Outlook 2023 Q&A Panel

As we begin a new year, Food Trade News and Food World asked several area retailers to opine on some of the issues they will face in 2023. Our panelists are: David Siegel, CEO of New Hyde Park, NY-based America’s Food Basket, a cooperative of independent grocers operating 18 stores located in New York, Florida, Pennsylvania, Massachusetts, Connecticut and Rhode Island; Jeff Bleichner, general manager of Shoppers Food, a division of UNFI that operates 22 stores in Maryland and Virginia; Anthony Gigliotti, SVP of sales and marketing for Orwigsburg, PA-based Boyer’s Food Markets, which operates 19 independent supermarkets in Pennsylvania; Chris Kenny, president of Kenny’s ShopRites, a Wilmington, DE-based family-owned retailer that operates six stores in Delaware; Lou Scaduto Jr., president and CEO of Middletown, NJ-based Food Circus, a member of Allegiance Retail Services operating four Foodtown stores in Monmouth County, NJ;; Greg Saubel, owner of Saubel’s Markets, a four-store independent based in Stewartstown, PA; and Tom Leonard, owner of Tom Leonard’s Farmer’s Market in Glen Allen, VA.

Our questions:

1.  How do you expect shopping habits to change over the next 12 months?
2.   Supply chain disruptions continue to challenge retailers and suppliers. On a 1- 10 scale (1 being minimal disruption, 10 being maximum disruption) how would you rate the levels of dysfunction you currently face in the areas below and what level do you project them to be by the end of 2023:

 Raw Materials/Commodity Shortages

• Current level
• Projected December 2023 level

Transportation Costs & Efficiency

• Current level
• Projected December 2023 level

Labor Availability & Costs

• Current level
• Projected December 2023 level

3. Using your current knowledge and intuition, where would you predict the current 10 percent rate of food inflation to be by Q4 of 2023 (e.g., stabilizing, increasing, decreasing). Please explain why.

4. According to the National Retail Foundation (NRF), organized retail crime grew nearly 27 percent over the past 12 months, creating $94.5 billion in shrink from theft. Is this as a significantly increasing factor in your stores and, if so, what are you doing to help mitigate the problem?

 

 

 

David Siegel

America’s Food Basket

 

 

1. We anticipate grocery’s share of stomach to remain high. Trips may remain under pressure, depending on where fuel costs go, but average order size will remain strong. E-commerce will continue to make inroads, with many retailers offering multiple platforms based on consumers’ preferences. Both the Value channel and private brands within all channels will continue to grow through 2023 while disposable income remains tight. We are bullish about grocery’s outlook for 2023. As has always been the case when consumers have a choice, those retailers that offer a great shopping experience (facilities that are fresh, friendly, full and clean) at a fair value, will come out on top.

 

2. Regarding raw materials and commodity shortages, I’d put the current level at “4” and the projected December 2023 level at “3.” Though we have seen considerable improvement to service levels and assortment, we are still not near the 2019 levels and CPG mindset has changed in many instances.

In the area of transportation costs and efficiency, the current level is an “8” and the projected December 2023 level I expect to remain the same. Transportation will remain an issue through 2023 as we anticipate costs to remain high and availability of both equipment and drivers to be under pressure.

Looking at labor availability and costs, the current level is at “7” and that’s where I expect it to stay through December 2023. Labor is tight right now for our industry and it is not a ship that can be turned quickly. Creating the most positive culture will remain critical to a retailer’s success.

 

3. We are seeing a slight moderation in inflation. Though we will not see anywhere near the 2-3 percent the Fed would like, a moderating 5-6 percent annualized inflation rate is very likely. Several larger CPGs have already broadcast their coming cost increases. That combined with the tightening of disposable income should force some improvement in efficiencies.

 

4. Theft is a significant issue. Being strategic about product placement, a reinforced LPD presence (where and when appropriate), ensuring your associates are aware of the issue and making sure video and other surveillance equipment is in good working order is key. Taking advantage of key theft reduction tactics (use of baby formula kiosks, etc.) and a positive relationship with your local law enforcement is also necessary.

