May 11, 2015
How will California’s drought affect retailing?
With a historic drought now in its fourth year, California residents and businesses are facing mandatory water cutbacks. The impact on retail appears uncertain.
Big 5 Sporting Goods, which has 437 stores on the West Coast with about half in California, recently addressed the potential fallout on its first-quarter conference call.
Steven Miller, president and CEO, said the drought affects the local economy, particularly the farm communities the chain serves. From a recreational standpoint, snowpack this year is "down significantly" from historic levels and that’s going to lead to lower water levels in lakes and rivers.
With the water-use restrictions and the publicity around conserving water, water recreation products such as pool toys and inflatable pools may be affected. Campground use may decline if showers and flushing toilets aren’t available or if the facilities are closed entirely.
Big 5 is monitoring inventory levels around affected categories. Said Mr. Miller, "It’s a bit of a wait and see issue. Hopefully, it has a minor impact on our business, but it is certainly not helpful."
Source: big5sportinggoods.com
The measures call for cities and water agencies to reduce water usage by amounts ranging from eight percent to 36 percent. Plans call for fines for offenders, higher prices for bigger water users, and lawn-watering limits. The mandatory restrictions came after a voluntary reduction failed.
Water-intensive sectors — including life sciences, brewing and soft drink bottling, laundry services, food manufacturers and construction — are expected to take a significant hit.
Agriculture is exempt from the new rationing measures but farmers have already been forced to fallow fields and lay off workers after their access to water from reservoirs was reduced. California farms provide more than a fifth of the country’s fruit, tree nuts and vegetables.
California Governor Jerry Brown has said a bigger conservation commitment will be required to handle likely longer periods of arid weather conditions than in the past.
The California Grocers Association said in a statement that the Governor’s "comment that ‘it’s a different world’ and so ‘we have to act differently’ will likely characterize much of the discussion for the remainder of this year and into 2016."
- Big 5 Sporting Goods Corporation Announces Fiscal 2015 First Quarter Results – Big 5 Sporting Goods
- Big 5 Sporting Goods’ (BGFV) CEO Steve Miller on Q1 2015 Results – Earnings Call Transcript – Seeking Alpha
- California drought may be felt in Pittsburgh restaurants, groceries – Pittsburgh Tribune
- California board approves emergency water rules – USA Today
- Jerry Brown Warns Drought Means California Must Adapt to Drier Future – Bloomberg
- Drought cutbacks threaten several local industries, study says – Fox 5 San Diego
- California Gov. Brown hears business concerns about drought plan – Reuters
- Proposed Statewide Water Restrictions – California Grocers Association
BrainTrust
Warren Thayer
Editor Emeritus & Co-Founder, Frozen & Refrigerated Buyer
Recent Discussions
Discussion Questions
How big a deal is the West Coast drought and California’s water restrictions for local retailing? Do you see this as a national retailing issue, as well?
Poll
Cutting water consumption 10 to 35 percent is a BIG deal. Especially for retailers like Big 5 that specialize in selling recreational products that are water related. Pretty clear choice that food wins over recreation.
But the impact of California’s drought is not just on local retailers and consumers. California is a huge supplier of fruits and vegetables to the rest of the U.S. If the drought continues, it will impact prices and supply for grocery retailing across the country.
With no end to the California drought currently in sight, “it’s a different world” that will have significant impact on both local and national retailing.
The drought will impact consumer activities and raise prices for water-dependent products (from beef to beer to vegetables). Since much of the nation’s produce comes from California, expect prices to rise outside the state as well.
Retailers will also be forced to examine how they use water, with an emphasis on conservation. With forced cutbacks in water usage, every retailer will need to comply or face fines.
The history of the West is the history of water. After many decades of growth and development, with little regard for water, old models are being turned upside down. The impact of the drought will be felt around the world.
The impact on the retailers will vary depending on the type of retailer. Those such as Big 5 and others whose sales are more closely tied to recreations based on water availability will be the hardest hit.
