Arizona's Competitive Grocery Market and What it Means to Arizona Farming

Arizona's Competitive Grocery Market and What it Means to Arizona Farming
The competitive produce aisles in Arizona grocery stores today concentrate on freshness and local.

Tim McCabe is the President of the Arizona Food Marketing Alliance assuming that position in October of 2008. Previously Vice President and General Manager of the Desert Mountain Division of Coca-Cola Enterprises Inc., McCabe is responsible for the oversight of the state trade association in all matters impacting legislation, regulation, and education. And while he’ll be stepping down soon to enjoy retirement, there is no one better suited to talk about the food marketing business in Arizona than McCabe.

The Arizona retail food industry and its suppliers represent $16 billion in annual sales revenue and over 120,000 Employees in Arizona.

Honored by the Arizona Food Industry as the Supplier of the Year in 2004, McCabe likes to remind people he talks to that Arizona represents the most competitive retail grocery market in the country. Phoenix has more square footage in grocery stores than any U.S. city. Most new stores are over 100,000 square feet. Plus, grocery store sales in Arizona are the highest per store, per year sales, or anywhere in the United States.

Typically, supermarkets run off a 1% profit margin, not passing on entire increased costs from suppliers. In fact, that point sounds like what we deal with in farming and ranching.

The average Arizona family goes to the grocery store 1.5 times per week where they enter a grocery store hosting more than 42,000 SKU’s now, compared to 20,000 twenty years ago including liquor.

Tim McCabe

For all their amazing array of food items and the availability of unique products for families, 20 years ago, 90% of food shopping was conducted in traditional grocery stores; today it’s 50%

Like us, the grocery industry is in the food business. We wanted to visit with McCabe about his organization’s role in the food supply chain along with what Arizona agriculture does. Some profound insights can be garnered.

Arizona Agriculture: From your perspective, what is Arizona’s top retail food issue?

McCabe: The top issue for our industry is the current challenge of online ordering of all goods including food.

Amazon has created a threat to not only our “Brick and Mortar” grocery stores but the future of grocery shopping as well. Online ordering and delivery of staple items such as paper goods and non-perishables have increased significantly in the past few years.

The challenge will be the ability to deliver perishables and heat sensitive foods especially here in Arizona. We feel most consumers still want to “touch” their tomatoes and see the meat they are purchasing.

Our retailers have faced major challenges before such as the advent of Wal-Mart Supercenters.

Arizona Agriculture: What’s changed in the way we market to consumers about food?

McCabe: As mentioned before, the biggest changes are in our customers’ buying habits.

More and more are preferring to order online, and each generation has different priorities, especially the millennial shopper. As our customers have changed, our marketing changes with it.

Retailers have developed apps for cell phones that will advertise, allow for ordering and connecting with customers before they even walk in the store. You see less and less print advertising and more mobile and internet communication.

Arizona Agriculture: What’s the “State of the Grocery Industry?” Share the economic contribution?

McCabe: The current state of our industry is healthy and growing.

We suffered several difficult years since the recent recession. Stores were overbuilt based on projected population growth, then when the recession hit, we had several store closings and two of our major retailers filed for Chapter 11 Bankruptcy.  Fortunately, both of those retailers came back strong and now we have retailers building new stores, remodeling older ones and investing in their businesses.

Arizona Agriculture: Our Arizona farmers are certainly the beginning of the food supply chain and while we don’t connect to the Arizona consumer like your stakeholders, we’re trying to engage more with Arizona families. What advice do you have for farmers in connecting with consumers?

McCabe: First, the Arizona Food Marketing Alliance does not just represent grocery and convenience stores; we represent the entire food chain in Arizona.

We feel for a food retailer to be successful, it is important that their suppliers, producers, growers, and local farmers and ranchers need to succeed as well. We are all in this together. We happen to be at the end of the food supply chain that directly faces the consumer every day.

Our Board of Directors consists of chain food retailers, independent food retailers, suppliers, marketing/advertising executives, growers, producers, and ASU agribusiness representation. My recommendation for the Arizona farmers to connect with our retailers is to get involved in our organization. You can have excellent conversations with leaders of the retail food industry in Arizona.