 

 

Jeff Bleichner

Shoppers

 

 

1. Throughout the second half of 2022 at Shoppers we’ve seen the number of trips to the store go down, but the average basket size increase, and we anticipate that trend continuing throughout 2023. One area we are watching closely is the transition of buying habits. Eating is an essential part of living, but if a consumer has a set budget each month for groceries, it doesn’t mean they are going to eat the same items they purchased a few months back. For example, we’re seeing a decrease in meat and seafood sales, but an increase in fresh produce purchases.

Also, with their budgets in mind, consumers are shopping more and more for promotions.  It’s not uncommon for a consumer to go to three or four different stores to get everything they need on their list.

2. In the area of raw materials and commodity shortages, the current level is a “5.” By December, I expect the level to be “2-3.” During the early stages of the pandemic, food manufacturers were having issues sourcing materials for packaging supplies such as plastic bottles or aluminum for cans. Today and looking into 2023, we anticipate food manufacturers continue to get caught up and are in a better position heading into 2024.

For transportation costs and efficiency, the current level is “6-7.” Projecting out to December, I’m expecting “4-5.” When gas prices increased during the pandemic, companies started adding fuel surcharges to all their services.  This combined with labor shortages and local traffic issues in our area made getting timely and cost-effective deliveries difficult.  For 2023, we’re starting to see more jobs being filled, especially driver roles, which should make getting deliveries more reliable.

The current level we see for labor availability and costs is “3” and by December I believe it will still be a “3.” At Shoppers, we’re very fortunate to have an experienced workforce at all our stores, helping keep our staffing full the bulk of the time.  With that, our focus for 2023 is to continue investing in our associates, specifically in the onboarding process.  Turnover in the first year of employment has been consistent over the past 10 years and our goal is to reduce that number by as much as possible in 2023.

 

3. We are anticipating full-year inflation to be in the low-to-mid single digits and we’re again expecting modest contraction in overall industry volumes which is related to changes in consumer behavior resulting from the broad-based challenges of elevated inflation.

 

4. Theft is a big issue and has always been something you had to control as best as you could, especially as theft has increased along with the rise in inflation. Overall, efforts to mitigate the problem are going to depend on your operating philosophy. No matter how a store goes about it, whether it’s through increased staff levels or having assistance from third party security companies, the main thing is getting your product back as safely as possible.

 

 

Anthony Gigliotti

Boyer’s Food Markets

 

 

1. We have certainly seen many changes over the last two and a half years. We are now approaching three years since the pandemic when the initial shutdown on March 14, 2020 started. We have seen, and I believe we will continue to see, a split between lower-income households and higher-income households. We are seeing lower income continue to buy week-to-week as inflation has put a major strain on their budgets for their weekly groceries. These shoppers are staying with either national items that are on a promotional deal, or they are transitioning over to private label brands. Deeper discounted items have and will continue to show major gains as week-to-week customers are taking a harder and closer look at weekly ads and promotions. I believe that this trend will continue right through 2023. Higher income households will continue to buy deal-to-deal, but in their case they are also buying more weeks out on those items and promotions that their households continue to use. Families will continue to eat more meals at home, as restaurants are becoming increasingly more of a special occasion or as more of a treat and entertainment. We are also seeing more of our HMR solutions starting to move at higher frequencies as it’s still a less expensive alternative than buying from a restaurant. Price increases in first quarter of 2023 are coming fast, and retails will continue to rise in 2023.

 

2. I don’t expect to see much movement in any of these areas during 2023. In the area of raw materials and commodity shortages, I see this at a level of “7” now and believe that will still be the case at the end of the year. With transportation costs and efficiency, I also give this area a “7” and expect that to remain steady for the next 12 months. And, I believe the same is true when it comes to labor availability and costs – currently the situation is at a “7” level and I don’t expect any changes there, either.

 

3. That’s a question that I have been asked more than any other over the last three months. Unfortunately, I believe we will see at least a 3-5 percent increase. We just received reports earlier this month that inflation for 2022 is now up from 10 to 11 percent. This will continue to rise in 2023. For example, if you were to look at January through March 2023, I have already received more than 40 price increase letters. These increases will start with non-perishables and will quickly move over to the perishable categories, which has been the trend historically. There are several things I believe that are the root cause of these increases: higher transportation costs and higher energy costs coupled with wages continuing to rise as employers are still challenged with gaining and retaining employees.

I believe it we may level off somewhere in 2023 as long as the right decisions are made by our federal and state legislators, and we get the country back on the right track.

