Earlier this month, news reports began to percolate that Connecticut Gov. Ned Lamont was considering a 2 percent sales tax on groceries. The governor later insisted that the proposal was never seriously considered, but it put a rare spotlight on Connecticut’s grocery industry and its place within the state’s economy.
In this edition of Suite Talk, Business Journal reporter Phil Hall speaks with Wayne Pesce, president of the Connecticut Food Association, the 260-member trade group representing the state’s grocery retailers and suppliers.
What is the overall state of Connecticut’s grocery industry?
“There are a lot of headwinds for brick-and-mortar retailers. What keeps a grocery retailer up at night? It would probably be labor costs and rent and energy costs — those are the big three. If you take a look at Connecticut, we have a new administration and a new progressive Democratic caucus that are looking at wage issues and wage mandates, so that’s something which could potentially affect our business. And there is the online retail factor — 11 percent of grocery sales will be online. If I am a retailer and I am seeing that competitive threat, that might keep me up at night.
“Then, there is the outward migration problem we have in the state — it is the death of a brick-and-mortar retailer. We can manage the best we can through our supply chain and cost structure, and we have fixed costs on our rent and we can plan for electricity rate increases, but you can’t plan for losing consumers. And the folks that are leaving are our most wealthy residents — these are the ones that don’t count their change — and a lot of that is driven by policies.
“We are cautiously optimistic over what we’ve seen in the last two years with the state kind of getting its tax-and-spend mentality in place. In the former governor’s first six years, we had two of the largest tax increases in state history. In his last two years, he didn’t raise taxes and he cut spending and we’re starting to see a slow turn of the ship. But the real key, not only for grocery retailers but businesses in Connecticut, is around predictability and stability. We need to be able to look into the future and know that if we can invest in infrastructure and invest in our businesses, we can get that done and not be surprised by things that may or may not happen to us.”
There is a new push to increase Connecticut’s minimum wage. How is your association approaching this issue?
“Gov. Lamont and many of the members of the progressive side of the Democratic caucus basically ran on that issue. From our perspective, I don’t think we can put our head in the sand and act as if we won’t see wage increases here in Connecticut. What we would hope for would be a phasing in of those that would make sense. For example, if you took the $10.10 minimum wage and went to $15, it is a 50 percent increase. Are you going to put a 50 percent increase on business over two years or over five years? That goes back to what I was talking about: stability, predictability and the ability to mitigate increased costs into the future.
“I don’t want to say we’re resigned to the fact. Voters spoke, politicians have been elected and we’ll work with them. I think the governor has said all of the right things — he has a business background and understands what it will take to move Connecticut in the right direction, and that will involve listening to all sides.”
How is staffing within the state’s grocery industry?
“Sixty percent of our workforce is either management or labor union, and I think our average wage is well over $18 an hour in the typical store. We’re paying better than what would be considered a living wage. We also have a lot of disability and special-need employees.”
How do brick-and-mortar retailers in the grocery industry compete against their digital competitors?
“We expanded our food service lines with fresh bakery and produce offerings. That’s a place they are not going to be as successful as we can be. We still get the foot traffic — people come in and visualize our products. People visit our stores on an average of two or three times a week, so it is an opportunity to talk to consumers. And we provide important environmental services: we collect almost 600 million bottles and cans a year through the redemption system. We also collect recycling of plastics at our stores.
“There will always be a place for brick and mortar. We just have to learn to live with the new normal.”
One of the state’s largest grocery retailers, Big Y, recently said it would phase out single-use plastic bags in its other stores. And several municipalities around the state are seeking to ban those bags. Where does your association stand on this issue?
“We have been actively involved in this issue for four years. There are 12 to 15 communities in Connecticut that are actively looking at some kind of an ordinance.
“These bags are supposed to go back to the retailer. They are not for dog waste or food waste. They are not for the things people use them for. They are brought back and put into a bin at the store and recycled through Trex. What happens is that most folks throw them in their blue or yellow bin, thinking they’ve done the right thing. In reality, they’ve created a problem at the municipal recycling facility because these bags get into the system where they are heated and gum up the works. Every two to three hours, they have to stop the process so they can take the bags out.
“We are working with the recycling community and environmental groups on this. We’ve been pushing multiuse bags — we’ve been giving them out. We support a policy at the state level that puts a fee on the bags and hopefully drives an 80 percent source reduction. We want folks to bring their own bags, but also provide an option for consumers that don’t.”
But grocery stores aren’t the only ones that have single-use bags. Isn’t that unfair to target your industry?
“I personally worked with Stamford and Norwalk on their plastic bag bills. And some of the things we mentioned to the folks in Stamford is that they only had grocery retailers — that’s not even capturing all of the bags. What about all of the other retail entities out there? If you are going to go after the bags, go after the bags. Let’s do this right.”
Connecticut is among the few states that prohibit the sale of wine in supermarkets. Do you see the state legislature ending that prohibition in this session?
“I don’t think you’ll see a bill introduced. This is an idea we’ve been floating around for a couple of years. Connecticut is puritanical and has antiquated alcohol legislation.
“We have a protected industry of package-store owners. From our perspective, we view wine as a food pairing. We sell food and we want convenience for our consumers. We’ve done polling that shows almost seven in 10 consumers want to buy wine in grocery stores. We’ve done economic impact studies that show it would bring between $12 million and $15 million a year to the state. But there is no political will at the moment to get it done.
“We will continue to work that, but not as a hard sell — there is no reason to be running up that hill. Sometimes, you have to be careful about winning a battle and not winning the war.”