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    PG’s Annual Report: Tech Security Bringing Sleepless Nights

    Data protection leads crucial issues for grocers

    By Jim Dudlicek, EnsembleIQ

    The following is part of a series of key highlights from the 82nd Annual Report of the Grocery Industry, which appears in PG’s April 2015 issue. The full report can be found here.

    What are the big issues keeping grocery retailers up at night in 2015?

    Topping the list: data protection and security, noted by more than 64 percent of respondents. A year ago, data security ranked fifth. Since then, retailers of all kinds have been rocked by data breaches of ranging severity, from the double hit at Supervalu last summer to the lingering effects of the Target breach that resulted in an executive house-cleaning.

    Tracy Kitten, executive editor of the Princeton, N.J.-based Information Security Media Group, argues that retailers’ cybersecurity overall is sub-par. “I think more attention has been paid to PCI compliance in the last year and a half,” she tells PG, “but we are still a long way out from having EMV (chip) fully implemented at the POS, and most grocers are not particularly innovative, relative to other merchants, when it comes to payments security. I doubt grocers will adopt EMV at a rate that exceeds other retailers.”

    Further, most merchants across the board have not historically made big investments in behavioral analytics to monitor transaction activity, Kitten notes.

    “Grocers and all retailers have an obligation to protect their customers’ cardholder data and personal information,” Kitten says. “If consumers do not feel that their information is safe, they will stop shopping with that merchant, so data security has a huge and direct impact on customer satisfaction and sales.”

    Also moving up the insomniac’s list: price increases, at second place, noted by nearly 60 percent of survey respondents, up from seventh a year ago. Benefits, such as minimum wage and the Affordable Care Act, ranked third this year after leading the list in 2014. Competitive threats, last year at No. 2, dropped to 11th place – an interesting development, especially amid growing challenges from alternate channels like drug, dollar and digital.

    Grocers Brimming with Confidence

    Grocery retailers’ confidence continues to inch upward from the valleys of the past decade, and their optimism for the retailing climate has reached new heights.

    On a scale of 0 (awful) to 100 (sensational), retailers PG surveyed topped 72, up nearly six points from their score for 2014. A year ago, however, retailers’ forecast for the coming year was 71.8, indicating that 2014 did not pan out quite as expected.

    Still, sentiments are trending most definitely up, and have come a long way from the score of 58.4 reported in 2009.

    Overall, grocers are significantly more optimistic about the retail climate compared to a year ago, with nearly half of respondents saying they’re sweet on 2015; that’s up from about 39 percent a year ago. Just over a fifth expressed less optimism (versus 28 percent a year ago) and just shy of 30 percent declaring they envision no change.

    As is typical, chain operators are the most confident, with nearly two-thirds expressing optimism for retailing this year, up from about 52 percent a year ago. About 44 percent of independent operators see a rosy retail climate, up from 30 percent this year.

    It’s obvious that current economic conditions are buoying retailers’ spirits. The Kroger Co. recently celebrated its 45 consecutive quarter of same-store sales growth. Describing 2014 as “an outstanding year by all measures,” Rodney McMullen, chairman and CEO of the Cincinnati-based grocery giant, said at Kroger’s March earnings call that the company “captured more share of the massive food market [and] delivered on our commitments and invested to grow our business. … [O]ur core operating performance without fuel shows that our associates are improving our relationship with customers in ways that grow loyalty and generate strong shareholder returns.”

    Market optimism also bodes well for the beneficiaries of the 168 stores cast off as a condition of the Albertsons-Safeway merger, most significantly Bellingham, Wash.-based Haggen, which by exponential expansion of its banner throughout several states has the potential of becoming the next great regional West Coast grocery chain.

    Independents, too, have reason to be excited as they vie for the loyalty of consumers looking for new, better and more personalized shopping experiences. Companies like Minneapolis-based wholesale distributor Supervalu Inc. are feeling bullish about the future of the independent grocer. Says Brian Audette, SVP of Supervalu’s corporate independent business, “We’re really focused on keeping our customers relevant.”

    Methodology

    Progressive Grocer’s 82nd Annual Report of the Grocery Industry is based primarily on an exclusive survey conducted among headquarters executives and store managers at 135 supermarket chains, independents, wholesalers and distributors across the United States.

    Sixty percent of the respondents classify themselves as independent retailers, and about 18 percent are self-distributing chains; about 12 percent are wholesalers and 7 percent distributors.

    Of the total respondents, more than half represent organizations with one to 10 stores, about a quarter have 200 or more stores, while about 15 percent are from operations with between 11 and 99 units.

    Regionally, about 31 percent of respondents are from the Midwest, about a quarter are from the West, just under a quarter are from the Northeast and about 21 percent are from the South.

    Additional store account and sales data are provided by Nielsen TDLinx, which maintains a national database of supermarket and other retail format locations.

    By Jim Dudlicek, EnsembleIQ
    • About Jim Dudlicek As editor-in-chief of Progressive Grocer, Jim Dudlicek oversees daily operations of the magazine, spearheads its signature features, produces PG’s monthly Trend Alert newsletter on center store issues, moderates its regular webcast series, and writes and comments about a wide range of grocery issues. A food industry journalist since 2002, Jim came to PG in June 2010 after covering the dairy industry for 7½ years, during which time he served as chief editor of Dairy Field and Dairy Foods magazines. A graduate of Marquette University, Jim is fascinated by how truly progressive grocers inspire consumers to enjoy food, transforming the industry from mere merchants into educators that can take the most basic of all necessities and turn it into something profound and life-enhancing.

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