 

4. We are definitely seeing more theft as the country continues on this last two-year journey of rising prices, fuel and energy costs rising, and people living more and more on credit. We are dealing with it by staying vigilant and on top of these situations. We remain alert and aware and we are placing higher end items near front end, and are using more surveillance cameras in all areas of each store. This will continue to be a major issue for all retailers over the next year.

 

 

Chris Kenny

Kenny Family ShopRites of Delaware

 

 

1. With continued inflation and supply chain challenges consumers will remain value oriented and price sensitive. Freshness and quality are key as consumers look for ways to extend their grocery shopping dollars. We are seeing more customer interest in Club Pack, especially in the paper category, with customers making that choice if they can find more value in a bigger size item. Shoppers are also opting for lower priced items and private label products such as our value orientated Bowl & Basket and Wholesome Pantry lines, and we’ve seen an increase in SNAP volume. At ShopRite we’ll continue to focus on giving our customers locked-in prices on core items across the store and those weekly deals that will help them manage their budget while giving them the variety they are seeking.

 

2. I see the current level of difficulty in transportation costs and efficiency at an “8” and by December 2023 expect it to be up to “9.”

Regarding labor availability and costs, currently I’d say it’s a “9” and I  think it will be at that same level by December 2023.

 

3. It’s really hard to predict where inflation is going but with continued record government spending, historic low labor participation and a federal energy policy that continues to restrict supply, I don’t think we will see much improvement. Every step in the food supply chain depends on energy and energy costs. If the current policy of restricting drilling, prohibiting pipeline development and waging war on fossil fuel continues, I don’t expect much relief for consumers. Lowering the cost of energy by a return to American energy independence will have a direct impact on the price of food. We also need to see more responsible government spending or our dollar will continue to be devalued.

We hope the rate of inflation will decline as we go through the year. Macro factors like commodity costs and even the war in Ukraine also play a role, and hopefully things will be a little calmer as the new year plays out.

In addition, independent grocers face a challenging environment when considering the scale and scope of the biggest players and their power in the market. No one has a crystal ball and the industry still faces challenges, but we certainly hope 2023 brings change for the better.

 

4. In my 30 years in the supermarket business, we have never experienced the level of retail theft that we are seeing today. We’ve navigated difficult economic times before, but they were never accompanied by this level of theft. I was looking at weekly losses in the six-figure range until we took additional measures. We began putting receipt checkers at our store exits and increased the level of associate supervision at our self-checkout registers. It had an immediate effect with our losses diminishing significantly.

The rise in shrink from theft also comes at a time when there is a push to add more self-checkout in supermarkets and new plastic and paper bag bans and market conditions that increase the possibility for retail theft.

It’s important for prosecutors, police and courts to enforce the law and take the growing problem of retail theft seriously.

 

 

Lou Scaduto Jr.

Circus Foodtown

 

 

1. We believe we will see an even greater shift of customers relying on non-food discounters to fill their weekly shopping lists, therefore as supermarket operators we need to show as much value at store level as possible. Creative merchandising on our ends and wings with value driven product is important as we continue to maintain our gross profit objectives. Direct instruction to all of our store managers and category leaders has been given to execute these value driven plans at store level.

 

2. Supply chain disruptions with raw materials/commodity shortages have improved over 2021 levels. I believe we are at a level “5” on a scale of 1-10. It is difficult to project how supply chain avenues will perform in 2023, because many times we simply don’t know what material or commodity is to be impacted next. For example, one of the most basic commodities is eggs. Within the last 12 months pricing has gone from roughly $2 a dozen to over $5 due to supply chain issues and an unexpected Avian flu. My projection for the level by December 2023 is for a “3.”

Regarding transportation costs and efficiency, a score of “7” on a scale of 1-10 is what I project into 2023, down from the current level of “9.” Fuel, equipment and driver shortages continue to put a very serious strain on retailers receiving product. This in turn results in spotty conditions at times or in specific categories which in turn affects customer perception of the overall shopping experience in our stores. I get little consolation knowing that every other supermarket and food retailer is suffering these food disruptions as well.

