Indie Grocery Stores Beat Back the Bigs

Thanks to niche-marketing skills, the number of small, private groceries across the country is holding steady, even as large chains dwindle

by Stacy Perman

The private, family-run Ukrop's grocery store, started by Joe Ukrop nearly 70 years ago, has weathered the Depression and the arrival of large retail chains and big-box discounters. Yet the Richmond (Va.)-based business has managed to expand to 28 shops and is considered central Virginia's No. 1-rated supermarket.

Ukrop's has thrived because it has been quick to innovate and stay ahead of the curve by offering services and a product selection that its competition can't, or won't, beat. Ukrop's was one of the first markets in the country to offer gourmet ready-made meals (its main kitchen cooks some 250 different items). The independent chain also operates a central bakery that supplies its stores with thousands of high-quality baked goods (both ready-to-heat and ready-to-serve). According to Joe's son, Bob Ukrop, the company's president and chief executive officer, offering a range of prepared food and extras pays off: Ukrop's salad bar drives 2.5% of all sales, while its fried chicken accounts for 1.7% of the grocer's business.

And several locations feature the in-store restaurant Ukrop's Grill & Café. More than half of the chain's stores have pharmacies, and a growing number are rolling out the First Market Bank, a full-service bank with crossover benefits like a points program where customers can earn $50 worth of groceries every quarter. Last year, the company earned an estimated $613 million in sales. "There's a lot more competition out there," says Bob Ukrop. "We used to be a traditional grocer selling ingredients, now we sell more than just ingredients."

New Opportunities

At a time when the grocery industry, known for its razor-thin margins, is being squeezed in every direction by giants such as Wal-Mart (WMT) as well as large discount warehouses such as Costco (COS), the proliferation of upscale chains such as Whole Foods (WFMI), drug stores that stock food, and mini-marts at gas stations, agile independent grocers are finding that rather than being crushed by the competition, they're in a position to grab a successful chunk of America's food and convenience dollars.

Thanks in large part to their ability to be flexible, introduce new offerings quickly, and engage on a more personal level with their customers, independent grocers have been able to create new opportunities where the large chains have faltered (see BusinessWeek.com, 11/3/06, "Wall Street Sours on Whole Foods").

According to industry publication Progressive Grocer, last year total-industry grocery sales were $478.9 billion. Of that amount, the independent stores took in about $45.7 billion, less than 10% of all supermarket revenue. However, unlike independent bookstores—which are fast disappearing in the shadow of big-box competitors such as Barnes & Noble (BKS) and Borders (BGP) (see BusinessWeek.com, 6/2/05, "Indie Bookstores' Survival Stories")—the number of small, private groceries across the country is holding steady around 8,160, while the number of large chain stores is dwindling. Slow to move on trends and hit hard by Wal-Mart and other new, heavy-handed players in the industry, the big supermarket chains have seen a wave of restructuring, consolidations, and mergers.