Kim Eskew, CEO of Harps Food Stores Inc. of Springdale, wants his company to be in a position to handle whatever happens in the grocery sector.
Harps has negotiated the often-turbulent industry pretty well in recent years. In its fiscal 2018, which ended in August, Harps reported revenue of $796 million, up from the $730 million it reported in 2017; its 2017 numbers represented a 6.25% increase from the previous year.
“With the retail environment the way it is today, posting that kind of sales increase we thought was just a super year,” said Eskew, also president and chairman of the board of the employee-owned private company.
The trickiest riddle for Eskew and Harps is online shopping and its potential effect on groceries. Harps now offers grocery delivery through Instacart in 50 of its stores. Harps charges a per-order fee of $3.99 or an annual $99 membership fee and all orders must be $35 or more.
Eskew said he hasn’t figured out how delivery services can be profitable without companies charging consumers for the costs. Eskew said even internet titan Amazon loses money on delivery.
“My personal opinion is that almost no one is making a profit doing delivery,” Eskew said. “You might make money but less [in a high gross margin area]. You can choose to do that, but it costs you to do that. It is not free. There is a real cost to do it and it’s expensive.”
Eskew said that Harps’ 2018 growth was fueled mostly by expansion. The company opened four stores — three in Oklahoma and one in Missouri — and those new sales figures added greatly to the bottom line, he said.
“We had a good year and that was primarily driven because we added some stores,” Eskew said. “We were able to grow by adding some stores. When we did that we picked up lots of sales.”
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Harps has 91 stores in four states and the picture for existing same-store sales, a crucial financial metric, was more mixed.
Eskew said he would like to add six stores each year but that is easier said than done. Harps tries to find smaller markets where its smaller stores can flourish, out of the shadow of Walmart.
Unfortunately for Harps, that model is similar to ones used by the dollar stores, notably Dollar General, which also hits the small markets Harps targets. Eskew said the quandary is that no amount of market research can predict how a new store will do in a small town.
Eskew said two of the stores Harps added in 2018 were acquisitions, where the company bought an existing grocery store. When Walmart closed its Express stores in 2016, Harps bought nine of them and opened stores in a few.
“Finding new locations has been more of a challenge lately because of what has been going on in the market and the proliferation of the dollar stores that are open where we operate,” Eskew said. “The opportunity appears to be in acquisitions and that has to do with independent operators who are getting near retirement age.
“It is more of a known commodity. When you build a new store, all the business you do, you take away from somebody. No matter how well you do your market research, it is always a shot in the dark, really, as to what kind of volume you are going to generate when you open that store. If you buy somebody, you know the volume that they are doing. In many ways it is a much less risky investment to buy an existing operator.”
Eskew said Harps has also found success with its 10Box discount cost-plus store concept, which the company started in Tulsa in 2014. There are nine in three states, Eskew said, and they have done well targeting the price-conscious shopper.