In the area of labor availability and costs, as a family-owned supermarket operation, the most significant dysfunction we face is with the challenged labor environment. I rate this a nine out of 10 for overall negative impact to our business. Increases to the minimum wage tied to the CPI (consumer price index) resulted in a $1.13 increase to the minimum wage in New Jersey in 2023. However, even with increased wages, we are unable to attract many part and or full time associates to work in our stores. We see on the horizon increased challenges to hiring store level team members and as a result service levels sometimes do not meet expectations. Some of the labor challenges have resulted in more creative ways to service our customers such as prepack deli, salad bar and self-service register banks where direct contact of team member to customer is reduced. This is not how we want to do business, but has become necessary in order to satisfy our customers.

 

3. The current rate of 10 percent food inflation I would hope will stabilize by Q4 of 2023. This will only occur if the Fed is able to reduce inflation nationally. As consumers tighten their belts and pricing continues to escalate in all sectors of our economy we may find more and more customers coming back to supermarkets for their dining plans rather than to restaurants. We need to be ready with affordable meal solutions and creative ways to feed these families tightening their pocketbooks.

 

4. Theft is on the rise in our company and is a major concern for our business. We have invested in loss prevention personnel, Face-First facial recognition software for suspected thieves and Stop Lift technology which identifies items not scanned at the register. New Jersey banned the use of single use plastic and paper bags and we find it even more challenging to control theft as customers now shop in their own reusable bags. Whether knowingly or not, items get left behind in the bag and may not be rung properly through the register. We are mindful of employee theft and regularly communicate our policies and priorities to our team members to assist us in thwarting theft internally and externally.

 

 

Greg Saubel

Saubel’s Markets

 

 

1. I don’t think we are going to see any drastic changes over the next year. At the beginning of COVID, I thought we would reach a point where we would fall off a cliff. That has not happened to date. I do believe people’s habits/lifestyles have been changed in many ways through all of this for the long haul, which bodes well for our industry. With inflation, we are all hit with the fact that people will continue to eat out less than before. Let’s be truthful, many were forced to learn how to cook again. Cooking at home is a lot less expensive.The other big change is the number of people that are now working remotely from home. I also firmly believe that some of the work force shortages we are all seeing are being driven by families choosing to be one-wage-earner families again. They save on day care costs, auto and fuel costs, etc. This even gives them time to cook at home.

 

2. In the area of raw materials and commodity shortages, it seems to be a revolving door. One thing gets fixed and then something else becomes an issue. A current example of this situation is the shortage in children’s medicine. Pre-COVID, I would have rated supply chain disruptions at “2-3.” During COVID, that rose to the level of “7-8.” Looking to the end of the year, I think the revolving door is going to keep revolving!

When you’re talking about transportation costs and efficiency, right now I think we are all doing what we can to maximize efficiency. I would rate that at an “8.” As to costs, we are at the mercy of the current energy policy coming out of Washington, DC. I would rate that as a “10+.” I don’t expect any meaningful change in 2023 or 2024. Like my dad always said, “You can fix STUPID.”

In the area of labor availability and costs, I would say we’re currently at level “5.” Availability has improved some from where we were. Costs I would rate at a “5” also. Obviously, the market has pushed wage rates up even in our Pennsylvania locations even though the state has not raised the minimum wage. In Maryland we got another 75 cents per hour increase on January 1. Looking toward the end of the year, I don’t expect much change, but I am hopeful we will see some slight improvement to a “4.”

 

3. I think inflation is going to continue. It almost seems like we are chasing a snowball down the hill. Hopefully, it will decrease some but, but I believe it will remain in the 5 percent to 7.5 percent range.

 

4. I think shoplifting will always be a concern that never goes away. And history has taught us that internal theft is as big a problem as external. I can’t say we have seen a significant increase. Organized retail crime likes to focus more on high dollar items in department stores.

As far as mitigation, we need to elect people who will enforce the laws we have in place and hold people accountable for their actions. If “You Do The Crime, You Do The Time.”

 

 

Tom Leonard

Tom Leonard’s Farmer’s Market

 

 

1. I believe people will be more selective in terms of what they are buying now because of cost. For example, when you look at where the supply chain begins – at the farm – most customers don’t recognize that all of the phosphorous, nitrogen and potash needed to grow fruits and vegetables has skyrocketed 300 percent. There’s no way around those increases. Obviously, diesel fuel is more expensive on a year-over-year basis and the elevated costs of paying for truck drivers is contributing to the continuing inflationary trend. Packaging is up, too and getting products to their final destination – the store – will remain high. For us, utilizing flexibility with our loyal suppliers has lessened the supply chain disruption. That loyalty is important because with suppliers it’s usually a long marriage or a quick divorce. The whole key to 2023 for us at Tom Leonard’s is continuing to develop those direct relationships between the farms and our other suppliers so we can offer more deals to our customers. We’ve learned that by maintaining close relationships with our vendors, deals are available to us. Our job is to make our customers more aware of those deals

 

2. We’ve seen some improvement in the availability of raw materials and commodities and prices have also stabilized. I’d say we are currently at about “6” and with further improvement expected, I’d guess a year from now we’d be at a “4.”

