Financial
Benchmarks
How to be a best-in-class retailer
Presented by:
Anne-Marie Roerink | Principal | 210 Analytics
Panel:
Dennis Lindsay | Chief Financial Officer | Nugget Market, Inc.
Bob Graybill | President and CEO | FMS
Today’s Agenda
•
Review key findings
•
Independent Grocers Financial Study
•
Collaboration between NGA and FMS
•
Part I: Top issues for independent grocers
•
Part II: Financial performance independent grocers
•
Grocery Retailing Payments Study
•
Collaboration between NGA and Balance Innovations
•
Reactor panel of
industry experts
Independent Grocers
Financial Survey
Part 1
Top issues
•
Annual study on
financial performance
among
independent grocers
•
Overview of business environment
•
Financial performance
•
Comparison to the profit leaders
•
Fielding in March-April
•
150+ respondents representing
independent grocers of all
sizes and regions
•
Participate in this year’s study!
•
Competition, healthcare and the economy remain
top issues
Retailing concerns
Issue
Competition
Healthcare costs
Economy
Swipe fees
Energy costs
Impact in 2012
7.5
6.5
6.4
5.7
5.5
Issue
Competition
Healthcare costs
Economy
Regulations
Technology $
Expected impact
in 2013-14
8.0
8.0
7.0
7.0
6.8
#1
#2
#3
New
New
•
Competitive landscape
•
Supercenters continue to be largest
competitive threat
•
Strong regional differences for “third”
•
South: limited assortment stores
•
Northeast: drug stores
•
West: gourmet
•
Midwest: supercenters
•
72.3%
of stores in the sample currently
have a Walmart Supercenter in their
market areas
•
Walmart posted financial results on par with the
rest of the industry in 2012-2013
•
Continued market and format innovation
Competition
1
• Supercenters
2
• Conventional
supermarkets
3
• Limited
assortment
4
• Gourmet
stores
5
• Other
#1
•
Responding to Walmart or another conventional
store entering your market
Competition
2.4%
4.8%
4.8%
7.1%
9.5%
21.4%
23.8%
26.2%
Cleanliness
Better private brands
Better specialty items
Remodels
Community relations
More marketing, promotions and sales
Better customer service
Focus on perishables
Most prevalent strategies when responding to new
competition
•
Healthcare has been a top issue, but concern still rising
•
Average impact score of
6.5
on 10-point scale in 2012
to
8.0
in 2013-2014
•
Costs range from 0.6% of sales to 2.2%
•
Average 1.4%
•
Over 2012, healthcare costs among
independents
increased by 7.6%
•
Up from 7.0% in 2011
•
Only 12.5% reported a reduction in expenses
•
75% noted an increase
•
Average costs per employee
•
2010: $5,931 to
2012: $6,218
Healthcare costs
#2
Over 2012
All independents:
+7.6%
Single-store
+5.7%
2-10 Stores:
+8.2%
11-30 Stores:
+9.6%
31+ Stores:
+6.7%
•
Among independents who experienced cost increases in 2012:
•
32%
fully absorbed the cost increases
•
68%
pass on a portion of the increases to employees
•
10%
passed along all the increases to employees
•
Additionally…
•
12% reduced benefits
•
6% increased eligibility requirements
•
64% plan to adjust or have adjusted part-time associate hours
due to the
Affordable Care Act
•
For 2013, 81.8% expect healthcare cost increases
•
6.1% anticipate decreases
•
Average expected increase: 13.6%, up from 7.6% last year
Healthcare costs
•
Still awaiting true economic recovery
1.
Lower & middle-income shoppers remain value focused
Continued high usage of coupons, private brands, and other money-saving
strategies
Increasing focus on “spending less by buying less”
2.
