by Ashley Bates/staff writer
Arizona had another difficult year economically—foreclosures are up, unemployment still hovers near double-digits (9.5 percent in October) and some residents have left the state to seek better opportunities elsewhere—but at the end of 2010 it seems that the worst might possibly be in the rearview mirror.
Tim McCabe, president of the Arizona Food Marketing Alliance (AFMA), told The Shelby Report that Arizona is now in a stabilizing pattern.
“I think the best way to describe it is that we stabilized somewhat in the past 12 months,” he said. “(But) we still recognize the fact our economy is going to take a long time to recover.
“The housing situation and foreclosure situation have gotten worse in the last 12 months and we know we are several years away from recovery there as well. So, until we get any kind of recovery turnaround in our housing/construction sector, we just don’t see any real turnaround in our population growth here. I think this recovery process is going to be much longer than originally anticipated,” McCabe said.
On Dec. 1, economists came together for a luncheon at the Phoenix Convention Center. Four economists from Arizona State University’s W.P. Carey School of Business and JPMorgan Chase bank all agreed that the Arizona economy will solidly rebound in the coming years, reported The Arizona Republic.
“Better times are ahead. I truly believe this is a recovery, that this is an economic change that you can count on,” said Joel Naroff, a Philadelphia economist who has won a number of awards for his accurate forecasts.
The economists said the recovery will be slow because of a weak housing market, little commercial construction, hard-to-get mortgages, rising gasoline prices that can cut into consumer spending, and state and local budget cutbacks that will mean more lost jobs.
“2011 is going to be the best year for Arizona’s economic growth in the past three years,” said ASU economist Lee McPheters. “So, I think there are bright skies ahead.”
In 2009, Arizona ranked only behind Nevada in having the most job losses. Home prices in Arizona have fallen for 15 of the past 17 quarters and today stand at about what they were in 2000, McPheters said.
Scottsdale economist Elliott Pollack estimated that there are 50,000 to 70,000 excess single-family homes in metro Phoenix alone and that it will take at least four more years for housing supply to equal demand.
Retail sales gained slightly between 2009 and 2010, right at 2.7 percent, and are predicted to grow to 6.4 percent in 2011 and have a double-digit gain in 2012, according to the “Arizona’s Economy” study from The University of Arizona Economic and Business Research Center.
Grocery industry moving in a positive direction
In the state’s grocery industry, there are some positives, including new stores opening, McCabe said.
“Fry’s continues to be aggressive in opening new stores, especially their Marketplace stores and their Marketplace Signature stores,” McCabe said of the Kroger division based in Phoenix. “Most recently, they opened a store on Tatum and Shea in Paradise Valley that is truly a state-of-the-art grocery store. There is covered parking, valet parking, a cooking school—a totally upscale experience that just opened a couple of months ago. They seem to be the most aggressive as far as store openings and remodels right now.”
Bashas’ came out of Chapter 11 bankruptcy this year and have refocused the business for success in the future (see story next page).
“They have emerged from Chapter 11 as a leaner more focused organization that received a great deal of support from their vendors, suppliers, community and customers,” McCabe said of Bashas’. “They are putting together an aggressive plan to be able to keep successfully moving forward.”
Bashas’, which will celebrate 80 years in business in 2012, has been a positive influence on the business environment in the state over the years, McCabe added.
“They’ve given back $100 million to the community over the past 77 years,” he said. “It’s exciting to see somebody emerge from this with what looks to be a good plan, especially in the state of the economy that we’re in.”
Sunflower Farmers Market (see page 121), Sprouts and Henry’s are doing nicely even through a sluggish economy, he added.
“That type of format is doing well in the slowdown of the economy,” he said. “I think it is a combination of selling… basically fresh food, especially with the focus on produce at very good prices. And that combination seems to have been very attractive during these down times, and they, both Sunflower and Sprouts, continue to grow and open new stores.”
Fresh & Easy Neighborhood Markets, the U.S. division of British retailer Tesco that operates more than 150 stores in Phoenix, Las Vegas and numerous areas of California, will close five to six stores but also is opening new stores.
