Pivoting to Selling Groceries? Good Luck With That.
Being a micro-grocer is nearly impossible even during normal times. Pivoting to it during the pandemic requires Herculean fortitude. Many bars, restaurants, and other retailers are doing just that. And many are also discovering that selling groceries isn't very profitable. While becoming a micro-grocer may be an acceptable stop-gap measure during this challenging and unpredictable time, it's likely not an economically sustainable solution. And that's unfortunate. Here's why being a micro-grocer is so hard to pull off in the long run.
FRESH FOOD ROTS
We want fresh, healthy, affordable food, and we lament the lack of it in so many neighborhoods. We know that a diet high in 'processed' foods can lead to negative health outcomes. We would prefer our food contain little to no preservatives. Bonus points if it's local. So why don't I just offer people what they want, says the micro-grocer. Easy-peasy, right?
Without high inventory turnover from reliable, consistent foot traffic, too much inventory is lost to spoilage. Baked goods without preservatives can only be sold for a day or to before they must be donated or sold for a reduced price as 'day old'. Eggs, meat, and dairy have a limited shelf life. And prepared salads and sandwiches will give you less than a week. But that blue box of macaroni and cheese? It can sit on the shelf for many, many months before it reaches its expiration date.
REGARDLESS OF WHAT WE CLAIM TO WANT, WE PREFER BIG BOX STORES
Ah, the big box stores. We complain about them, we rant about them on social media, but yet those are the places getting the lion's share of our grocery money. We say we long for the good ol' days of 'mom and pop' stores - but we sure don't want to give up our Target and our dollar stores. As much as we love to hate Dollar General, given its wild success obviously many of us are shopping there. Convenience is a huge leg up for the big box stores - because they're so huge, you can usually get everything on your list from a WalMart or a Kroger.
"When supply chains swing back to normal, larger chains will compete better on price and availability. Prices are likely higher in smaller stores; with incomes impacted, consumers will look for cheaper costs and go back to larger chains." Ravi Anupindi, professor of technology and operations and faculty director for the Center for Value Chain Innovation at the University of Michigan’s Ross School of Business
A retailer that has pivoted to selling groceries may have a small selection of fruit and veggies on a table, a few dried goods, and possibly a couple coolers with locally made salads, beverages, maybe even some milk from a Michigan farm. But that's not enough variety for a family's weekly meal requirements. It's a novelty. To get enough food for the family for the week, a shopper would have to go to multiple 'pivoting' retailers. Most people don't want to do that during normal times, much less during a global pandemic.
Ironically, many people are actually LESS likely to shop at a micro-grocer or other 'pivoting' small business during the global pandemic. While the big box store may have more of a crowd, it also means less stops. One trip and you get everything you need.
According to Grocery Dive, "Offering a limited range of products has a quaint appeal, but operating costs in dense areas can be high and consumers looking for a full shop may still opt for a traditional supermarket".
'Zero Waste' grocery stores are hard to pull off for the same reason - you can't get everything on your list. Bulk food in refillable containers is a noble idea, except that dried beans, turmeric powder, and rice don't make up the whole grocery list. Foods that require refrigeration are near impossible to sell packaging-free.
BIG GROCERS BENEFIT FROM BIG VOLUMES
It's no secret that food is cheaper at big box stores. The margins on groceries are razor-thin, with some items only bringing in a few pennies of profit (and grocers actually lose money on 'loss leader' items). WalMart and Kroger earn money on volume, not margins. You have to sell A LOT of food to make money on an item that only brings in a few pennies.
And grocery distributors typically sell by the case. You can't buy 5 cartons of eggs for your tiny store - you have to order a minimum of 15. You can't get a few boxes of cereal - you need to order at least a dozen. That means your inventory exceeds your needs, and you'll likely experience a loss. Furthermore, buying in large volumes typically means lower prices for big box stores - they also have more bargaining power due to their size. This can be ameliorated somewhat by sourcing only from local farmers, but we've already talked about the issues with fresh food. And as much as we claim we love shopping small, at the end of the day people are only going to pay so much for a bagel, a bunch of bananas, or a carton of eggs, namely because we're used to big box pricing. You cannot recover all your costs by raising prices.
There's a lot of Venn diagram overlap between people entrepreneurs who want to sell local, fresh, healthy food and entrepreneurs who want to pay a living wage and offer medical benefits and paid sick leave. Unfortunately, being a micro-grocer won't even begin to bring in enough revenue to support that. Zingerman's is an awesome social enterprise business that pays its employees very fairly - but they're also charging $17.50 for a reuben sandwich.
GRAB AND GO FOOD ONLY WORKS WHEN OTHER BUSINESSES ARE OPEN
Getting a coffee and a breakfast muffin or sandwich is part of so many people's morning routines before starting the work day. So is finding a place to grab a quick lunch you can eat at your desk or in your car before an afternoon meeting. And grabbing a vegan salad before evening classes at the local community college or university. If no one is co-working, commuting, meeting with others, or attending in-person classes, there's no more of those routines. Prepared food can be a part of an independent food retailer's offerings, but it just doesn't work during a pandemic.
THE DIGITAL ADVANTAGE
So, we want local, fresh, healthy food, and we want to pay a living wage. We also want to serve disadvantaged people and provide them with access to good food options. That means you'll probably have to accept SNAP/EBT cards. Your current point of sale system probably does not accept EBT cards. Clover does, but Square and many others do not. Also, the USDA requires that you have a certain number of items in each food category before you can become an authorized SNAP retailer - if you don't already have commercial display freezers, commercial coolers, and shelf space, that table full of fruits and veggies isn't going to qualify your store. And they WILL inspect your store before you are authorized to accept EBT.
The big box stores have barcode scanners and a POS system that automatically calculates which items are EBT eligible and which are not. All that information is in the bar code. (By the way, bar codes are not free. You actually have to buy the numbers). Large retailers also have inventory tracking systems that manage expiration dates and help track sales to ensure accurate reordering of stock and that the least amount of inventory is wasted.
THE BIG BOX STORES WANT TO BE THE ONES OPENING MICRO-STORES - SORRY, SMALL BUSINESSES
Big box stores are discovering what big beauty and big food have known for a long time - when the independent brands and businesses start cutting into your market share, use your tremendous access to capital to gobble them up. Whole Foods/Amazon and Kroger are already expanding into the microstore concept.
SO, ARE YOU SAYING ONLY BIG BOX STORES SHOULD SELL GROCERIES?
Not at all. Local farms and businesses that have pivoted to selling groceries have filled in some critical gaps. But the reality is that it's really difficult to pull it off, and we need to be realistic about that when thinking about our post-pandemic business models. Many of these retailers are motivated by a desire to help the community - and the food they offer certainly does that.
A key element for any tiny retailer's survival is to offer an experience or a selection of merchandise that is hard to find anywhere else. Offering items that can be found on Amazon or at Kroger, just less of them at higher prices, is a recipe for failure. Whether it's vegan, halal, kosher, gluten-free, made only in Detroit, or some other niche, consider finding a food specialty that the big box stores can't compete with. Check out these tips for a successful small grocery store.