Operationally
Increases in theft-related loss
Employee theft: Increased among 24.2% of companies
Shoplifting: Increased among 31.3%
Difficult staffing decisions
75.8% are limiting overtime availability at the store level
37.5% are limiting bonus eligibility and payouts
25.0% are reducing travel and conference attendance budgets
National & local economy
Macro trends ever-increasing impact on local
market conditions
Return to higher percentage on employee percentage of SS tax
Unemployment
Housing market
Food stamps
Inflation
Government's latest jobs reports still shows a
muddled picture
of the economy
Latest consumer confidence numbers show continued
concern among
lower and middle income
National & local economy
•
While some recovery has taken place, it’s been
uneven and slow-going
National and local economy
#3
0.9 3.2 2.3 2.9 -0.7 0.6 -3.7 -8.9 -5.3 -0.3 1.4 4.0 2.3 2.2 2.6 2.4 0.1 2.5 1.3 4.1 2.0 1.7 1.6 0.4 2.5 1.7 4.1 3.2 2007 q1 2008q1 2009q1 2010q1 2011q1 2012q1 2013q1Real GDP shows improvement, but no true recovery
•
Income and unemployment have great influence on grocery
spending
•
Mix of easing up on spending and continued focus on value
National and local economy
#3
5.5%
5.1%
4.6%
4.6%
5.8%
9.3%
9.6%
8.9%
8.1%
7.2%
20.2%
11.9%
8.7%
10.8%
2004 2005 2006 2007 2008 2009 2010 2011 2012 Dec 2013 Teenagers African Americans
Hispanics Less than high school
Bureau of Labor Statistics, Unemployment figures, seasonally adjusted
•
Participation in food stamps has risen tremendously
•
Even greater differences regionally
•
SNAP benefits are being cut by $5 billion
•
Greatly affecting retailers catering to lower-income households
National and local economy
#3
25,628,000 26,549,000 26,316,000 28,223,000 33,490,000 40,302,000 44,709,000 46,909,000 47,600,000 2005 2006 2007 2008 2009 2010 2011 2012 2013Participation in SNAP program
(Source: USDA)
•
CPI food-at-home is very mild compared with the last few
years
National & local economy
#3
-3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% J a n -1 0 Feb -1 0 Mar -1 0 A p r-1 0 Ma y -1 0 J u n -1 0 J u l-1 0 A u g -1 0 S e p -1 0 Oc t-1 0 N o v -1 0 D e c -1 0 J a n -1 1 Feb -1 1 Mar -1 1 A p r-1 1 May -1 1 J u n -1 1 J u l-1 1 A u g -1 1 S e p -1 1 O c t-1 1 N o v -1 1 D e c -1 1 J a n -1 2 Feb -1 2 Mar -1 2 A p r-1 2 May -1 2 J u n -1 2 J u l-1 2 A u g -1 2 S e p -1 2 Oc t-1 2 N o v -1 2 D e c -1 2 J a n -1 3 Feb -1 3 Mar -1 3 A p r-1 3 May -1 3 J u n -1 3 J u l-1 3 A u g -1 3 S e p -1 3 Oc t-1 3 N o v -1 3 D e c -1 3Food-at-home inflation 2010-December 2013
(Source: BLS)
•
Great level of concern over
financial impact of healthcare
reform
•
Swipe fee regulation continues to
rank high
•
Other political concerns include:
•
Tax increases
•
Government gridlock
•
Too many new laws and regulations
•
Minimum wage increase
Local, state and national
government regulations
5.0
• Healthcare reform
3.8
• Swipe fee regulation
3.3
• Job creation/unemployment policy
3.2
• Budget deficit and deficit spending
3.2
• Energy policy
1.8
• Repeal “death” tax
1.5
• Immigration reform
•
Independents must
harness the power of technology to remain
competitive, improve efficiency and connect with shoppers
•
Mobile payment
•
Apps
•
E-commerce
•
Social media
•
Loyalty programs
•
Big data
•
Data security and PCI compliance
•
Front-end and back-office automation
•
Hardware upgrades from faster servers to faster Wide Area Networks
(WAN)
•
But may not have the IT resources and in-house expertise
•
