Saving rural grocery stores
Subscribe to the Successful Farming Podcast:
Jodi:
Welcome to the Successful Farming Podcast. I'm Jodi Henke. I grew up in a really small town of about a thousand people. We had two grocery stores when I was a little kid, and eventually that went down to one. It changed local ownership three times, but shortly after I graduated from high school, the final owners decided they couldn't keep up with the store anymore and it closed for good. Well, this same scenario is and has been happening for years all over the country, but there is work being done to help communities keep their local food markets. Joining me on this podcast is Erica Blair. She is the program manager of the Rural Grocery Initiative at Kansas State University. Erica, first of all, tell us what your program is all about.
Erica:
The Rural Grocery Initiative is a program within Kansas State Research and Extension. We've been around since 2007 and the mission of the program is really to help sustain independently owned rural grocery stores. We do a couple different things. We provide technical assistance, which basically just means we're working through challenges and strategizing with not only existing grocers, but also communities that want to open a grocery store, or people who want to get into the grocery industry. Yeah, providing technical assistance. We do some research to identify the challenges that grocers face and what are the best practices? Then we also host various educational workshops and webinars. All throughout this, we're trying to build connections between grocers that they can learn from each other as well.
Jodi:
Why do rural grocery stores close? There's probably a million reasons why, but what are some of the main reasons that you guys have discovered?
Erica:
It's probably not too surprising, a lot of Baby Boomers own grocery stores. They're getting to the age where they want to retire and so that's one of the reasons why people are leaving the industry, but then I think another part of it is just that the grocery industry is just very challenging. There's a lot of competition with dollar stores that are increasingly moving into rural America. They have competition with large supermarkets. Grocery stores face very high operating costs, especially when it comes to energy and infrastructure. As a result of this, they have a pretty low profit margin. I think the industry average is about 1%.
Erica:
It's just a very, very physical job. Every day. Grocery owners are having to think of 1,000,001 different things. I think sometimes people leave because they're looking to do something else. Between 2008 and 2018, over 50 rural grocery stores in Kansas closed and didn't reopen. I think this is just a trend that we are going to continue seeing. One of the things that can really lead to this, having a store close without a successor is not having a business transition plan in place. That's why our office has really started focusing on this and helping grocery stores figure out what their exit strategy is, so that they don't have to close and so that there's a seamless transition from one owner to the next.
Jodi:
Should all owners have an exit strategy or business transition plan, even if they don't see that happening in the future? Is that something that they should come up with right away?
Erica:
Yes. I think that every business owner should have an exit strategy. It's really inevitable. There's going to be an exit at some point. Even the Small Business Development Center recommends that people start planning for their exit at least three to five years in advance of retirement, but we've seen businesses start planning that 10 years in advance. It's really never too early to begin planning.
Jodi:
Talk again about those plans. What should be in it? A grocery store is a little different than, say, a farm. Different assets, different things that are going into that. What do you recommend?
Erica:
Well, I would say whenever somebody is going about these plans, they would want to work with a team of people. They'll want to work with their financial planner, an accountant, other professionals who have expertise. I think every transition plan is going to look slightly differently, but the first step is really to figure out what your personal goals are and then figuring out what is the business worth? Is it enough to meet your goals and if not, how do you increase the value?
Erica:
That's usually a big part of the business transition plan is how do you increase the value so that you can get the most out of the business? Then you'll want to make sure that all of these details are down on paper so that everybody is on the same page. That would include what does the future ownership look like? Are you going to be using a slightly different ownership model? When is the transition going to take place? What is the selling price going to be? I think it's also a good idea to start documenting your different policies and procedures, which will just help the next store owner start off on the right foot and set them up for success. That's broadly what we're talking about and what would go into these plans.
Jodi:
It must be a lot harder to reopen a store once it's closed. Several years ago, here in Iowa where I live, there was a couple that won the lottery and basically, they opened up a new grocery store and market and all that for their town. That's a pretty rare occurrence. Not many people who win the lottery want to do that. It takes a community to rally around a store. It can't be just one person or two people who say keep it open. How do you recommend communities got involved in this?
Erica:
Well, that is a really good question. We've worked with a lot of different communities. This is obviously hugely important for communities because we're talking about food access and when a grocery store suddenly closes, suddenly people have to drive 30 or 40 miles round trip to reach healthy and affordable food. Yeah, I think communities definitely have a huge stake in this issue.
Erica:
One of the ways that communities can get involved is through some of these different ownership models that we've been looking at in my office. There's community supported models, including cooperatives or even municipally-owned grocery stores, which is really interesting. There's been public, private partnerships where maybe the public entity, which might be a city government owns part of the grocery store and then a business owner still owns the business, and the inventory in that side of things. School-run grocery stores. There's just so many different ways that communities can get involved and help maintain their grocery store. When that happens, it is really important to make sure that everyone in the community is aware, on the same page. They know what is at stake. They know what's expected of them to make sure that the grocery store stays alive.
Jodi:
You talked about the city government and so forth getting involved. Would they be the ones that... I don't know, what would the city provide to that?
