Doug's Hometown Foods of Lyons

By Casey Dwyer

Small towns dot the Midwest, establishing a lifeline for local farmers and agriculture companies that provide a wide variety of goods to the rest of the country.

A well-stocked grocery store could, arguably, be at the top of the list of what these towns need to survive, and nobody understands that better than Doug Shepherd, the owner of Doug's Hometown Foods in Lyons, Kan.

For the past 32 years, Shepherd and his wife, Charisse, have been involved with the grocery industry in Lyons.

When Shepherd was in his last year as an accounting major at Kansas State University, his uncle approached him about the possibility of purchasing the Dillons store in Lyons. His uncle owned the building, which Dillons had been leasing for five years at a time. A switch to one-year leasing led Shepherd and his uncle to believe that Dillons was preparing to close the store, leaving the building vacant and the town without a primary grocery store. So Shepherd and his uncle established their own grocery store in 1979.

Over the years, their building slowly began to deteriorate. By the early '90s, the store was in dire need of repair. A central heating and air system topped the long list of needed improvements, along with a new set of refrigeration units.

Shepherd was faced with a decision: cut ties with the current operation and sell the property, or take a radical step in a new direction with a new grocery store. He chose the latter. After selecting a lot on the northwest corner of town, construction began on the new store. In May of 1996, "Doug's Hometown Foods" opened with a bang, drawing a great overall reaction from the local community.

After several years, the overall performance of the store began to slowly decline. Keeping his business staffed with employees has been one of Shepherd's biggest struggles. He said his least favorite part of the job is dealing with employee issues and doubling as a personnel manager nearly every day.

"When we first opened the store, I had far more key people," he said. "I had two full-time men. I had a meat department manager and a produce department manager. Over the years, all those people have gone in different directions, mostly for more money. They ended up with bigger jobs in bigger towns, where bigger businesses can afford bigger payrolls. Now, we have the lowest level of employment since we opened."

The competition for small-town grocery stores has grown at a rapid pace over the past 20 years, presenting an additional challenge for storeowners like Shepherd. Within the Lyons city limits, several other stores compete for consumer dollars.

The primary threat to Shepherd's business is Foodliner, a local grocery store with a slightly smaller building size but a comparable stock of products. Lyons also supports a number of smaller stores—Dollar General, Alco, Pamida and a number of convenience stores—which contain a limited grocery supply. As stand-alone stores, none of these companies poses a legitimate threat to Doug's, but together they can put a serious dent in Shepherd's business.

Dollar General, in particular, has a big advantage over local mom-and-pop grocery stores because it has exclusive access to its own line of distribution centers.

Shepherd, on the other hand, must use a third-party distribution center that serves as a middleman between wholesale suppliers and independent grocery stores.

Although Shepherd is pleased with the service his distributor provides, he admits that having a private distribution service similar to Dollar General's would cut costs significantly. It's because of these distribution centers that Dollar General can keep prices so low, passing savings on to its customers and creating incentives that Shepherd cannot match.

On top of these local competitors, Shepherd said out-of-town chain retailers are pulling a significant portion of his customers away from hometown markets like his store. Larger cities such as Great Bend and Hutchinson have enough demand to justify the construction of supermarkets, such as Wal-Mart and Target. Because of their selection and product pricing, these stores have taken a huge bite out of Shepherd's business, and he has certainly noticed.

"When Charisse and I built the store, we were thinking, 'This is a great service to provide to our community—the city of Lyons could really benefit from having a full-service grocery store in town.' And for a while, the store was really thriving. Retail business is not easy, though. It's nothing like what it used to be. The competitive environment is much more severe than it was in the past. Our prices might be a little higher, but when you're in need of a single stick of butter and don't have time to drive an hour, that convenience factor comes into play. This is really one of those things that people will take for granted, until it's gone."

The fierce competition has forced Shepherd to keep his prices down which, in turn, pulls down his profits.

According to a study performed by Hoover's, a research and analysis company, the grocery industry has become highly concentrated in recent years. The study revealed that the 50 largest companies within the industry generate about 70 percent of the revenue.

In spite of the day-to-day struggles with other businesses, Shepherd's grocery store has managed to stay afloat in the competitive world of retail, landing in the black year after year.

Like the daily operations of many retail businesses, those of a small local grocery store go largely unseen. Without the help of a large, reliable work force, many duties fall into Shepherd's lap. Most recently, his meat cutter quit, so Shepherd was forced to fill in. No other employees were trained for a position as specialized as meat cutting.

As the owner and general manager, his number one priority is to keep the store stocked. When he begins to run low on particular supplies, Shepherd sends electronic scans to a central computer, which relays the information automatically to a distribution center. Shepherd uses a distribution company called Affiliated Foods Midwest (AFM), which makes deliveries twice every week.

According to its online profile, AFM originated in Plainview, Neb., and now has branches in Norfolk, Neb., Elwood, Kan. and Kenosha, Wis. The distribution centers serve a wide variety of grocery stores in the Midwest, from Minnesota to Oklahoma.

Shepherd said deliveries are made as efficiently as possible via a packing method known as "cubing." This practice leads distributors to view their product as three-dimensional puzzle pieces, attempting to make use of every square inch inside a trailer, maximizing the shipping potential of each individual rig.

But as a result, unpacking deliveries can be difficult for Shepherd and his crew. And once new groceries arrive, employees must ensure that merchandise is rotated properly as they restock the shelves.

"It seems like all of our products have expiration dates—everything from bottled water to sealed spices. It's important to keep an eye on our items, to make sure that we're not just shoving old cans to the back of the shelf, time after time."

After years of experience, Shepherd knows that timing is an important aspect of the game. Keeping track of his stock is important or he won't order early enough and could run out of certain products. On the other end of the spectrum, Shepherd must avoid over-ordering to keep products from spoiling and wasting money.

Retail business has always played an important role in the overall health of a city because of its economic benefits. For small towns such as Lyons, family-owned grocery stores like Doug's are a necessity. But small-town citizens are tempted to pick up their groceries while shopping out of town because of lower prices. Advocates of local grocery stores say that although the discounts offered by the big-name stores are a great way to pinch pennies, consumers should weigh the short-term benefits of saving a few dollars against the long-term inconvenience of losing a local grocery store. At the end of the day, customers will make or break a small-town store like Shepherd's — a fact he knows very well.

"I really appreciate the atmosphere of a small town, and that's something that I really enjoy about my jobs. The best part of owning this store is walking around, seeing people I know, smiling and giving each other a hard time. That's what really makes this all worthwhile."