Investments are considerable and ROI is hard to track
•
Many companies look at whether technology investments will reduce
costs
Technology investments
Grocery Retailing Payments
Study
For a free copy, please see Shelley or Balance Innovations Representative
after the session
Grocery Retailing Payments Study
•
Designed to understand costs and industry practices
relative to payment processing and automation
•
Payment types, front-end technology, cash and check
•
Optimize
payment mechanisms to reduce shrink and inefficiencies
•
Meet the
next generation
payment processing needs
•
Establish payment policies and strategies
•
Company and store level
•
Methodology
•
January-March fielding
•
Cross-section of independents and regional chains
•
Report: Details by company size, weekly sales volume, weekly
Sales, transactions and transaction
size
Weekly sales per store
• Average: $305,105
• Ranges from $30,600 to $1,641,000
Weekly transactions per store
• Average: 11,211
• Ranges from 2,147 to 29,477
Average transaction size
• Average: $27.65
• Ranges from $14 to $58
Sales and transactions by checkout
• Weekly store sales by checkout $29,194
• Weekly transactions by checkout 1,241
Payment types
•
The usage of various payment types has seen tremendous
change since 2000
As a percentage
of dollar sales
2000
As a percentage
of dollar sales
2013
As a percentage
of transactions
2000
As a percentage
of transactions
2013
Credit
14.6%
11.5%
Debit
15.4%
12.2%
Cash
17.4%
39.0%
Check
50.6%
33.0%
EBT
0.8%
1.3%
WIC checks
0.7%
1.3%
eWIC
N/A
N/A
Proprietary charge
cards
0.0%
0.0%
Other
0.5%
1.7%
Payment types 13 years later
Credit and debit doubled, checks dropped to less than 10%
and cash remained relatively unchanged
As a
percentage of
dollar sales
2000
As a
percentage of
dollar sales
2013
As a
percentage of
transactions
2000
As a
percentage of
transactions
2013
Credit
14.6%
31.5%
11.5%
25.2%
Debit
15.4%
29.4%
12.2%
23.2%
Cash
17.4%
23.1%
39.0%
38.2%
Check
50.6%
8.4%
33.0%
5.5%
EBT
0.8%
5.1%
1.3%
5.6%
WIC checks
0.7%
0.4%
1.3%
1.0%
eWIC
N/A
0.3%
N/A
0.2%
Proprietary charge
cards
Payment types also differ by store
•
High volume versus low (in transactions or sales)
•
Average transaction sizes
As a percentage of
dollar sales
All
companies
High volume
Stores
(weekly sales)
Low volume
stores
(weekly sales)
Average
transaction
<$20
Average
transaction
>$35
Credit
31.5%
37.1%
26.9%
22.2%
42.1%
Debit
29.4%
28.5%
30.1%
26.4%
29.1%
Cash
23.1%
20.7%
25.1%
34.6%
16.7%
Check
8.4%
5.6%
10.9%
6.7%
4.6%
EBT
5.1%
4.4%
5.8%
8.6%
2.1%
Other
1.6%
2.4%
1.1%
0.5%
3.9%
Average transaction amount by
payment type
•
While grocers average $27.65 per transaction, the
average amount varies widely by type
•
High-volume stores have higher-than-average
amounts in all categories but cash
$16.55
Cash
$63.21
Check
$34.17
Debit
$37.15
Credit
$25.82
EBT
$22.31
WIC
Debit and credit
•
Swipe fees have taken much time and focus
•
Enormous cost to retailers and increasing given growth of
credit/debit
•
For some companies, fees exceed the net profit on a typical grocery
purchase
•
No retailers in the survey use incentives for using cash
•
In addition to swipe fees, retailers pay processing costs, dues
and assessment
Debit
Credit
Processing fees
0.5%
0.9%
Network fees
0.6%
0.8%
Bank fees
0.2%
0.2%
Total
1.3%
1.9%
Front-end technology
•
Front-end optimization is key
•
Customer experience:
Checkout speed and friendliness
key to overall trip experience
•
Operations:
consumer privacy, data security, theft-related
shrink, etc.
