Small-town grocery stores fight to stay open

WELLMAN — On a quiet weekday morning, a customer at Freeman Foods in Wellman raps on the doorframe to Clint Miller’s small office near the back of the store.

“Cornstarch?” the man asked.

“Aisle Three,” replied Miller, Freeman Foods’ owner. “It’ll be around the baking powder, baking soda and that sort of thing.”

Finding the recipe ingredient saved the customer the 16-mile round trip to Kalona or the 55-mile drive to Iowa City and back. It’s an advantage of having an independent, locally owned grocery in rural communities like Wellman, population 1,524.

Miller and his wife, Nicki, bought the store in 2012 and also operate a market in North English, a city of 1,065 in Iowa County.

“The community builds around the school,” Miller said. “After that, the next step is the grocery store that everybody looks at if they’re considering whether or not to live somewhere.”

Food deserts

In an industry notorious for thin profit margins and complex supply chains, independent grocers like Miller keep their hometowns from becoming rural food deserts, defined as counties in which residents must drive more than 10 miles to the nearest supermarket chain or supercenter.

Working off 2000 Census results, the U.S. Department of Agriculture identified more than 6,500 food-desert tracts.

More recent data for Iowa isn’t definitive.

The Iowa Grocery Industry Association counts approximately 130 independent grocers like Freeman Foods across 64 Iowa counties. The association has more than 1,400 grocery and convenience store members statewide.

“Among IGIA member stores, approximately 75 independent stores have closed or been acquired since 2012,” the association’s marketing specialist Audrey Comer wrote in an email.

“They’re about evenly split between stores that are today still operating as grocery/convenience stores and stores that shuttered or are no longer operating. We’ve seen a 15 percent decrease overall in the number of independent stores in our membership in the last 10 years.”

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“For grocery stores or any retail outlets in rural or smaller suburban communities, it really is an economics of scale issue,” said Peter Ralston, director of the Ivy Supply Chain Forum and an associate professor of supply chain management at Iowa State University.

“It’s hard to have a lot of products when you are far away from a distribution center, and it’s hard to have a good price.”

Group purchasing

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“It’s a huge challenge for your smaller independent grocery stores,” said Peggy Stover, director of the Marketing Institute at the University of Iowa’s Tippie School of Business. “The profit margins for groceries are so thin, and if you’re an independent grocer, they’re even worse because you’re not able to take advantage of economy of scale.”

Miller purchases his inventory through Associated Wholesale Grocers, a cooperative that supplies 4,000 stores in 36 states.

“They’ve got more buying power than Fareway does, they’ve got more buying power than Hy-Vee,” he said. “When you’re talking Walmart, Costco, they’re not in that ballpark, but as far as the regional chains, we can compete pricewise.”

Associated Wholesale Grocers also handles transportation and distribution, another challenge for small grocers. Products such as soft drinks and dairy products are delivered by suppliers.

“We don’t have to take care of coordinating the transport, that’s all on their end,” Miller said.

“The supply chain really does play a role,” ISU’s Ralston said, noting both Hy-Vee and Fareway have multiple stores in larger communities such as Ames. “Those stores are all within five miles of each other, so they’re replenishing two stores with one truck.”

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Restructuring

Restructuring Freeman Food’s pricing and purchasing strategies about a year ago has also helped.

“We’re in between small-town pricing and big-city pricing now,” Miller said. “We decided to get a lot more aggressive with purchasing. We buy in larger quantities now so we can try to keep some of the big-store prices.”

The strategy allows Freeman Foods to stay price-competitive with the chain stores on 70 percent of its inventory, even undercutting them on some sales.

“We can be super competitive if people are shopping our (weekly) ads,” he said. “Anything they see with a (special sale) sign on it in here, it’s competitive with any other store.”

Miller signed with Instacart in December for online ordering and delivery. And in January, Freeman Foods landed a $25,000 grant under the Iowa Economic Development Authority’s Rural Innovation Grant program to update its operating system.

“The first thing we’re going to do is upgrade our back-office software,” Miller said. “Anything that’s sold in the store has to be in this system. It still works good, but it’s about 10 years outdated.”

Legislative help

Two Iowa House Republicans have introduced legislation addressing food deserts.

Sponsored by Reps. Chad Ingels of Randalia and Brian Lohse of Bondurant, House File 59 would provide matching grants of up to $200,000 to local grocers and food processors.

Their bill, currently in the Economic Growth and Technology Committee, would appropriate $4 million through 2027 for the program.

State Rep. Sami Scheetz, D-Cedar Rapids, is preparing an amendment to address urban food deserts after Hy-Vee closed stores in Cedar Rapids, according to Lohse.

Robin Bostrom, director of IEDA’s Center for Rural Revitalization, which administers the Rural Innovation Grant program, said meeting with the grocers’ association convinced the agency to make its first grants to rural stores.

“For the more elderly residents who live in our small towns, maybe they don’t have the ability to drive to a larger store,” Bostrom said.

Increasing in-store traffic is critical to weathering thin margins and smaller grocers’ disadvantages.

“That’s one of the reasons we lowered our prices and started getting aggressive with that, just trying to get our volume up,” Miller said. “It’s worked to some extent, but the community hasn’t quite responded like I’d hoped. I wish everybody could just walk in my shoes for a year, to just see that we’re doing everything we possibly can in a small setting.”

“They really don’t mark the prices up that much in a grocery store,” added ISU’s Ralston. “They depend on volume, and it’s just not what it used to be.”

Innovating in small stores

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Miller and his staff — Freeman Foods employs a total of about 40 in both stores — have innovated with new products, too. He and his meatcutters developed the Rib on a Stick — trimmed boneless pork, pre-seasoned and skewered for the grill.

“It’s awesome for tailgating, barbecues, any time you’re grilling,” Miller said. “We sell tens of thousands of those a year. It’s by far our biggest meat item, and Instacart might be a great way for people in Iowa City to experience that item without having to drive all the way down to Wellman.”

Miller, who grew up on a nearby farm, and his wife, Nicki, bought Freeman Foods from Robert and Patricia Freeman, who opened the Wellman store in 1991. They opened the store in North English in 2016.

“In high school, I worked at a grocery store, then for a couple of years out of high school, I did that,” Miller said. “While I was doing construction, the previous owner got in contact with me. I worked for him for three years, then I ended up buying it from him. I didn’t have anything else cooking, and it looked like a good opportunity.”

Despite — or maybe because of — the challenges, Miller is happy with his decision.

“It’s been really good to us so far,” he said. “It’s tough making it sometimes, but it’s been good to us.”