Arizona Agriculture: Considering all the stakeholders in this process, how can we work together more effectively, especially in the agriculture community?

McCabe: The Department of Agriculture here in Arizona under Mark Killian’s leadership has significantly improved the communications and process of working together to better understand the challenges of each other’s industry. Annual food summits are very beneficial for all of us to stay connected.

Arizona Agriculture: What are your current goals for Arizona Food Marketing Alliance?

Our goals at AFMA are to promote and represent the retail food industry in Arizona. That will lead to less regulation and a better understanding of the importance of our industry to everyone here in Arizona.

We feel our industry is always taken for granted and many times it is assumed that we can deal with any additional regulation with no challenge. We are the primary resource for food and fuel, the two most demanded commodities and there is no margin for error. Most of our supermarkets operate on margins of 1 to 2% on profit. Our standards are consistently higher than any other government regulatory agency such as the FDA and the USDA, especially regarding food safety. We donate over 47 million pounds of food to Food Banks in Arizona every year.

Arizona Agriculture: What’s your perspective on Amazon’s entry into the food business?

  McCabe: As mentioned earlier, Amazon does create a challenge to the entire retail food industry and the current way of selling groceries.

Our retailers do an excellent job of recognizing the needs of their customers no matter what generation they might be. The typical supermarket today will carry 40,000 to 50,000 items that allow them to give consumers the choice they want and need.

Good competition, such as Amazon, makes our retailers even better as they constantly look for creative ways to satisfy all their customers whether they order online or shop in the “Brick and Mortar” store.

Arizona Agriculture: You told me once we live in the most competitive grocery market in the country. What’s next for this industry? What’s the future hold?

McCabe: Arizona is one of the most competitive markets in the U.S.

Retailers will invest in Arizona as they determine it is a good long-term investment to be here. Arizona is a very desirable state to live in and estimates are our population growth will consistently be one of the highest in the country. Land is still relatively inexpensive, so retailers will do whatever necessary to maintain SHARE. The beneficiary of this is the Arizona consumer with lower prices.

The future is somewhat unknown. We know more and more shoppers will use mobile devices and order online. The inside of a grocery store will look totally different in five years as our retailers strive to make the shopping experience more pleasurable. Consolidation will continue in all industries, not just retail food. We will be stronger and more in touch with our customers than ever before. More regulations and frivolous laws will be a detriment and ultimately the consumers will pay more because of it.

Arizona Agriculture: Talk about the farmers market environment?

McCabe: As our industry evolves, there has become a bigger consumer demand for understanding nutrition in foods, eating healthy, organics and buying local. Farmer’s Markets have continued to grow. The perception is that Farmer’s Markets provide the best locally grown products, freshly picked. That is not always true. Our retailers constantly strive to buy local as a priority. Our retailers offer the best selection of fresh produce both organic and non-organic at the best prices.

Arizona supermarkets are the best place to buy fresh produce because of wide varieties, price and buying local.

Arizona Agriculture: If you had an audience before our entire farm and ranch membership, what would you tell them?

If I had an audience with all the farmers and ranchers in Arizona, I would tell them we need to continue to work together for all of us to be successful. I would ask them to tell us about what we can do to help them be successful and achieve their goals. Most of us have common goals in business and food safety. I would share the issues that we are currently challenged with, which include:

·         Comfort animals in stores

·         GMO Labeling

·         Shoplifting/Law enforcement support

·         Excessive credit card fees

·         Skimmers at the fuel pumps

·         Junk food/sugar beverage taxes

·         Plastic bag bans

·         Raising tobacco age to 21

·         Minimum wage/sick leave

·         Shortages of drivers and trucks

·         The new USMCA trade agreement

Editor’s Note: This article originally appeared in the November 2018 issue of Arizona Farm Bureau's Arizona Agriculture.

The Arizona Grocery Industry's contribution to the Food Insecure: 47 million pounds of food is annually donated to Arizona food banks from our local grocery stores. That’s 38,775,000 meals or the equivalent of more than 5 meals for every resident in Arizona. 

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