•
Checkouts
•
Finding the
right balance
of lane types
•
Experimentation with mobile checkout using
smartphones or hand-held scanners
•
66% of stores have self-checkout, average of 4
•
64% have express lanes, with an average of 2
8
Regular1
Express10
Total
1
SelfSelf-checkout
•
Low-volume stores typically don’t have self-checkout at
all
•
Industry passionately debates
cost savings versus human
factor
•
90% of companies do not plan
to make any changes to their
current self-checkout set-up
•
10% plan to add more
•
Payment processing practices
•
Counting
•
Replenishing
•
Pick-ups
4.44 4.29 4.42Used cashier-assisted
lanes
Used self-checkout
Average
Impact of checkout lane on trip
satisfaction
Average satisfaction on a scale 1-5, where 5 is the
highest satisfaction
Graph courtesy of : The Retail Feedback Group
Self-checkout (cont’d)
Daily, 50%
Multiple
days per
week, 9%
Once a
week, 42%
Frequency of counting the self-checkout
lanes
More than
once a day,
0%
Daily, 64%
Every 2-3
days, 36%
Every 4+
days, 0%
Frequency of replenishing the self-checkout
lanes
More than
once a day,
0%
Daily, 82%
Every 2-3
days, 18%
Every 4+
days, 0%
Frequency of self-checkout lane pick-ups
Type of self-checkout units used by survey
respondents
IBM: 33.3%
UScan: 41.7%
NCR: 25.0%
Note: these numbers are not reflective of market
shares
Front-end technology choices
Currently
have
Are
considering
Neither have,
nor
considering
POS at service desk
76%
4%
20%
Check cashing
63%
4%
33%
Western Union
56%
4%
40%
Bill payments
48%
8%
44%
Self checkout POS
44%
4%
52%
Coin dispensers
24%
4%
72%
Electronic check conversion
(return check to customer)
24%
24%
52%
Check imaging in back office
16%
16%
68%
Mobile payments in lane
8%
32%
60%
Smart safes
8%
34%
58%
Check imaging in lane (Point of
purchase)
Coupon handling
•
Coupon redemption increased 6.1% in 2012
to 3.5 billion
•
Continuing habits formed during recession and despite decline in distribution
•
Freestanding inserts account for 88% of coupon distribution
•
Redemption rate FSIs 0.5% vs. 7.7% for online coupons
•
Internet print-at-home coupons account for 5% of coupon redemption
•
Coupon handling:
Digital coupons
Check out the guidelines designed to
promote model practices in digital
couponing and reduce the incidence
of coupon fraud. Available at:
http://bit.ly/X4TUQb
63%
Reconcile
coupons at
the store
60%
Manually count
7%
Scanning
20%
Adding ind.
coupon
amounts
E-commerce
•
Online-only grocers
•
The “giants” are beefing up
food SKUs and adding fresh
•
Growing number of players in
niche segments, such as
gluten-free or organic
•
Online presence of
brick-and-mortar grocers
•
Renewed interest in exploring
online purchases or list
making
•
Of the 75 largest food retailers
in the U.S. and Canada
•
20 offer “click and collect”
•
23 provide grocery delivery
•
15 have both services
Online
ordering
established,
33%
Planning
online
ordering in
next two
years, 8%
No planned
online
ordering,
59%
E-commerce presence among grocery
retailers
Payment method
Accepted for online grocery orders
Discover
100%
VISA
100%
MasterCard
100%
American Express
89%
Gift cards
67%
Signature debit
33%
Prepaid credit
33%
PayPal
22%
PIN debit
11%
Cash operations
•
Number three form of payment
•
More important for lower-volume stores
•
Running efficient cash operations can:
•
Reduce shrink
•
Improve accuracy
•
Reduce labor costs
Example, counting registers
9%
8%
54%
29%
Do cashiers...
Count their drawers before they open
Count their drawers after they sign off for their shift
Count their drawers both before they open and after they
sign off
Drawer practices
•
An example of potential savings: counting drawers
•
At 71% of companies cashiers are involved with counting tills
•
Among those, 94% has a second layer of checks and balances built in
•
Bookkeeper
•
Front-end manager
•
Most don’t track
the time this takes
•
Monetizing
•
Average hourly salary for cashiers: $9.40
$1.09 to $2.19 per drawer
•
Average hourly salary for front-end managers: $16
$1.86 to $3.73
•
Times the number of drawers per day
Track/bench
mark the
number of
minutes it
takes to
count the
drawer?
