March 28, 2024

Bread and butter: Rural grocers search for a way forward

BAXTER — When Hometown Foods worked with the Baxter Economic Development Corporation in Aug. 2010 to purchase what was then Brannen’s Foods, Hometown President Lyndon Johnson already had a track record of saving small-town grocery stores.

The seven-store chain has doubled the sales of each store it has purchased since buying Conrad Foods in 1996 and re-branding it into the first Hometown Foods location. The same is true for its Baxter location.

Johnson’s success has come from Hometown’s moderate size — having the resources and the volume to purchase larger pallet buys from supplier Affiliated Foods to get discounted costs and take advantage of warehouse allowances which distributors and vendors provide to stores that purchase certain items in bulk quantities. But the stores keep their identities as small-town, small-size stores.

For Hometown Foods, this business model appears to be working. Johnson said it was the volume of product he is able to sell with seven stores which allowed the company to survive the 2008 recession. Other small independently-owned grocers in Jasper County and Iowa are still working toward viability — trying to maintain customer base and find creative ways to profit in a big-box market.

Johnson said this multi-store/small size approach also allows for employee development and advancement within the company. But a hurdle remains with consumer loyalty. Asking customers in towns becoming increasingly viewed as bedroom communities to choose Hometown over Hy-Vee, Johnson said, is still their number one challenge.

“The biggest challenge we have is we’re asking our customers, who typically work outside the town that we’re in, to drive by the big, pretty stores on their way home and go to our store,” he said. “We better give them a good reason to do it or they won’t do it.”

In Iowa, small-town independents all agree their largest threat comes from the big three: Hy-Vee, Wal-Mart and Fareway. But Johnson said another challenge comes from non-traditional businesses getting into the grocery industry. Stores like Walgreen’s, CVS and Menards are all selling staple products such as milk, bread and eggs. This eats into sales of the highest moving products in rural grocery stores.

“They are not necessarily the biggest competitors, but their taking a piece of the pie,” Johnson said. “They’re taking a few dollars here and a few dollars there, and they’re dividing the pie in more ways.”

Jasper County currently has four stores that can be classified as independent grocery stores — Hometown Foods in Baxter, Shugar’s in Colfax, Monroe Foods in Monroe and Prairie City Foods in Prairie City.

On Sept. 19 – also his birthday – Kelley Schneider will have owned Prairie City Foods for 15 years. As an independent grocer in small-town Iowa, he said it’s difficult to turn a profit in the current economic climate, with shoppers always looking for the best deal — no longer relying on convenience and location.

In 2008, Schneider had his best year at Prairie City Foods, but following the economic recession, his sales have diminished. In fact, the independent grocer said he hasn’t seen a profit in two years.

“The struggle right now is all my older clientele are moving on, into retirement homes, moving closer to family or they’re passing away,” he said. “That’s what I’ve noticed the last three or four years. A lot of my really good customers have moved on.”

Schneider said his day-time business has seen the biggest hit, but after 3 p.m. when commuters return to Prairie City from out-of-town jobs, he said foot traffic increases. Overhead is a big problem for small town grocers. Recently, Schneider left a day-stock position unfilled to save labor costs when an employee moved to Newton. Debit and credit card fees charged to retailers on a per-transaction basis from companies like Visa and Mastercard also add up. Schneider said without that expense, it could be the difference between a loss and breaking even on the fiscal year.

“I’ve had to borrow money to pay bills. It gets harder and harder,” he said. “I’ve got my freezers and my cases that need replaced, but I just don’t have the money to do it.”

Another issue is volume. Prairie City Foods’ biggest competitors are the Hy-Vee and Fareway, 10 miles west in Pleasant Hill. For the big box stores, it’s all about how many pallets of canned goods can they sell. The larger chains can buy-in products in bulk, getting distributor and warehouse allowances to lower shelf prices.

Schneider purchased his store under the SuperValue distribution umbrella, but changed grocery providers to Affiliated Foods in 2001. However, as Affiliated increases the minimum purchase requirements, smaller stores like Prairie City Foods are hit hardest. Due to the delivery change, the grocer has been forced to cut down his advertised offering from weekly to bi-weekly. Schneider said it’s too difficult to run a weekly ad when his product only ships twice per week.

“It’s hard to get younger people and younger families to shop here,” Schneider said. “They’ll come in and get a dozen eggs, a gallon of milk — one or two things. But when they’ve got three or four kids they’re price conscious. And I can’t blame them. You have to save money.”

Schneider has been in the grocery business since 1978, first working for a Hinky Dinky store in Des Moines. After that grocer changed hands several times, he went to work for an independently-owned SuperValue called Tate’s Foods in Des Moines for nine years. When Schneider found the opportunity to purchase Prairie City Foods, he relished the opportunity.

“I always wanted to own my own grocery store, so this one came available so it just worked out,” he said.

Michelle Hurd, president of the Iowa Grocery Industry Association, said that the nonprofit has just begun collecting data on the viability of rural and independent Iowa grocery stores this year. While this isn’t enough data to establish a trend, industry leaders have seen a nation-wide increase in closures of independently-owned grocers in recent years. The National Grocers Association shows 246 independently owned grocers are currently operating in Iowa.

According to an independent grocers impact survey conducted by the NGA, small-town and independent grocers in Iowa directly employed 8,600 workers and contributed more than $190 million in state and local tax revenue in 2012. Small-town grocers generate a combined $1.46 billion in sales annually. But this still only accounts for less than 1 percent of Iowa’s total economy. Locally, rural and small-town grocers employ 46 workers in Iowa House District 28, which includes Prairie City and Monroe and Knoxville. Nationally, small-town or rural independent grocers make up roughly 25 percent of the domestic market.