“Grocery law” may not be a substantive area of law but it is a conglomeration of areas of the law that are common for independent grocers, distributors, and other service providers to the supermarket industry. It includes distribution agreements, inventory loans, lease issues, commercial real estate issues, and operational aspects of a retail grocery store such as the Illinois Retail Theft Act, the Perishable and Agricultural Commodity Act, management of employees, as well as items that are unique to the purchasing and sale of retail grocery stores and their inventory.
You cannot call anyone an “expert” in any area of law. Lavelle Law has over 25 years of experience serving grocery store owners and food distribution companies in legal matters. Prior to being an attorney, our attorneys have worked in retail grocery chains and independent grocery stores for many years. Our attorneys speak the language, understand the business, and have concentrated our law practice in “grocery law” in order to serve our colleagues.
That is a difficult question. Years of experience indicate that in a rising real estate market, owning the real estate is a smart play. However, since 2007, we have not experienced a rising real estate market so we will not know the perfect strategy until the market rebounds. What we can definitively tell you is that many grocers that have purchased their real estate and have been pleased to pay down their mortgage and have a tangible asset of real property to sell if the market changes or the grocery store sales diminish. Diminished grocery store sales may also adversely affect the fair market value of the real estate, but there is an intrinsic value to real estate that cannot be denied. In some cases, the cash necessary to purchase the real estate becomes an impediment. In that case, a well negotiated lease which does not have the out-of-pocket expense of purchasing the real estate can serve the owner well.
Yes, it is absolutely necessary for a grocery store owner to engage in “succession planning”. However, typically, grocery store owners want to avoid that question. It is necessary for all grocery store owners to have a shareholder agreement with partners, if they have partners. Well drafted shareholder agreements have buy-sell covenants in them, and contain rights to transfer shares to family members, etc. While no one likes to consider the eventuality of an untimely death or partner dispute, it is prudent to consider these situations in advance so that everyone understands each partner’s expectations. Often times, family members do not want to discuss these difficult issues. Our attorneys are experienced in sensitively handling these issues in an effective manner. As a business transitions from one generation to the next, open and honest dialogue between the generations and expectations of each generation are important. The shareholder agreement among the founding generation, which includes minority ownership by a second generation, does not necessarily mean all shareholders need to be treated alike. Often times, the founding generation is exempt from many of the restrictive covenants of the shareholder agreement and may maintain voting control as the business is passed along.
It is not a question that is to be readily answered by an attorney. True market analysis and an introspective view of the business would be required to determine whether or not the existing store could compete in today’s competitive market. Big box stores have changed the landscape for independent grocers. Simply said, the independent grocer needs to be able to differentiate itself from the big box retailer.
It depends on the agreement. At Lavelle Law, we take a hard look at the inventory clauses in asset purchase agreements. Depending on the seasonality of the item, you cannot reasonably be expected to sell large quantities of out-of-season items, even if those items still have over a month left on the date code. An agreement needs to contemplate not only the current date of the items but also the date code on certain items that are impossible to sell off season.
Be careful and make sure you have evidence of the shoplifting. In the current grocery store environment, security cameras are very common in areas that have high pilferage rates. In Illinois, you may need to stop a potential shoplifter beyond the checkout lanes and inquire as to whether or not they have any items concealed on them that they would like to disclose and which were not properly paid. If you are reasonably certain that the customer is in possession of the grocery store items that have not been paid for, you may lawfully detain the customer in a reasonable manner and for a reasonable length of time for law enforcement to arrive. It cannot be emphasized enough that you must be reasonably certain that the customer has concealed product. Otherwise, the grocer may be subject to counterclaims, including false imprisonment.
There is a combination of state and federal law in-play in employment law. In federal law, overtime must be paid for workers working in excess of 40 hours per week. There are exceptions to that rule for legitimate supervisory help and for management. Also, check with your local attorney in the jurisdiction governing your business. The state law may come into play that would affect your business. Also, see the IRS Form W-9 to determine if your workers qualify as “independent contractors.” Also, check your state’s employment security statutes for the independent contractor rules in your state.
In many cases, the grocery store is the “anchor tenant” in a small strip mall or a large shopping center. In that case, many smaller tenants of the landlord will profit from the frequency of the grocery store’s customer traffic to the site. Grocery store owners should vigorously negotiate for:
- Exclusive use covenants to be the only seller of grocery store related items in the entire shopping center (and landlord owned centers within a 3-5 mile range);
- Favorable base rent;
- Protected parking field;
- Exclusive rights for outdoor sales;
- Assignability of the lease;
- Favorable clauses on roof maintenance and repair;
- Control over outdoor maintenance;
- Control over parking lot maintenance and replacement;
- Minimal restrictive use covenants;
- Pylon sign rights;
- Thoughtful calculation of the percentage rent;
- Control over real estate tax assessment contests;
- Construction and remodeling rights;
- Exterior facade control; and
- Outlot restrictions so as not hinder site lines to the grocery store.
If your main supplier issues rebates based on a patronage basis, your supplier is a “cooperative.” It is recommended that you carefully review the cooperative bylaws to determine what their rights and limitations are in paying your rebates in cash, patronage certificates, stock grants, and promissory notes. Under the Internal Revenue Code, there are limitations on the cooperative’s ability to extend the rebate payments to its members. The interplay between the Internal Revenue Code and the distributor’s bylaws should contain the answer.