48%
Yes
7 min
Average
6 min
Median
52%
No
Over-short reporting
•
60% of grocers have automated
over-short reporting
•
100% of companies >50 stores
•
Most distribute these reports to
at least one department
•
Store operations
•
Loss prevention
•
Annual cashier over/shorts
losses
•
$632 per store
•
$900 in high-volume stores
If yes, are
they
distributed
to?
Do you
have
automated
over-short
reports?
60%
Yes
53%
Loss
Prevention
13%
Sales audit
33%
Sr.
Management
47%
Internal audit
80%
Store
operations
Store cash audits
Frequency of store cash
audits
All
companies
Daily
8%
Weekly
20%
Quarterly
28%
Twice a year
4%
Annually
12%
As needed
16%
Never
12%
Scheduled
, 29%
Surprise,
38%
Both, 33%
Nature of store cash audits
Cash management at the store level
•
Safe management
Morning,
29%
Night, 4%
Morning
and night,
25%
Three
times a
day, 21%
After every
shift, 21%
Frequency of counting the safe
Maximum
safe
amount
allowed
per store
74%
Have set
maximums
$27,021
Average
$15,000
Median
$38,395 Avg
high volume
$21,335 Avg
low volume
12%
Don't have
policy at all
14%
Differs by
store
Cash management at the store level
(cont’d)
•
Reconciliation
•
Average of 4 bookkeeper hours for daily close,
reconciliation and deposit
•
Reconciliation of non-integrated POS transactions
•
52%: manual entry into the store POS
•
33%: Entered into program that feeds the general ledger
Checks
•
While decreasing as a form of payment, still an
opportunity to drive traffic
•
WIC, payroll checks, Traveler’s checks, etc
•
Check volume varies greatly by store volume
•
950 personal checks; 258 WIC and 94 payroll
•
22% of companies do not process payroll checks at all
•
+ 72% ACH (personal checks) and 28% WIC, payroll and other
checks
•
48% handle check collection in house
•
57% of larger companies (>50 stores)
•
Returned checks per store, per week: 1-2
•
Collection percentage: 70%
•
Returned check fee: $22
40 NGA 2014 — How to be a best-in-class retailer
Check imaging and encoding
•
67% of grocers do not
yet image checks
•
Reduced risk
•
Improved response time
and accuracy
•
Back-office imaging
slightly more popular
than in-lane
•
In-lane does not process
payroll, WIC or money
orders
•
Added time at checkout
We image the
checks in the
back office:
20%
We image the
checks in lane:
13%
We don't
image checks:
67%
Check
imaging
We encode and
manually
deposit checks:
39%
We don't
encode and
manually
deposit: 61%
Encode
and
manually
deposit
Independent Grocers
Financial Survey
Part 2
Financial Benchmarks
•
Same-store sales growth increased by 1.5%
•
Down from 2.6% in 2011
•
Inflation-adjusted growth stood at 0.2%
•
Improved performance against 2011’s -2.2%
Sales
-1.5% 3.4% 2.9% 3.8% 0.7% 0.2% 1.0% -1.1% 0.20% 1.44% -0.55% All companies Single-store operators Multi-store operatorsInflation-adjusted same-store sales gains
Sales by department
•
Dry grocery share
bounces back slightly
•
Sales leakage to
supercenters, limited
assortment and dollar
stores
•
Higher-than-average
inflation in fresh
departments, especially
meat
Sales
distribution by
department
All
companies
2010
All
companies
2011
All
Companies
2012
Grocery
42.37%
38.61%
39.67%
Meat
16.56%
18.45%
18.26%
Produce
8.96%
9.87%
9.78%
Dairy
9.70%
10.63%
9.51%
Pharmacy
6.37%
11.40%
8.81%
Deli
6.24%
6.53%
6.90%
Frozen
5.74%
5.57%
5.70%
Beer/wine
N/A
N/A
3.10%
Bakery
2.77%
2.59%
2.79%
HBC
2.38%
3.18%
2.51%
Seafood
2.37%
2.05%
2.19%
GM
1.94%
2.60%
2.16%
Tobacco
2.27%