“I think they are carefully re-looking at all their locations and deciding where they want to be,” McCabe said.
Costco has not opened any new stores and Walmart is still the No. 1 food retailer in the state, McCabe added.
The independents in Arizona are having a tougher time because of the decline in the Hispanic population across the state. Pro’s Ranch Market sold its stores in California but still owns stores in Phoenix, New Mexico and West Texas.
“They continue to struggle, because of the demographic base of who their shopper is, and that population is decreasing,” McCabe said.
“The smaller the store the tougher it is, especially in the convenience store channel. They have really taken a big hit,” he added.
According to the Arizona Business Journal, a new grocery store recently opened in North Phoenix, called Bon Terra Farm Market.
The 4,000-s.f. store owned by Bud Langstrom offers convenient, healthy foods in a European/farmers market style. The store features natural and organic items, deli, bakery, espresso bar and restaurant. Ready-to-eat and ready-to-heat prepared foods ready to take home, and Bon Terra offers catering services as well.
The Journal also reported that four of the five largest retail leases signed in the Valley during the third quarter were for discount stores, and experts expect to see more of the same.
AFMA works to protect food industry interests
With new stores now beginning to open, AFMA is focusing on keeping the state legislature aware of business conditions for grocers, fighting fees and other taxes and dealing with statewide plastic bag mandates.
“Fortunately, we have a great program here called Bag Central Station, which is a voluntary recycling program, and all the major grocery stores have recycling bins in their stores,” McCabe said. “What they do is they recycle all the plastic bags, any plastic bag, even if it is a dry cleaning bag. The grocery stores now are selling a lot more reusable bags so we are trying to use…Bag Central Station to educate people on what you do with a plastic bag.”
McCabe said the voluntary program has recycled more than 1,000 tons of plastic in the last two years and customers do get discounts for bringing in their own bags.
“Every retailer has a different discount,” he said. “If they bring their own reusable bag they will give them a discount of maybe 4 cents (per bag) at times.”
Bag Central Station has won an EPA award as well as a Valley Forward Award for environmental excellence in Arizona.
With awards do come defeats in other areas, unfortunately. The City of Phoenix imposed a 2-cent sales tax on food in 2010, which AFMA opposed.
“Food is an essential. When you place a tax on it like that it really has an impact on everybody,” McCabe said. “This was not the time to do that and impose taxes on food when times are tough.
“The other thing that went through is a 1-cent state sales tax on all items, not just food items. In other words, if the tax ranged from 7 to 8 percent, it all went up 1 percent, and that was a ballot issue in May earlier (in 2010) that was passed by the voters.”
The 1-cent tax stays in effect for three years in Arizona, with voters apparently hoping the additional funds will balance the state’s budget.
“Our message simply is the food retail industry here in Arizona has taken a big hit because of the economy. There are a lot less people here, estimated at about 500,000 less people here than there were three years ago,” McCabe said.
“They are…using coupons more, they are buying loss-leader items on the front page (of the ads) more. They are trading down, buying more private label and they are getting more bang for the buck, so to speak, in what they buy. So therefore, the margins are down and the retail prices we saw at Thanksgiving were prices we haven’t seen for 20 years.
“I think the national brands now have to look at different alternatives of how they go to market, how they might want to diversify or how they might want to change their whole business plan to address the changes that are going on,” he continued. “We are living in a time right now that what the consumer is doing today may not be the same as it will be doing six months or two years from now. They are becoming a little bit less predictable.”
Which is why it is so important for retailers to use any means necessary to attract customers.
“Right now the retailers are looking at every avenue to attract that consumer in every possible way,” McCabe said. “I think what’s happening now from a consumer’s standpoint, and retailers realize it, is they are going to a lot of other nontraditional places to look for deals. Now consumers are looking for anywhere possible out there for value or a coupon.”
Shoppers, in a recession or the current slow recovery, are really looking out for price and convenience.
“They want to pay a real low price, but they really don’t want to be inconvenienced too much. They want to have the best of all worlds, and I think the average consumer today is spending more of their time during a day figuring out how they can buy better, not just in a grocery store, but anywhere.”