Grocery price hikes: 'We're going to feel the effect for months'

New York (CNNBusiness)Frustrated shoppers are already dealing with unpredictable product shortages and empty shelves at their favorite grocery stores.

But if they’re hoping to pivot to a neighborhood convenience store to fill in some everyday necessities, they might be out of luck there, too.
Convenience stores typically serve as an ideal substitute to a grocery store when all that’s needed is a case of water, a couple bags of chips or maybe just a carton of milk.

    That makes local shops perfect for the quick mid-week, fill-in grocery trip, said Arie Kotler, president and CEO of Arko Corp., which operates over 1,400 small format convenience stores in 28 states.

      But convenience store operators say the ongoing supply chain disruptions have also impacted their ability to adequately meet the fill-in needs of shoppers in larger cities and, more importantly, the daily essential needs of customers in secondary markets and rural areas where a convenience store might be the only store in town for food items.

      A TXB store in Georgetown Texas. In many small towns and rural communities, convenience stores are a vital lifeline for everyday needs.
      Kevin Smartt, CEO of Texas-based convenience store chain TXB (which stands for Texas Born) has been closely monitoring weekly product availability reports from his distributors.
      The company operates 50 stores across Texas and Oklahoma. Each location is an average of 4,500 square feet, serving a mix of freshly-prepared foods like tacos, salads and sandwiches plus a variety of grab-and-go packaged goods. Some locations also sell fruits and vegetables.
      “Here’s the magnitude of the problem right now,” Smartt said. “As a chain, we’re probably averaging 6,500 to 8,000 outs a week from manufacturers,” he said. ‘Outs’ refers to a specific branded product that is out of stock and can’t be delivered that week.
      That’s a very high number. Across TXB, out-of-stock products are averaging 12% to 13% currently, Smartt said. “In a normal environment, it would be about 1.5%.”
      Smartt said the usual contingency plan would be to restock with another brand, but even that’s proving to be difficult.

      Convenience stores are struggling to stay fully stocked as supply chain problems cause production and delivery delays.
      “It’s a daily struggle to buy substitute brands from alternative suppliers for products we carry. It’s a war zone because everyone is doing the same thing,” he said. “It’s a logistical nightmare and sometimes the substitutes that we have to buy are more expensive.”
      Although TXB has stores in larger cities such as Austin, Texas, most of its locations are in small towns, many with populations of only 2,000 to 3,000 residents, where it is the only store in town, he said.
      “In those places, the convenience store is a lifeline for the community,” Smartt said. “There’s a lot of frustration from customers. Anything on top of the supply chain challenges, like bad weather, is making the situation worse.”

      “In a lot of communities, we’re it”

      A RoadRunner convenience store owned by Arko Corp in Blountville, Tennessee. .

      That’s also a challenge for Arko, which has a majority of its stores in small towns and rural areas.
      “In a lot of communities, we’re it,” said Mike Welsh, the company’s senior vice president of operations. “It’s a town with a mountain surrounding it, for example. There’s a high school and a town hall. It’s a small community where the school football team comes to us after a game to celebrate.”
      Those communities tend to rely on the local convenience store for more than buying food.
      “A local health department contacted us about a store in southwest Virginia to use it as a mobile location for vaccinations,” said Welsh. The Omicron variant has spread through Arco’s own store workers, although Welsh said stores have so far avoided shut downs.

      A majority of Arko-owned convenience stores are located in small towns and rural areas.
      Welsh said quite a few Arco locations have kitchens that prepare ready-to-eat foods like pizzas and chicken. Other products are what you’d typically expect to find in a convenience store — bottled water, sodas, chips and candy.
      Other merchandise has been added throughout the pandemic, such as soaps, masks and sanitizing wipes. “The community relies on us for all of these products. For us, especially in our markets, it’s critical to have a well-oiled supply chain that’s moving quickly,” he said.
      Like TXB, Welsh said shoppers at Arko-owned convenience stores have fewer options because of supply chain slowdowns. “We’re trying to fill in gaps with substitute items, and at times we just can’t,” he said.

        The uncertainty of not knowing what they’ll be able to buy on any given day because of shortages is making customers anxious.
        At one Arko store, Welsh recently saw that a group of customers had lined up early, before the delivery trucks were scheduled to arrive. “They were out there waiting for the trucks to be unloaded in hopes of getting what they needed,” he said.
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