Ask A Researcher

May 2020
Challenges of Grocery Stores in Rural North Dakota

Dr. Nancy Hodur is the director of the Center for Social Research at North Dakota State University. Nancy has over 25 years of professional experience in applied research, public policy, and outreach education. This article is a summary of a report to CoBank on a pilot project in rural North Dakota titled Food Distribution Pilot Project in Northeastern North Dakota. The report was prepared by Lori Capouch, North Dakota Association of Rural Electric Cooperatives and Neil Doty, N.C Doty and Associates, LLC. Lori Capouch is a development professional who leads rural people through the grassroots development process, empowering them to create the businesses they desire in their communities. She is the rural development director for the North Dakota Association of Rural Electric Cooperatives (NDAREC) where she oversees the Rural Electric and Telecommunications (RE&T) Development Center located in Mandan, North Dakota. Neil Doty is the president of N.C. Doty & Associates, LLC. Doty is assisting the RE&T Development Center with its distribution feasibility work for rural grocery stores.

In North Dakota rural grocery stores are struggling. This alarming trend was first noted in 2014 when the rural development director for the North Dakota Association of Rural Electric Cooperative noticed a spike in grant inquiries from rural grocers for funds for failing equipment and in some cases operating funds. The volume of inquiries led to two surveys of North Dakota rural grocers that found rural grocers were struggling to stay in business. In 2015, the North Dakota Rural Grocery Initiative task force1 identified 137 stores in North Dakota communities with population of 2,100 or less2. Currently, there are 98 and of those remaining stores, 16 are community owned or non-profit organizations3.

The problem of struggling grocery stores in rural areas is not unique to North Dakota. Research revealed that a host of rural states are experiencing similar issues with rural grocery stores. Declining populations, competition from big box retailers in urban areas and a wholesale supply chain that is gauged toward large purchase volumes present substantial challenges. The most affordable distributors require products be purchased in cases lots, which for many small rural groceries is too large a quantity to sell in a timely manner. While multiple approaches to support rural grocers have emerged including low interest financing, creating non-profit entities, and local government support, the distribution system seemed to present a substantial challenge.

To explore potential savings in transportation and distribution of products to rural grocery stores, a pilot study was conducted by the North Dakota Rural Grocery Initiative. The initiative explored potential collaborations in the purchase and distribution of wholesale food products to rural grocers. The pilot study area was comprised of communities with a population of 2,100 or less in the counties of Cavalier, Nelson, Pembina, Ramsey and Walsh and the Spirit Lake Reservation.

As part of the pilot project, local development professionals conducted surveys of grocery stores, restaurants, nursing homes, convenience stores, schools and hospitals to collect information on sales, volume of goods sold, and distribution systems. Survey results illustrated the magnitude of the challenges faced by rural grocers. The total wholesale volume of all businesses that purchased wholesale food products in the pilot project study area was $172,000 per week. The average U.S. grocery store has a weekly wholesale volume of ~$120,000. Sales figures revealed a similar disparity between North Dakota’s rural grocery stores and a typical grocery store. Average weekly sales for U.S. grocery stores is $320,000, while more than 50 percent of rural grocery stores in ND have a sales volume of $20,000 per week or less and a net profit margin of $18,000 or less4. Clearly, sales volume and profitability are major challenges to the long-term viability of rural grocery stores in North Dakota.

In addition to low sales volumes, the survey found there was substantial duplication in distribution services. Four major food distributors made deliveries in each study area community and approximately 50 direct store distributors (milk, frozen pizza, soda, snacks, etc.) serviced the area. The data showed that the wholesale volume of the 5-county area and Spirit Lake was similar to that of 1.5 average grocery stores in the U.S.5 That volume was split among the four major wholesale distributors with six or more routes per week with low product volumes for each route. These findings would suggest that a more cost-effective distribution system could yield substantial savings.

To examine potential savings, three grocery stores within the study area agreed to work with North Dakota Rural Grocery Initiative to assist with a distribution model analysis. The premise of the model was to use a “hub and spoke” approach where a larger store acts as a redistribution hub for two smaller stores. Food products for all three stores would be delivered to the largest store and then delivered to the smaller stores. All three stores would benefit from lower purchase prices as a result of higher purchase volumes and the hub store distribution costs would be passed on to the smaller stores. Findings indicated a cost savings of $1,050 per week less $460 distribution costs for a net saving of $590 to be shared among the three stores. Assuming the savings were distributed evenly among the three stores, estimated weekly savings were $200 or $10,400 annually. Given that the average net profit margin for a rural grocery store is $10,800, a spoke and hub collaborative distribution system suggest substantial potential cost savings for rural grocers.

The study was also instrumental in efforts to engage with the North Dakota state legislature. The data collection and analysis from the pilot study was used to introduce a study resolution to the North Dakota state legislature to determine what role the state should play in the distribution and transportation of food in rural communities in North Dakota. The billed passed and was selected for study during the 2019-2020 interim legislative session. The study and engagement with the state legislature also led to numerous media reports which further served to communicate and heighten awareness of this critical issue. While the challenges that rural grocers face has not been resolved, the pilot study and the work done to date brings strength and credibility to the growing concern about access to food in rural North Dakota and rural America. Awareness and understanding of the challenges facing rural grocers is a critical first step to identifying and implementing effective solutions to ensure safe and affordable access to healthy foods in North Dakota’s rural communities.

References

1 North Dakota Rural Grocery Initiative task force members: North Dakota Association of Rural Electric Cooperatives, Broadband Association of North Dakota, Creating a Hunger-free North Dakota Coalition, Dakota College at Bottineau, North Dakota Farmers Union, North Dakota Grocers Association, North Dakota State University Extension, Great Plains Food Bank, Bowdon Community Cooperative, Market on Main (Edinburg), Main Street Market (Hazelton), Start Grocery (New Leipzig), Tuttle Community Store, Wrangler Foods, (Casselton) and Wimbledon Community Store.

2 North Dakota Rural Grocery Initiative unpublished data.

3 North Dakota Rural Grocery Initiative unpublished data.

4 North Dakota Rural Grocer Survey Report on the Opportunities of Improving Rural Grocer Access to Current and Future Food Distribution Resources. 2017

5 Unpublished data reported in Food Distribution Pilot Project in Northeastern North Dakota.

 

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