Next will be those whose businesses rely on water less directly such as home and garden supplies, etc. They will feel the impact as consumers shift to behaviors that consume less water. They might be able to replace some of the business as consumers shift to less water-reliant landscaping.
However, the drought will impact almost all retailers as it impacts the economy of the state. The lessons learned will be hard but hopefully we will learn how to use less of a resource which we heretofore assumed we had a right to an inexhaustible supply of.
This is a very big deal nationally, especially when it comes to crops. California farmers I’ve spoken with even 30 years ago worried about how the water table was lowering, affecting production. Now it’s really hitting the fan and will affect pricing and supply considerably. We’ll be importing more, at more expense, and farmers will suffer, affecting local economies. What is also troublesome is how beverage/bottled water companies come in to some communities and suck reservoirs and homeowners’ wells dry. I remember a research scientist predicting years ago that “water will be the next oil” in terms of supply and even potential warfare (in Africa, rivers are being diverted for the economic advantage of companies and countries). This isn’t going to be pretty.
It is a BIG deal in California that will have an impact on everyone who relies on product from or sells to California. There will be opportunities for new businesses in the water conservation area. Businesses that rely on water for their success — landscaping, agriculture, outdoor activities — will feel a direct impact. As limits on these activities affect daily life there will be a rollout affect on other activities. Foodstuffs from California will diminish in supply and increase in price. There is now a lot of change being contemplated, debated, suggested and mandated creating some fear, a lot of concern, and much discussion. We know that life will change, but the outcome is uncertain at this point.
This is a big deal NOW and if the weather patterns in the West continue this will not only affect local businesses tied to recreation but eventually the ability to raise and ship produce to the rest of the U.S. California-grown produce cannot be replaced in other areas of the country!
Absolutely. The California drought will have devastating effects on every food retailer. Expect short supply on everything from organic beef to produce. The situation is further compounded by the immigration issue as many of the farm workers have “disappeared.” So no water and no workers equals a disaster.
Well, let’s see — California produces about a quarter of the country’s produce, houses millions of people and is home to one of the few industries that America leads the world in. I’d say there might be a problem …
As a native Californian I have to say I’m appalled people aren’t taking the drought more seriously. Go ahead, munch that California almond, it just took ten gallons of water to produce that one nut.
Obviously you can’t have a state economy (and a therefore a state) the size of California on the brink of collapse without consequences. And yes, the price of almonds, and lettuce, and grapes, and strawberries and everything else that grows will inflate in Omaha, and Bangor and Atlanta — but that’s not the point here.
The American produce industry is on the brink of a crisis of unprecedented proportions and most of us aren’t paying any attention. It’s a huge problem and it will impact everyone in this country, period.
Living in Southern California we feel the deep impact of the drought on multiple levels which were well covered in the referenced articles. Water conservation and behavioral changes are at the top of the list. In some restaurants they’ve stopped serving water in a glass and instead have a nominal cost for a bottle of water. Beautiful landscaping around upscale malls will have to go drought tolerant or suffer.
I view the West Coast drought as a way for retailers to demonstrate that they are part of the community.
Retailers are part of the communities they serve. Drought, tornadoes, blizzards, floods, earthquakes, etc., are events — with varying time horizons and locations — that provide retailers with an opportunity to engage and support their communities. So in addition to some obvious impact on sales in certain categories as mentioned by Big 5’s Mr. Miller, these events can strengthen the bonds between retailer and community along the lines of “we’re all in this together.”
Implications are significant for grocery retailers around the country. If the drought continues, prices on products like almonds will skyrocket, likely forcing some reformulations of granola bars and other categories. Let’s hope these problems attract attention from members of Congress who want to write off the science of climate change.
There is no question that Agribusiness/CPG brands and other supply chain “ecosystem” partners will and are already feeling the pinch from the drought. Costs are rising, waste is increasing due to poorer quality crops and those costs are moving into the retailers’ Cost of Goods Sold (COGS). There are also drought situations beyond California and outside the U.S. that are driving up the cost of goods imported into the U.S. This is not only a national challenge, but very quickly becoming a global issue, as “water becomes the new oil.”
