Independent grocers use chain strategies to survive- American Independent Business Alliance AMIBA

2/5/05

Competition eating away at small grocers

By JOHN HOLLAND
BEE STAFF WRITER

Years ago, the grocery business was made up mostly of relatively small companies — family markets and regional chains — operating out of smaller stores.

In the Northern San Joaquin Valley, they carried names like Angelo's, Richland, Liberty, O'Brien's and New Deal.

Only a handful remain. And in an industry known for tight profit margins, tough competition and almost constant change, it's getting harder and harder for small independents to survive — let alone thrive.

Thursday's announcement by Ceres-based Richland Markets that it plans to sell some stores comes as small grocers face increasing competition from major supermarket chains and big box retailers.

Richland officials didn't offer many details in announcing plans to "sell or close at least two of its stores as well as plans to spin off the remaining five."

They described the move only as an effort to address "estate-planning concerns" of the Pallios families that own and operate the stores in Modesto, Ceres, Turlock and Oakdale.

They did say the company's two stores on Coffee Road in Modesto are for sale, but didn't discuss plans for the five remaining markets. Richland officials were not available Friday for further comment.

Industry observers said Friday that, in general, small grocers have to find the right niches and keep customer service in mind if they are to survive.

"If you're going to be a small independent, you're going to have to find something other than price to compete on," said Randall Harris, an instructor in business management at California State University, Stanislaus.

Thursday's announcement was a milestone in the history of grocery retailing in the region.

Richland dates to 1951, when John and Gus Pallios opened their store in Ceres. George Pallios joined his brothers in 1955. Stores opened in Turlock in 1965, Modesto in 1985 and Oakdale in 2001.

Richland is a union employer in an industry where wages are a major concern. In general, the after-tax profits for grocers are only about 1 percent, according to the Food Marketing Institute in Washington, D.C.

Big buyers get better deals

Larger chains can lower costs by buying in bigger quantities and negotiating smaller per-unit costs, said Bill O'Brien, a grocer and member of the Stanislaus County Board of Supervisors.

"Obviously, the biggest problem (in competing with major supermarket chains) is controlling costs," said Bill O'Brien, son of Chuck O'Brien, who founded the Modesto-based chain. "They're able to secure those kinds of national contracts with vendors to drive down costs. That's the power of the major retailer."

Harris said O'Brien's, a three-store chain in Modesto and Riverbank, is competing by offering a range of specialty foods at its newest store on Dale Road.

He said small grocers would do well to study Trader Joe's — a national chain of small food stores, including one in Modesto — because of its customer service and niche products.

"They're specializing," he said. "They're trying to differentiate themselves from their competitors."

Some small stores rebound

Gary Lowe, co-owner of the Sam's Food City stores in Turlock, Modesto and Livingston, said business tends to dip when big competitors move in, but it rebounds in a year or two.

"I think the independents still have an advantage in terms of the perishables," he said. "We can compete even with WinCo in our produce and our meat departments."

The valley once had 13 New Deal Markets, but they were sold by 2000. Only the Oakdale Road store in Modesto still bears this name, which dates to 1933.

That store's owner, Mike Strickler, said history keeps customers coming, as does a utility bill pay station. He also said he gets good wholesale prices on many products and does regular newspaper advertising.

"It's almost a must for a small independent like us," Strickler said. "Once you stop advertising, you will get a few people from close by, but most of your clientele is going to go to places that keep advertising."

Strickler and other independent grocers face competition from more than a dozen other types of retailers: warehouse-style discounters, including Costco; discount stores with small grocery departments, such as Target and Wal-Mart; and entities, such as Dollar Tree, that sell everything for a buck or so.

Harris said dominance by a few chains is the norm in many retail sectors, such as office supplies, hardware and books.

Lowe, whose family started Sam's Food City in 1951, said the chain has a future if employees put the customers first.

"We find that the key to survival of an independent is service," he said. "You try to learn their names. You get to know them personally. You cash their checks."

Fair Use Notice
This site occasionally reprints copyrighted material, the use of which has not always been specifically authorized by the copyright owner. We make such material available in our efforts to advance understanding of issues and to highlight the accomplishments of our affiliates. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is available without profit. For more information go to: www.law.cornell.edu/uscode/17/107.shtml If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.