Rural grocers in Minnesota feel the pinch amid stiff competition

Supermarkets for the most part have seen increased sales during the coronavirus pandemic as people turn to meals at home instead of restaurants.

But rural groceries, which perhaps needed that bump the most, did not see it.

Before the pandemic hit, a University of Minnesota Extension survey found that nearly half of grocery-store owners in towns with 2,500 or fewer residents worried their stores would close down within five years.

The coronavirus pandemic — and the resulting trends of people shopping closer to home and buying local — have given mom-and-pop grocers some optimism but have not erased the challenges.

"Grocers continue to close in rural areas because the business model is challenging," said Johnathan Hladik, policy director for the Center of Rural Affairs in Lyons, Neb. "They're competing with larger cities, Amazon, dollar stores and an aging infrastructure of freezers and refrigerators that are expensive to operate, repair and buy."

Greater Minnesota lost 14% of its grocery stores between 2000 and 2013, according to the Center for Rural Policy in Mankato. Since then, data firm Nielsen has noted store closures in the past five years in Aurora, Clinton, Geneva, Victoria, Young America, Long Prairie and Onamia. In North Dakota from 2014 to 2019, the number of rural grocery stores dropped to 98 from 134, according to the North Dakota Association of Rural Electric Cooperatives.

"People don't realize how much they need the local grocery store until it's gone," said Stuart Reid, executive director of the Food Co-op Initiative in Savage. "There's a silver tsunami of aging owners, stores are closing at an alarming pace and finding someone who wants to take it over is difficult. No one's getting rich in this business."

Sales at U.S. supermarkets as a whole increased 11% in 2020, according to the Census Bureau.

Yet Allen Dahmen, who with his wife owns Pierz Foods in the town of the same name north of St. Cloud, saw only a small bump.

"We're doing OK, but we're not getting rich. Our cars are at least 15 years old and have 200,000 and 400,000 miles on them," Dahmen said. "We're putting money back in the business, not in the bank. This store and building is our retirement."

The issues he faced before the pandemic still loom. About five years ago, a dollar store opened in the town of Genola, population 86, barely a mile from Pierz. It was the latest hit as a long list of big hitters such as Walmart Supercenter, Aldi and more dollar stores set up shop 15 miles away in Little Falls.

"The only thing I compete against the big stores with is service," he said.

But he said his customers seem to appreciate the extra touch. Dahmen learned how to be a meat cutter so he could offer everything from rib-eye steaks to hamburger ground fresh every day.

Some towns such as Graceville, 180 west of Minneapolis near the South Dakota border, have fought to keep dollar stores out. Others welcome the development. Dollar General has plenty of urban locations but has expanded across the country in small rural areas and plans to open 1,050 new stores this year.

More than three-quarters of the grocers responding to the U Extension's survey have a dollar store in their town or within 15 miles.

"Our biggest sellers are things that Dollar General doesn't sell," said Mark Gohnert, co-owner of Fairfax Community Market in Fairfax since August. "Hellman's mayonnaise is $7 at our place and $4 at Dollar General, but I buy it wholesale for $5 and mark it up about 30%. If I charge less, I can't pay our 10 employees."

Most dollar stores don't sell fresh produce or refrigerated meats, but their lower prices on household items and foods that are packaged, canned or frozen attract shoppers.

Convenience overtook price for many shoppers during the pandemic, and the grocery owners took advantage of an opportunity to highlight customer service and selection.

"Price is one of the key drivers of consumer behavior," said Keith Daniels of Carl Marks Advisors in New York. "But grocery stores can sometimes charge higher prices if they are offering a better product, convenience or experience."

John Hinkley — who owns Valley General Store in Halstad, a town of about 600 north of Fargo/Moorhead on the Minnesota-North Dakota border — knows the importance of customer service.

"We can't afford to lose one customer. We've only got 500 of them," he said.

Hinkley keeps customers happy by carrying their groceries out to their cars, even if they don't need the help. He takes call-in orders from the elderly, and does free weekly deliveries for the locals.

"I tell all my employees that I don't care if you sit and visit with someone and ask them how their grandkids are," he said. "We have to make them welcome."

Hinkley moved Valley General to a new building last year. Not only did the 9,000-square-foot structure build pride in a small town where new construction is rare, but Hinkley added groceries, a deli and a liquor department to the hardware selection he always had.

"I didn't know much about groceries other than that I like to eat them, so I hired two [women] who worked at the grocery store before it closed," he said. "It was a very different experience. Nuts and bolts don't get moldy."

Hinkley couldn't afford to hire a meat cutter, often a grocery store's highest-paid employee, so he contracted with Mason Brothers Wholesale Grocery in Wadena. The grocery offers a vacuum-packed package so fresh meat stays fresh longer.

Rural grocers are also stretching budgets to diversify and add products and features that metro shoppers take for granted such as delis, bakeries and grab-and-go meals. Some owners run other small businesses in the town such as a laundromat or flower shop to keep storefronts as full as possible.

Overall, rural economy experts say the number of rural grocery stores in the state continues to decline. More than 340,000 Minnesotans face both distance and income as a barrier to obtaining healthy, affordable food and 235,000 Minnesotans live more than 10 miles away from a large grocery store or supermarket, according to Hunger Solutions Minnesota in St. Paul.

"There's a lot more that we could be doing," said Leah Gardner, policy director at Hunger Solutions.

There is modest assistance from government. The Minnesota Department of Agriculture since 2017 has funded the Good Food Access Program, which provides equipment and technical assistance in federal designated food deserts defined as having to drive 10 miles or more to a full-service grocery.

When the program was created, supporters asked for $10 million in funds and got $250,000, Gardner said. This year, the program will probably receive about $300,000.

The program often supplies small grocers with a new freezer or cooler. The average age of a rural grocery-store walk-in cooler in Minnesota is 29 years, according to the U survey.

While many rural towns struggle to keep their groceries, the number of supermarkets in Minnesota grew to 546 last year compared to 525 in 2015, according to Nielsen, whose count does not include dollar stores, convenience stores or warehouse clubs. While most of the growth is in cities, a few small towns have added a grocery store.

Fairfax Community Market had closed in 2018.

"Residents told me they were sick and tired of driving 25 miles to New Ulm for a banana," said Nick Johnson, city administrator for Fairfax, a town of 1,100. He knew the town needed a new owner and helped with the process. The market reopened in August under Gohnert's ownership.

Marge Agnew, mayor of Onamia near Lake Mille Lacs, also knows firsthand about losing a town's only grocery store. Billie's Market closed about four years ago.

"I still hear from tourists, people who might want to move here. They ask, 'You don't have a grocery store?' And they choose to move to Isle, Milaca or Pierz," she said.

After four years she describes not having a grocery store as neither dismal nor rosy. "It's an inconvenience more than anything for most of us, but for the elderly without transportation, it's difficult," she said.

John Ewoldt • 612-673-7633