It is a very big deal, as prices will increase. There are some politics involved here, but unfortunately I cannot control how California manages their water. Priorities must change, and it would take fewer than five years with a massive WPA-type project of desalination plants being placed along the entire coast line to provide a lifeline desperately needed for many years to come. Will it happen? I’m not convinced that it will, but a friend of mine lives in Dubai and says the water is OK, so we need to get on this before the economy is destroyed.
For the moment, the water crisis is very real, and our nation’s breadbasket is in peril. New technologies will come out of this, as in many crises before great new things came about. I hope and pray that the people in power actually start working together NOW, and stop the bickering about who is right or wrong. This is a moment where real leaders are going to have to rise up and be accounted for, and I for one believe this can be fixed. Let’s hope so, for the sake of our country.
Food growing will move slowly (or not so slowly) out of California to other states who have water and better weather for food. This is just one example of climate change causing massive disruption to the people and the economy of areas impacted. So while being sympathetic, there are some harsh realities, like the almond industry will need to go elsewhere.
The subjects of California are ordered to take less than they may wish for or need imply because the government will not appropriate tax funds to purchase, transport and provide water. It is disgusting that the citizens’ tax revenue is not theirs to commit as needed. They may either pay more or do without. The good news for the governor is that most grumblings are able to be suppressed by nominal amounts of spin and intimidation.
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Cutting water consumption 10 to 35 percent is a BIG deal. Especially for retailers like Big 5 that specialize in selling recreational products that are water related. Pretty clear choice that food wins over recreation.
But the impact of California’s drought is not just on local retailers and consumers. California is a huge supplier of fruits and vegetables to the rest of the U.S. If the drought continues, it will impact prices and supply for grocery retailing across the country.
With no end to the California drought currently in sight, “it’s a different world” that will have significant impact on both local and national retailing.
The drought will impact consumer activities and raise prices for water-dependent products (from beef to beer to vegetables). Since much of the nation’s produce comes from California, expect prices to rise outside the state as well.
Retailers will also be forced to examine how they use water, with an emphasis on conservation. With forced cutbacks in water usage, every retailer will need to comply or face fines.
The history of the West is the history of water. After many decades of growth and development, with little regard for water, old models are being turned upside down. The impact of the drought will be felt around the world.
The impact on the retailers will vary depending on the type of retailer. Those such as Big 5 and others whose sales are more closely tied to recreations based on water availability will be the hardest hit.
Next will be those whose businesses rely on water less directly such as home and garden supplies, etc. They will feel the impact as consumers shift to behaviors that consume less water. They might be able to replace some of the business as consumers shift to less water-reliant landscaping.
However, the drought will impact almost all retailers as it impacts the economy of the state. The lessons learned will be hard but hopefully we will learn how to use less of a resource which we heretofore assumed we had a right to an inexhaustible supply of.
This is a very big deal nationally, especially when it comes to crops. California farmers I’ve spoken with even 30 years ago worried about how the water table was lowering, affecting production. Now it’s really hitting the fan and will affect pricing and supply considerably. We’ll be importing more, at more expense, and farmers will suffer, affecting local economies. What is also troublesome is how beverage/bottled water companies come in to some communities and suck reservoirs and homeowners’ wells dry. I remember a research scientist predicting years ago that “water will be the next oil” in terms of supply and even potential warfare (in Africa, rivers are being diverted for the economic advantage of companies and countries). This isn’t going to be pretty.
It is a BIG deal in California that will have an impact on everyone who relies on product from or sells to California. There will be opportunities for new businesses in the water conservation area. Businesses that rely on water for their success — landscaping, agriculture, outdoor activities — will feel a direct impact. As limits on these activities affect daily life there will be a rollout affect on other activities. Foodstuffs from California will diminish in supply and increase in price. There is now a lot of change being contemplated, debated, suggested and mandated creating some fear, a lot of concern, and much discussion. We know that life will change, but the outcome is uncertain at this point.