Erica:
It all depends. Every community is different in what they would want to do to support the grocery store, but for instance, with a municipally-owned grocery store, this would be where the city owns the building, the inventory, the business. The employees of the grocery store are actually city employees, so that's one end of the spectrum, but there are other financing tools that cities can use to support grocery stores like tax increment financing. Not to get too far into the weeds, but there are a lot of different ways that cities can help maintain their local grocery store.
Jodi:
You also mentioned the school-run grocery stores. I think that's a very unique concept.
Erica:
There's a school run grocery store in Leon, Kansas, and it's really neat. The entrepreneurship students help manage the store. They're getting real world business experience with this grocery store. Then there are other students at the school who, they're in ag classes so they're actually producing some of the food that gets sold in the store too and because there's this educational component to this store, there isn't so much of a pressure to make a profit. The other neat thing about this model is that there's now this stronger connection between the store and the community. The store has this nice little cafe area where community members can come in and eat, and interact with the students who are working at the store.
Jodi:
That's really neat. Is that type of concept just fresh foods or maybe locally grown meats? I mean, do they have other staples delivered from outside the community like a regular grocery store would?
Erica:
This is actually one of the challenges that a lot of rural grocery stores face and that is minimum buying requirements. That just means their distributor has a minimum amount that the grocery store needs to order per week. A lot of rural communities can't meet that minimum just because of the size of their community is small, so they don't need to order that much. In this case, that's what's happening with this store in Leon. They don't need to order that much. They're not ordering from a distributor, they're actually, I think, getting some of their products from nearby supermarkets to stock the store with just some of the basic items that people would need to make, let's say, dinner that evening. Then they're also focusing on those local products as well.
Jodi:
Is it something that's open every day or on demand, or when the kids have time?
Erica:
Yeah, that's a good question. I'm not really sure. I'm not really sure how it would operate in the summer either, so that's a really good question.
Jodi:
Cooperatives are growing around the country as well for people who produce food and so forth. Is that just another grocery store-type model?
Erica:
Yeah. That's another model where community members basically buy shares of the store. They buy a membership or a share and that's one way that the grocery store can help raise capital. Everybody who owns a share has a vote, so they can vote in board leaders. Sometimes people confuse it with being a nonprofit. It's not a nonprofit, it still needs to make a profit, but it's just basically the whole community goes in to invest in this grocery store and because of that, the store is very responsive to community needs, community desires. They're basically running the store how the community wants it to be run.
Jodi:
I guess backing up to where we were in the beginning, when a community finds out that its grocery store is in danger of closing, what's the first thing they should do?
Erica:
I think the first thing that people would want to do is talk to their community leaders and express their desire to maintain a grocery store in town and see what can be done as a community. How can the community rally together to help maintain the store? Maybe if it's not financial support that the city can give, maybe they can support by trying to help find a successor for the grocery store or talk to the owner and see, is there any way we can help you stay on another year and create this business transition plan? I think there's just communication that needs to happen, first and foremost.
Jodi:
Are you finding a lot of rural stores being bought up by major companies as a branch of their company, or are you seeing stores maintaining their local ownership?
Erica:
I would say, at least where I am and in my experience, I haven't really seen the stores getting gobbled up per se. A lot of the larger grocery stores and supermarkets wouldn't necessarily locate in a small rural community. I think that's one reason why an independently-owned grocery store is a really important part of rural communities because I don't necessarily think that those larger supermarkets would locate there.
Jodi:
Probably wouldn't have the traffic, I would assume, for the profits and stuff that they need. Is there anything else that you wanted to mention about things that people can do to save their store or what the status of the rural grocery store is?
Erica:
I want to say, again, that this transition planning, of course has a lot of benefits for the community in terms of maintaining food access. Grocery stores are anchor businesses and communities. When a grocery store closes, you can think about what happens to the other businesses in town, right? What happens to the hardware store? If people are getting their groceries now out of town, you can imagine they're probably getting a lot of other items out of town as well. That's why there are so many economic benefits that grocery stores bring. Benefits to the community, definitely, but there's also a lot of benefits for grocery store owners. Like I said earlier, exiting a business is just inevitable. It's going to happen at some point, so you might as well plan for it and try to maximize the value in your business so that you can set yourself up for greater financial security. I would just say it's good for everybody involved to create a business transition plan.
Jodi:
And to keep out of these food droughts, as they're called. Well, Erica, tell us where can people find more information if they're facing this kind of a situation?
Erica:
Sure. Well, my office is based in Kansas, but for anybody listening to this podcast, I think a really good place to start would be the Small Business Development Center, which is all across the country. They have some really excellent resources. Then if you want to take a look at some other resources the Rural Grocery Initiative has created, we have an entire eight- part webinar series on business transition planning specifically for grocery stores. You can find that at RuralGrocery.org.
Jodi:
Thank you. Erica Blair with the Rural Grocery Initiative at Kansas State University. Thank you for listening. For Successful Farming, I'm Jodi Henke.