Independent Retailers Step in Where Some Chains Falter

ORIGINALLY PRINTED IN FEBRUARY 2012

In urban areas across the country, independent retailers are booming, often filling spaces vacated by conventional chain stores. Many of the new independents are typically ethnic stores, very often Latino or Asian.

The success of such retailers deserves careful study by anyone who cares about subjects such as food deserts or, for that matter, about the policies necessary to revive the economy. If you go to a city such as Los Angeles, you quickly find many locations in which large chains such as Albertsons/Safeway or Kroger-owned stores couldn’t succeed, but that thrive under other management. The question for policymakers to investigate is: Why is this so?

The easy answer is to credit the focus of the management of these stores. Unlike the major chains that try to serve a broader audience, these owner-operators have a laser-like focus on their clientele. They know which items their customers want, how to get them, how to merchandise to them, and, therefore, how to repeatedly capture this customer.

All this is true and important, but is not explanatory. Large chains know how to micro-market, and if they could compete simply by changing assortment, many would do so. There is a bigger story here, a story with public policy implications.

First, most of these stores are not unionized. This may result in lower wages and a cost advantage, but, in many cases, the big win is not so much lower wages, but enormous flexibility. A clerk can be working the produce aisle one minute, doing some carpentry in the back room the next and fixing the bathroom when it overflows. If business is slow, the clerk is sent home. If the store is busy in the morning and at night, but slow during the day, management puts employees on swing shifts. Union contracts, whether through wages, benefits, job restrictions, minimum hour requirements, etc., can sometimes turn a viable business opportunity into a business failure. Just look at the empty locations abandoned by the major chains.

Second, these stores are often in marginal neighborhoods that require vigilance in reducing theft and crime. Sometimes they deal with this by hiring relatives while rejecting other potential employees. Because these families live in the same community, there are powerful communal pressures to not steal. These retailers often deal with shoplifters and others through “non-official channels.” Some are known to take a thief to the back of the store and teach him a lesson so that, next time, the thief will find some other store to rob. Once the suspect is identified, they might follow him or her and make sure the product doesn’t leave the store. There are even bulletin boards posted at some stores with photos of repeat offenders as well.

Third, these stores can often fly under the radar on procurement policies. Imagine the local wholesale market overloaded with, say, a rejected load of foodservice packages of spinach. Big chains cannot buy these packages — it is illegal to sell these unlabeled bags at retail. These independent stores often take a chance, reorganize their displays, and will be sold out before anyone notices.

The success of independents should be humbling to the industry.

These are powerful advantages, and if one is looking to encourage economic growth in the country, there is a lesson here. Free labor markets and non-bureaucratic approaches that allow businesses to procure what they choose where they choose — combined with a government that can protect businesses against theft and physical harm — is the kind of recipe that leads to economic growth.

At the same time, such a freewheeling approach poses many challenges. If we want national food safety standards, it means we must expect all retailers to play by the same rules. Big chains must compete with these independents, and that means they should pay the same price for goods. So, the whole infrastructure of retailers demanding audits and segmenting suppliers based on food safety criteria puts large chain retailers at a disadvantage against independent competitors in a manner that is unsustainable.

This is a big deal in fresh produce. In grocery items, independent stores often have specialized offerings that the mainstream consumer would normally not buy on the shelves. This is, however, not the case in produce. Independent retailers often offer great bargains on fresh produce and succeed at wooing consumers just for the fruits and vegetables, so the produce departments are often disproportionately large in these stores.

Though some of these independents are still small groups of 2-10 stores, today, many independent operators have grown into small chains of 20-50 stores, with the fresh produce buying power of a conventional chain of 100+ stores. Also, they now own the same software as large chains and can print labels, making the packaged spinach example compliant. Their new size might even allow them to have distribution centers and buy directly from the growers, providing greater flexibility along with a vast knowledge of the “market price.”

Many traditional stores have had to close because new competitors such as ethnic independents are growing and primed to take market share by serving the fastest-growing segments of the U.S. population. As these small independents grow into small chains, we, as an industry, should take lessons on how they sell and manage the produce department.

Produce industry icon Jim Prevor, who founded Produce Business magazine in 1985, died Nov. 7, 2022. To honor his legacy as a maverick thought-leader, this space spotlights the best of Prevor’s “Fruits of Thought” column, which garnered more than 200 awards in business journalism.