2.45%
1.94%
Floral
0.82%
0.96%
0.82%
•
Expenses
leveled out
in 2012
•
With the
exception of
the largest cost
component,
labor and
benefits at
13.85%
of sales
Expenses
Interest Repair & maintenance Depreciation Advertising Supplies Utilities Rent/CAM Labor & benefitsInterest Repair &
maintenance Depreciation Advertising Supplies Utilities Rent/CAM
Labor & benefits 2012 0.32% 0.84% 0.90% 1.24% 1.32% 1.48% 1.87% 13.85% 2011 0.22% 0.93% 0.85% 1.25% 1.31% 1.75% 1.93% 13.53% 2010 0.34% 0.73% 0.87% 1.25% 1.26% 1.52% 1.69% 13.96% 2009 0.29% 0.82% 0.98% 1.15% 1.23% 1.68% 1.79% 13.03%
Historical expenses 2008-2012
•
Single-store operators have higher-than-average
labor and benefits costs
Store labor and benefits
11.01%
2.59%
13.85%
11.31%
2.71%
14.08%
10.89%
2.52%
13.60%
Labor
Benefits
Labor & Benefits as a
Percentage of Sales
Store labor and benefits 2010-2012
•
Total store gross margin virtually flat at 26.48 percent
•
Multi-store companies are catching up in gross margin performance
Gross margin
20% 21% 22% 23% 24% 25% 26% 27% 28% 29% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Total store gross margin, 2002-2012
Single-store companies Multi-store companies
26.48%
25.86%
26.78%
All companies Single-store companies Multi-store companies
•
Net profits showed significant improvement
over the
past few years at 1.65%
•
Returning to 2008 levels
•
Up from 1.08% in 2010 and 1.12% in 2011
•
Single-store operators averaged 1.64% (from 1.29%) and were
outperformed by multi-store operators (1.68%)
Net profits
0.50% 1.00% 1.50% 2.00% 2.50% 2006 2007 2008 2009 2010 2011 2012Average net profits before taxes 2006-2012
•
Higher volume stores show both higher margins
and higher profits
Results by store sales volume
1.65%
1.46%
1.68%
1.76%
$100,000 or
less
$100,001-$200,000
$200,001-$300,000
$300,001 or
more
Net profit by store volume
24.99%
25.52%
27.27%
26.66%
$100,000 or
less
$100,001-$200,000
$200,001-$300,000
$300,001 or
more
•
Profit performance ranges widely with the profit
leaders doubling the average profit
Results by profit leaders
Lowest
profit
reported
-6.06%
| -11.01%
25
th
percentile
0.44%
| -0.02%
Median or
50
th
percentile
1.51%
| 1.12%
75
th
percentile
2.72%
| 2.78%
Profit leaders (Top 25%)
3.44%
| 3.45%
Highest
profit
reported
8.41%
| 9.90%
The pack
1.08%
| 0.60%
•
Gap between the profit leaders and the overall industry narrowed as the pack
significantly improved their performance
•
But, profit leaders continue to have much lower expenses
•
Total expenses as percentage of sales
•
All respondents: 25.38%
•
Pack: 26.36%
The pack fights back
1.68% 1.08% 1.12% 1.65% 4.10% 4.07% 4.67% 4.01% 2009 2010 2011 2012
Net profit all respondents and profit leaders
All respondents Profit leaders•
Independents close in on the publicly-traded
grocery companies
Independents vs. publicly-traded
1.68%
1.08%
1.12%
1.65%
4.10%
4.07%
4.67%
4.01%
1.31%
1.98%
1.81%
1.72%
2009
2010
2011
2012
Net profit all independents, profit leaders and publicly-traded
companies
Conclusions
•
Customer preference drives payment choice
•
Driving the need for the retailer to optimize processing
across payment options
•
Financial, operational and payments benchmarks
•
Help identify and quantify areas for more streamlined
operations and cost cutting
•
Gathering accurate data is the first step in
Questions and copy of the
presentation or report
•
Shelley
•
Bob
•
Anne-Marie
Participate in the
2014 editions!
