South Dakota’s economy showed a mixed performance in late 2024, and recent data indicates economic stagnation and the need for budgetary adjustments in 2025.
The divergence in economic performance between urban and rural areas also is a key factor to consider.
While the unemployment rate remains low and revenue for fiscal year 2025 is projected to be healthy, the lack of GDP growth in late 2024 warrants attention as the year progresses. State forecasters anticipate potential positive impacts from Federal Reserve interest rate cuts on consumer spending later in 2025.
Although there is uncertainty surrounding the economy, South Dakota’s grocery industry remains strong, according to Nathan Sanderson, executive director of the South Dakota Retailers Association.
Sanderson noted the results of the association’s first quarter survey of its members on the economy. About 60 percent thought the economy in 2025 would be about the same as 2024, he said.
Tariffs also are a significant concern. “We’ve been seeing all the brouhaha about tariffs over the last couple of weeks,” Sanderson noted in an April 9 interview. “The president [recently] announced a 90-day pause on most of the tariffs that he had put in place a week ago.
“I think for a short period of time there, business owners were anticipating higher prices for the things that they’re looking to sell. I think they’re still anticipating higher prices for the things that they’re looking to sell, but it definitely remains a time when uncertainty is the name of the game.”
He noted that in addition to economic concerns, retailers in the state also are facing workforce challenges and evolving consumer trends.
Despite the economic headwinds, Sanderson characterized the overall health of the grocery industry in South Dakota as “pretty strong, even for smaller, independent grocers.”
He pointed to a generational shift within the industry, stating, “One of the things that we are seeing that you would see around the country is a number of Baby Boomers aging out of their businesses. Certainly, there’s some succession that’s taking place there. And interestingly, in some areas you’re seeing younger owners take over smaller, independent grocers. In other areas, you’re seeing those stores close. Overall, I would say pretty healthy, though.”
However, grocers in the state are grappling with several key challenges.
“Over the last five years or so since the start of the pandemic, workforce has been a top-of-mind issue for a lot of grocers. Frankly, that was an issue in South Dakota pre-pandemic as well,” Sanderson explained.
South Dakota’s exceptionally low unemployment rate, “hovering around 2 percent,” exacerbates this issue, making “finding good workers, retaining workers,” a constant concern.
Supply chain disruptions, while improved, remain a factor, particularly for independent operators.
“Supply chain, I’d say is somewhat better than what it had been maybe three years ago or so,” Sanderson said. “Always a constant thing that particularly independent grocers are trying to navigate, but not nearly as big of a concern as it was two or three years ago.”
Inflation is another pressure point.
“The other key consideration for all of them has been inflation. That is absolutely after workforce. Inflation is the No. 2 issue that grocers are facing. As far as consumers are seeing higher prices, grocers are seeing higher prices, and they need to pass those things on.”
The association plays a crucial role in supporting its diverse membership, which includes grocers, retailers, restaurants and hospitality businesses.
“I’d say primarily we provide information, advocacy and services,” Sanderson said. This includes regular member updates, a retail profit magazine, help desk and access to a free human resources attorney.
The association also actively engages in legislative efforts. Sanderson highlighted its recent opposition to the suspension of the state’s sales tax collection allowance, which will be paused until 2028, and SDRA’s successful efforts in mitigating potential property tax increases on commercial properties.
South Dakota’s population growth, particularly in urban centers such as Sioux Falls and Rapid City, is reshaping the state’s demographics and economy. Sanderson noted that urban areas are growing while several rural communities are seeing a decline in population.
Driven by favorable tax policies and strong healthcare systems, the state is experiencing net in-migration.
“We are absolutely a net in-migration state in virtually every age demographic,” Sanderson said.
However, he also pointed out that poses a challenge: “We’re seeing more folks move in of a more retirement age than we are of a working age, even though we’re bringing in more working age people than we’re losing. And so actually, the workforce situation has been exacerbated, in part because we are bringing in more people than what we formerly had.”
Despite these complexities, Sanderson emphasized the strong sense of community support for local businesses in South Dakota.
“Everybody and their brother talks about buying local or shopping local, right? I really would say that South Dakota has a pretty good track record in that regard.”
He believes this commitment to local shopping provides a solid foundation for the state’s grocery industry as it navigates the evolving economic and demographic landscape.
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