Business owners in South Dakota are “cautiously optimistic” for 2024, according to Nathan Sanderson, executive director of the South Dakota Retailers Association.
He noted that 2023 was better than most expected but, thus far, things in 2024 “are flat.”
“They’re generally seeing better foot traffic, but that increased foot traffic doesn’t necessarily result in more spending,” he said. “It’s this really interesting scenario where, nationally, you’re seeing debt levels increase, you’re seeing savings levels decrease, and I think that’s resulting in a little bit more caution on behalf of consumers. And I think that grocers especially, but other business owners as well, are seeing that reflected in spending, a little more cautious approach.”
Looking at the grocery industry, Sanderson said while people have begun eating out more post-pandemic, those numbers still have not returned to pre-2020 levels. He said many South Dakotans continue to make more meals at home, which has helped “shore up the health of the grocery industry” in the Mount Rushmore state.
While inflation is considered to be cooling, Sanderson said consumers have somewhat returned to “trading down” as they had during the pandemic. This can be seen in choosing less expensive cuts of meats or turning to private label products over national brands.
The supply chain has “largely been fixed,” but he said labor remains an issue for grocers in the Mount Rushmore State. Unemployment is low, at about 2 percent, however there just aren’t enough workers to fill available jobs. 
“While the labor force is improving somewhat, and the quality of employee candidates is improving somewhat, South Dakota can still use tens of thousands more workers,” he said.
The state economy is strong, Sanderson noted, and has been for several years. However, with a population of less than a million people, he said the lack of available workers is the “No. 1 limiting factor for economic growth” in the state.
While there are number of people moving into the state, most are not of standard working age, he said. Many are college students, particularly from Iowa and Minnesota, along with a number of retirees.
This influx of people of non-working age leads to the need for even more of working age to help satisfy their needs. “It’s sort of this perpetual issue,” Sanderson said.
Another challenge facing the state’s businesses is retail theft, including organized retail crime. It is not as big of a problem as in some other states, but Sanderson organized retail crime “is absolutely increasing.”
He noted other businesses seem to be impacted more than grocery stores, but “crime begets crime. If you start to see problems in one demographic, that’s going to trickle over into others.”
One of the biggest challenges facing independent grocers in South Dakota is competition and the increased mobility of the consumer.
Sanderson cited as an example the increasing availability of out-of-season produce in grocery stores. Those that can “more readily and more inexpensively” get these items put an additional strain on rural grocers to keep up.
“If you can go to a larger chain grocery store and get that particular item of produce that you want in the middle of December in South Dakota, and you can’t get it at your local grocery store, it’s not that difficult for me to hop in the vehicle and drive 45 minutes to the grocery store as opposed to using the one in my small rural community,” he said.
Changing demographic
Over the last century, South Dakota has demographically become a more urban state. Sioux Falls, which has been one of the fastest growing metro areas in the U.S., now has about a quarter of a million people, Sanderson said. As more residents are moving to urban areas, small businesses in rural communities are struggling.
“We’re definitely seeing the closure of more rural independent grocery stores as a result of that demographic shift,” he said.
That said, the rural independent grocer remains relatively strong in the state. In small communities of less than 5,000 in population, the residents recognize the importance of shopping local.
“I think many of them patronize their local grocery stores and keep them going as a result.”
Sanderson added that while many people now purchase household staples online, they continue to go to their local grocer for items such as meat and produce, often choosing items that are on sale that week.
Legislative concerns
South Dakota’s legislative session has ended for 2024, with Sanderson saying none of the bills the association tracked that passed were of particular concern for grocers. However, there is a potential initiated measure for the November ballot that would eliminate the sales tax on items for human consumption.
Sanderson said the initiated measure is “very poorly written.”
“As interpreted by the attorney general, it would include tobacco. It also would include a whole variety of things that aren’t necessarily food,” he explained. “You consume shampoo and toilet paper, and you consume a variety of things. It’s unclear how this initiated measure, which again is drafted very poorly, would negatively impact our sales tax collections in the state.”
South Dakota has no income tax, therefore its general fund is heavily reliant on the 4.5 percent state sales tax. Should the initiated measure pass, Sanderson said it would have a negative impact of about $176 million.
“That’s something that we’re actively opposing. We hope that it doesn’t make the ballot, but if it does, we’ll be working to defeat that measure because it’s got a whole host of unintended consequences.”
