AMES, Iowa – One of the last strongholds for retail trade in Iowa’s small towns – the local grocery store – is facing challenges that are causing rapid changes in how rural Iowans put food on the table.
A report just released by Iowa State University Extension notes that the number of grocery stores with employees in Iowa dropped by almost half from 1995 to 2005, from about 1,400 stores in 1995 to just over 700 ten years later. The numbers do not include sole-proprietor stores with no paid employees, a category that increased by about 30 percent. Also excluded from the totals are supercenters, such as those operated by Wal-mart and Target, and convenience stores, which are tracked separately. The supercenter category increased by 175 percent in the 10-year period and now includes 47 Wal-mart supercenters and eight Target supercenters and several warehouse club stores.
The report was compiled from tax statistics and other trade indicators by Megan O’Brien, a researcher with the Regional Capacity Analysis Program (ReCAP), operated by ISU’s Department of Economics. Most of the stores studied are in Iowa’s smaller communities, and O’Brien said she looked at factors that cause grocery stores to close, the impact of regional trade centers on small grocers, and the effect of fuel prices and economic conditions on grocery shopping patterns.
The report also studied the impact of grocery store closings on elderly Iowans and steps that small stores can take to improve their chances of survival. The establishment of cooperative stores to provide groceries in small communities also was examined. O’Brien said the average population served by a grocery store was 3,252 people in 2005, compared with 2,843 a decade earlier. While those numbers indicate that grocers needed to increase their customer base by about 15 percent in order to survive, the population in Iowa’s 20 most rural counties was declining by about 4 percent during the same period.
O’Brien said the declining population is not the only factor that has caused the closing of small town grocery stores. As other retail businesses consolidate in area trade centers, “people get in the habit of traveling to shop for general items, and then groceries follow suit,” she said. And as more Iowans commute to jobs in larger communities, they often buy groceries near where they work rather than near where they live. Small rural stores also often have higher inventory costs than larger stores because of the need to place large orders to get the best wholesale prices.
Industry statistics show that Wal-Mart accounted for 17 percent of all food and beverage sales in the United States in 2006, O’Brien said, and a study done by ISU that year indicated that Wal-Mart’s entry into non-metropolitan markets has the effect of reducing grocery sales in those areas by 17 percent within two years of the opening of a Wal-Mart supercenter.
Recent increases in fuel prices are having an impact on how far people are willing to travel to buy groceries, but the fuel expenses also affect the costs that small grocers must pass along to their customers. People may want to shop locally, “but as prices rise the savings offered by larger grocery chains will compensate them for increased travel costs of shopping outside their hometown,” O’Brien said.
The ReCAP report says small grocery stores will need to compete on the basis of their strengths in order to survive. O’Brien suggested that they should promote their community involvement and offer services such as local delivery and loading groceries into vehicles. She said small town grocers should seek suggestions from their customers because that dialogue builds customer loyalty and helps determine what goods and services should be offered.
The report also discusses cooperative efforts that grocery stores can make to keep their costs down, including joining with other stores to meet minimum delivery standards from suppliers, and participating in organizations such as the Independent Grocer’s Assocation.
Some communities have looked at forming cooperative associations to own and operate grocery stores in small towns. O’Brien said market factors determine whether such cooperatives will survive, including how near they are to other communities with competing stores and how much support the community is willing to provide. Small business statistics suggest that the survival rate of grocery cooperatives in the first two years is 65 percent, but it drops off to 40 percent after four years.
Additional information on the report is available from Meghan O’Brien, Regional Capacity Analysis Program (ReCAP), Iowa State University Department of Economics, 171 Heady Hall, Ames, IA 50011. The report is available online at http://www.econ.iastate.edu/research/webpapers/paper_12970.pdf