
All
Top performers
3.0%
1.7%
2.8%
5.4%
4.2%
8.0%
1.8%
0.9%
1.7%
4.2%
2.9%
5.2%
What are the top performers doing differently?
2015 Independent Grocers Financial Survey©
28
Actively managing shrink
Measuring shrink
At cost
At retail
Ability to measure shrink @
the SKU level
Yes
Shrink management
program?
No
Yes
No
80%
48%
52%
Lower-than-average
shrink @ 2.6%
2015 Independent Grocers Financial Survey©
35%
20%
Lower-than-average
shrink @ 2.2%
65%
Lower-than-average
shrink @ 2.1%
29
 Incentive-based shrink curbing program.
 We set up a shrink committee of corporate and store-level employees.
 We track all known and unknown shrink and generate reports for employees
up and down the organization. We found getting employees of all levels
involved is the best way to cut shrink.
 We started scanning known waste as to put a price on it. We have programs in
place with our fresh department managers to try and reduce the waste.
 We started setting goals by department and started measuring against those
goals in weekly shrink logs.
 We actively track known and unknown loss and damages are managed at the
store level.
 We track perishable shrink and tie it to overall performance.
 We installed cameras and have floor walkers to curb loss.
2015 Independent Grocers Financial Survey©
30
Sales, profits and the profit leaders
FINANCIAL PERFORMANCE
2015 Independent Grocers Financial Survey©
31
Independents struggle to maintain sales
Same store
sales growth
Food-at-home
inflation
Real
growth
2014
+1.5%
+2.4%
-0.9%
2013
+1.1%
+0.9%
+0.2%
% with negative growth: 27% vs. 33%
% with growth < inflation: 58% vs. 42%
2015 Independent Grocers Financial Survey©
32
Regional differences (not inflation adjusted)
-0.3%
2.3%
-0.3%
16% sales losses
86% growth < inflation
1.5%
2015 Independent Grocers Financial Survey©
33
Sales distribution
Total grocery
Grocery
Dairy
Frozen
HBC
GM
Beer/wine/liquor
Tobacco
Total produce
Produce
Floral
Total meat
Meat
Deli
Bakery
Seafood
Miscellaneous
Pharmacy
Other
Total
57.12%
40.22%
7.39%
3.75%
0.92%
0.83%
2.83%
1.18%
11.23%
10.78%
0.45%
27.76%
19.42%
5.64%
2.17%
0.53%
1.51%
2.38%
100.00%
2015 Independent Grocers Financial Survey©
34
Total store gross margin down slightly
Total store gross margin 2010-2013
26.48%
26.33%
26.12%
25.87%
25.68%
2014
2013
2012
2011
2010
Single stores: 27.08%
Multi-stores: 25.10%
2015 Independent Grocers Financial Survey©
35
Regional differences (total store GM)
25.89%
27.20%
27.06%
24.11%
2015 Independent Grocers Financial Survey©
36
Expenses up due to labor & utilities
Expenses as a percentage of sales in 2014
Labor & benefits
14.13%
Rent/CAM
1.81%
Utilities
1.76%
=
Supplies
1.25%
=
Advertising
1.26%
=
Depreciation
0.96%
=
Repair & maintenance
0.87%
=
Interest
0.29%
2015 Independent Grocers Financial Survey©
=
22.6%
2014
20.9%
2009
37
Store labor/benefits costs rise
Store labor and benefits 2010-2014
2010
2011
2012
2013
2014
11.45%
11.42%
2.67%
2.36%
Labor
2015 Independent Grocers Financial Survey©
Benefits
38
Regional differences (total expenses)
22.34%
24.84%
27.68%
19.11%
2015 Independent Grocers Financial Survey©
39
Net profits down significantly: 0.91%
Average net profits before taxes 2006-2014
Single
Multi
2009
2010
All
2.50%
2.30%
2.10%
1.90%
1.70%
1.50%
1.30%
1.10%
0.90%
0.70%
0.50%
2006
2007
2008
2015 Independent Grocers Financial Survey©
2011
2012
2013
2014
40
Regional differences (net profit)
Overall: 0.91%
Minus the NE: 1.33%
Minus NE & Canada: 1.22%
1.45%
0.84%
-2.33%
1.64%
2015 Independent Grocers Financial Survey©
41
Profit leaders increase results vs. YAGO
The pack
0.66% | 0.40%
75th percentile
2.64% | 2.44%
25th percentile
0.17% | -0.50%
Lowest
profit
reported
-3.62% | -7.89%
2014 fiscal year
Median or
50th percentile
1.27% | 1.03%
2013 fiscal year
Highest
profit
reported
8.00% | 11.18%
Profit leaders (Top 25%)
4.10% | 3.89%
Profit leader gap
Net profit all respondents and profit leaders
All respondents
Profit leaders
4.67%
4.10%
4.07%
4.01%
1.68%
1.65%
1.08%
2009
1.12%
2010
2015 Independent Grocers Financial Survey©
2011
4.31%
3.88%
2.8
1.51%
0.91%
2012
2013
2014
43
The profit leaders
 Have lower-than-average shrink
Total store
Dry grocery
Dairy
Produce
Meat
Deli/Prepared foods
2015 Independent Grocers Financial Survey©
All
3.0%
1.7%
2.8%
5.4%
4.2%
8.0%
Profit leaders
2.2%
1.4%
2.4%
4.7%
3.3%
5.9%
44
The profit leaders
 Better manage inventory
Total store turns
All
Profit leaders
17.0x
17.2x
Dry grocery
11.9x
13.6x
Dairy turns
30.7x
33.4x
Meat turns
36.6x
37.8x
Produce turns
50.6x
51.2x
2015 Independent Grocers Financial Survey©
Emphasize fresh,
especially produce,
meat and deli
 Higher sales allocation
 Higher-than-average
gross margins
45
The profit leaders…
 Invest and reinvest in the business
“The Pack”
Profit leaders
Capital expenditures
1.36%
2.05%*
Advertising
1.23%
1.31%
Share opening stores
15.9%
22.3%*
* Small sample
2015 Independent Grocers Financial Survey©
46
The profit leaders…
 Focus on cost control
The pack
Profit leaders
14.54%
13.17%
Rent/CAM
1.87%
1.60%
Utilities
1.83%
1.55%
Supplies
1.28%
1.11%
23.35%
19.41%
Salaries and benefits
All expenses
4.0 points difference in total expenses
2015 Independent Grocers Financial Survey©
47
The profit leaders…
 Keep debts low and leverage assets
“The Pack”
Top performers
1.4
0.8
Long-term debt*
32.6%
22.4%
Short-term debt*
31.8%
27.9%
Debt to asset ratio
* % of total liabilities and equity
2015 Independent Grocers Financial Survey©
48
Regional differences (share of profit leaders)
Canada: 13.4% | 10.7%
33.6% | 46.4%
13.4% | 0.0%
16.1% | 17.9%
2015 Independent Grocers Financial Survey©
23.5% | 25.0%
49
Conclusion
 2014 was a tough year for all, but the overall
numbers pulled down by the Northeast
 Independents will recover with resilience and
business savvy
 Draw on lessons from profit and shrink leaders who
manage above-average sales, margin and profit growth
2015 Independent Grocers Financial Survey©
50
Thank you!
 Check www.fmssolutions.com for the report
 All participants receive a free copy of the report
 Contact us to participate in the 2016 study!
 For questions:
 Bob: bobg@fmssolutions.com
 Jon: jonc@fmssolutions.com
2015 Independent Grocers Financial Survey©
51