This is a big deal NOW and if the weather patterns in the West continue this will not only affect local businesses tied to recreation but eventually the ability to raise and ship produce to the rest of the U.S. California-grown produce cannot be replaced in other areas of the country!
Absolutely. The California drought will have devastating effects on every food retailer. Expect short supply on everything from organic beef to produce. The situation is further compounded by the immigration issue as many of the farm workers have “disappeared.” So no water and no workers equals a disaster.
Well, let’s see — California produces about a quarter of the country’s produce, houses millions of people and is home to one of the few industries that America leads the world in. I’d say there might be a problem …
As a native Californian I have to say I’m appalled people aren’t taking the drought more seriously. Go ahead, munch that California almond, it just took ten gallons of water to produce that one nut.
Obviously you can’t have a state economy (and a therefore a state) the size of California on the brink of collapse without consequences. And yes, the price of almonds, and lettuce, and grapes, and strawberries and everything else that grows will inflate in Omaha, and Bangor and Atlanta — but that’s not the point here.
The American produce industry is on the brink of a crisis of unprecedented proportions and most of us aren’t paying any attention. It’s a huge problem and it will impact everyone in this country, period.
Living in Southern California we feel the deep impact of the drought on multiple levels which were well covered in the referenced articles. Water conservation and behavioral changes are at the top of the list. In some restaurants they’ve stopped serving water in a glass and instead have a nominal cost for a bottle of water. Beautiful landscaping around upscale malls will have to go drought tolerant or suffer.
I view the West Coast drought as a way for retailers to demonstrate that they are part of the community.
Retailers are part of the communities they serve. Drought, tornadoes, blizzards, floods, earthquakes, etc., are events — with varying time horizons and locations — that provide retailers with an opportunity to engage and support their communities. So in addition to some obvious impact on sales in certain categories as mentioned by Big 5’s Mr. Miller, these events can strengthen the bonds between retailer and community along the lines of “we’re all in this together.”
Implications are significant for grocery retailers around the country. If the drought continues, prices on products like almonds will skyrocket, likely forcing some reformulations of granola bars and other categories. Let’s hope these problems attract attention from members of Congress who want to write off the science of climate change.
There is no question that Agribusiness/CPG brands and other supply chain “ecosystem” partners will and are already feeling the pinch from the drought. Costs are rising, waste is increasing due to poorer quality crops and those costs are moving into the retailers’ Cost of Goods Sold (COGS). There are also drought situations beyond California and outside the U.S. that are driving up the cost of goods imported into the U.S. This is not only a national challenge, but very quickly becoming a global issue, as “water becomes the new oil.”
It is a very big deal, as prices will increase. There are some politics involved here, but unfortunately I cannot control how California manages their water. Priorities must change, and it would take fewer than five years with a massive WPA-type project of desalination plants being placed along the entire coast line to provide a lifeline desperately needed for many years to come. Will it happen? I’m not convinced that it will, but a friend of mine lives in Dubai and says the water is OK, so we need to get on this before the economy is destroyed.
For the moment, the water crisis is very real, and our nation’s breadbasket is in peril. New technologies will come out of this, as in many crises before great new things came about. I hope and pray that the people in power actually start working together NOW, and stop the bickering about who is right or wrong. This is a moment where real leaders are going to have to rise up and be accounted for, and I for one believe this can be fixed. Let’s hope so, for the sake of our country.
Food growing will move slowly (or not so slowly) out of California to other states who have water and better weather for food. This is just one example of climate change causing massive disruption to the people and the economy of areas impacted. So while being sympathetic, there are some harsh realities, like the almond industry will need to go elsewhere.
The subjects of California are ordered to take less than they may wish for or need imply because the government will not appropriate tax funds to purchase, transport and provide water. It is disgusting that the citizens’ tax revenue is not theirs to commit as needed. They may either pay more or do without. The good news for the governor is that most grumblings are able to be suppressed by nominal amounts of spin and intimidation.