The most important business in every community is the local grocery store. It is the most visited. It is where the most money is spent, outside of housing and transportation. It supplies more than two-thirds of calories consumed.
During the pandemic, the industry had record profit margins. From 2020-22, profit margins averaged 2.73 percent, reaching a high of 3 percent in 2020.
Profits were buoyed by record revenues from meals at home despite additional costs connected to hazard pay to associates, an increase in personal protective equipment and the implementation of cleaning and safety protocols.
Since then, purchases of food away from home (FAFH) have surpassed those of food at home (FAH), according to IGA President John Ross’ presentations at The NGA Show 2024 and 2025. This has led average industry profit margins to return to nearly 20-year historical levels (1.58 percent during the last data-recording period of 2023 versus 1.60 percent average from 2003–23).
The first new challenge: People dining out. Pre-pandemic consumer spending favored grocery shopping over money spent at restaurants by 2-5 percent. Today, it’s the opposite scenario. Food purchased away from home has a 16-point advantage over FAH. This differential represents the highest delta of FAFH and FAH spend since data collection began 90 years ago.
In 2023, spend from FAFH establishments accounted for 58.5 percent of total food spend. The remaining 41.5 percent occurred at traditional food retailers. Grocery stores have high embedded fixed costs. As revenues decline, profits decline sharply.
The second challenge: Increasing costs. Rent (or mortgage), labor, utilities and insurance account for the bulk of a grocer’s fixed costs. Since 2019, the compounded annual growth rate (CAGR) of utility costs has been more than double the historical average.
Employee turnover has increased from 41 percent in 2014 to more than 60 percent in 2024. The average cost to replace, hire and train a grocery employee is more than $5,000 per associate.
Lastly, insurance premiums have increased 20-25 percent over the last three years, and for many independent retailers, annual premiums are equal or near net profit.
Challenges like these would be easier to absorb with the record revenues and margins of two or three years ago. However, traditional grocers are competing with nontraditional formats, digital platforms, restaurants and other FAFH outlets for the same dollars.
If we look at this challenge from a resource management perspective, we may discover some new solutions that can improve profits through the benefits of cost-reductions, increased sales and increased market share (more meals at home).
The coming series will focus on resource management and will share insights on how to increase profits through simple and effective resource management strategies.
By leveraging operational sustainability strategies (oops, I mean effective resource management strategies), food retailers can combat the effects of inflation and tariffs, manage through times of economic uncertainty, mitigate regulatory compliance costs and improve employee retention and recruitment.
The next five issues of The Shelby Report will cover the following high-impact areas:
1) Labor recruitment, retention and turnover reduction;
2) Refrigeration management;
3) Prevention and diversion of food loss and food waste;
4) Energy efficiency; and
5) Insurability, cost of premiums and the value represented by ESG data.
The return on investment for many of these strategies can be measured in months or even days – not years.
Peter Cooke is co-founder of Ratio Institute, an independent nonprofit organization dedicated to accelerating measurable sustainability and viability in food retail through expert collaboration, industry resources and practical tools.
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