As for transportation costs and efficiency, I also think we’re also headed in the right direction. Today I’d put the number at about a “5” but we’re seeing slightly more availability in drivers and fuel prices are trending down, so I believe a year from today we could be at a “3.” One example that impacted us this year involved buying Christmas trees, a huge holiday item for us. In the past, we’d buy all of our Christmas trees from Canada just like our sister company, Stew Leonard’s (Tom and Stew Leonard Jr. are brothers) and we had them shipped right down to our store in Glen Allen. This year the cost for transporting those trees was going to be about $10,000 per load. We typically bring six or seven loads down. So, this year, after developing local relationships, we switched to 100 percent Virginia Christmas trees and we were able to bring them in at $1,200 per load. You need to make decisions like that now in order to offer competitive prices.

The labor problems remain huge, but I believe there’s a chance for improvement by December 2023, but perhaps only a minor one. However, as tough and unpredictable as the labor issues are, the simple truth is if you aren’t competitive with your pay rates, your business will be in jeopardy. I think you are going to see that you will continue to pay a lot more for good people – it is just the way it is. I think in predicting this we really have to stay focused on the donut not the hole here. Good business isn’t just beating up the suppliers left and right just to get the prices down. You have got to stay focused on the customer and you want happy people in the store dealing with the customer. You can’t have happy customers without happy people. You have to spend time communicating with your associates, you have to find out what the issues are. You also have to develop the people who really want to get developed. Fortunately, at Tom Leonard’s we are fully staffed. I am old enough at 66 to remember what it was like with 18 percent interest rates when Jimmy Carter was president. I watched my father, Stew Leonard (Sr.) deal with his customers who were very much impacted by this. I am very sensitive to it. I want to be very careful with the decisions we make down here. I think labor is going to cost more, but I believe that availability will improve, especially if you are focused on hiring and developing talent for the long-term. I’m going to remain optimistic about this one, giving labor availability and costs, a “4” currently, with a “6” a possibility a year from today.

 

3. The food inflation rate – I believe it will remain about where it is today. At about 10 percent, I’m not sure that qualifies as stable, because prices on all levels remain too high. On the other hand, there are deals out there and we’re working hard to offer them to our customers. For example, we sold filet mignons

for $12.99 a pound over Christmas and there were lines of people buying them. We used to sell those same filets at $9.99 a pound, but we can’t do that now. Also, we’re working with a supplier that allowed us to feature 100 percent natural chicken at $1.99 a pound right now in five pound packs and people are grabbing them up. Our customers know what’s going on and they appreciate the price we can offer. You have to work really hard at finding these deals. And you need good people to do that.

 

4. Shrink from theft is a big issue for us even though we only operate one store. We are developing a program right now with our county supervisor to come up with a consistent system on what to do with a shoplifter. One of the hurdles we’re facing is that some politicians thought that it would be a good idea to raise the minimum for felony theft from $250 to $1,000. So, shoplifters basically can come into a store and grab a shopping cart full of food and walk right out the door. If they get caught they get a traffic ticket. They don’t get arrested. Statutes like this provide little incentive for a potential shoplifter from stealing merchandise. In our store, we display signs that say, ‘in order to keep our prices low, we prosecute shoplifters.’ At the same time, it is important that we want all of the people in the store to understand that the customer is always right. We don’t want to change our policies in the store, but we are very, very aware of the increase in shrink – it is occurring more and more often. The truth of the matter is that no retailer knows exactly how to deal with a shoplifter. What do you do? Do you want to create an event? In our store we try to stop them before they get out the door with anything. We do a lot of things for people in the community. We have our Wishing Well programs. We really try to support the local charities that are helping people and at the same time people come in and try to steal things from you. I think that is definitely an area we are very focused on and we are very aware of it. It’s disheartening.