Dive Brief:

• A study by the U.S. Department of Agriculture’s Economic Research Service found that independent grocers — defined as operators with four stores or fewer — saw their market share decline in 44% of U.S. counties between 2005 and 2015.
• Chain stores dominate sales in most regions of the U.S., according to the study. Independent grocers command 50% market share or greater in only 19% of U.S. counties. Overall, independent grocers accounted for 11% of industry sales in 2015.
• The USDA notes that independent operators still play a crucial role in the U.S. grocery industry. They often serve communities with limited access to supermarkets. “Stores with a higher share of total sales from USDA’s Supplemental Nutrition Assistance Program (SNAP) redemptions are more likely to be independently owned, particularly in rural areas,” the study notes.

Dive Insight:

In markets across the country, independent grocers are seeing their market share decline. In urban counties, independents accounted for just 10%, while in counties that sit adjacent to urban ones — which are often suburban markets — independents account for just 16% of sales in 2015, according to the USDA. Both of these markets are packed with chain competitors that have invested heavily in pricing, promotions and store remodels.

In rural markets — or, as the USDA classifies them, counties not adjacent to urban markets — independent grocers see their strongest sales, but are under pressure from Walmart and discount chains like Dollar General. In these non-adjacent counties, independents averaged just 18% of sales in 2015.

Still, the USDA says independent operators serve a crucial role in the U.S. grocery landscape — mainly in low-income and minority communities. The only counties in the country where independents grew their market share consistently, the study noted, were those that saw an increase in black and Hispanic populations.

Although the USDA's study results ended in 2015, research shows a continuation of these trends. The National Grocers Association and FMS Solutions' annual “Independent Grocers Financial Survey” found independent grocers saw sales decrease 1.62% in 2016 compared to the year prior.

Independent operators have the greatest chance for success in areas where chain stores aren’t building. But small stores can survive and even thrive in competitive markets, as recent reports have shown. It certainly isn’t easy, but grocers that leverage their advantages over larger competitors stand the greatest chance of success.

Independents can offer superior customer service, especially if their roots in a community run deep. But stores need to play up their ability to customize product assortments, as well. Small grocers can use their community and local supplier connections to stock products that their customers want, and that the big guys don’t have. Successful independents are often known for one or two products, be it a killer sub, A-plus steaks or a great selection of locally sourced produce. Stores can build a business around these items, using them as the main draw while building incremental sales in other departments.

Natural grocers are particularly well positioned in this environment. While chain retailers duke it out on price and assortment, these grocers are able to demonstrate a deep commitment to values like local, organic and fair trade foods, as well as a collection of niche products that larger retailers often overlook. Natural Food Merchandiser reports nearly three-quarters of natural products stores saw their sales increase last year.