Photo: RetailWire
Grocers shift gears as stimulus stalemate tightens consumer spending
The big gains the grocery sector experienced due to the novel coronavirus pandemic might be coming to an end as a next round of government stimulus checks remain in limbo.
Grocery shoppers have been growing more frugal since the expiration of $600 additional weekly federal unemployment checks, which were a provision of the first pandemic-driven economic stimulus package, Marketwatch reported. That money had been available to people who lost their jobs due to the pandemic as an add-on to state unemployment, but the program expired in July. The enhanced unemployment, along with lump-sum stimulus payments distributed early in the pandemic, had been helping keep individuals and the economy afloat. As shoppers have begun to spend less on food, grocers have started offering more discounts.
There may be other factors influencing the reduced spending grocers are now seeing. For instance, some quick-serve restaurants, like Domino’s and Chipotle, have experienced significant rebounds in their second quarter, leading PYMNTS to speculate that people are reducing their reliance on grocery stores as they become more comfortable ordering takeout again.
Grocers were uniquely positioned early on in the pandemic to benefit from an influx of customer traffic. As stay-at-home orders and lockdowns went into effect, restaurant closures caused drastic shifts in eating habits. Grocery stores were deemed essential and experienced increased foot traffic. Those that offered curbside pickup and home delivery experienced unprecedented spikes in customers shopping via e-commerce.
There is some indication that customers have remained value-minded in their shopping habits throughout the pandemic with major dollar store chains experiencing same-store sales growth in their first quarters.
Recent data also indicates, however, that the stimulus was working to keep consumer spending up.
Data from CassarCo Strategy & Analytics released earlier this month found that the massive reduction in spending across the board in the early days of pandemic lockdowns was replaced by a huge rebound in spending that coincided with the stimulus. The increase in spending was much sharper in households with a yearly income below $50,000.
- Americans are spending less at grocery stores as second round of stimulus checks remain on hold – MarketWatch
- U.S. Grocery Sales Drop s Consumers Order Delivery – PYMNTS
- Will dollar stores be the biggest post-COVID-19 winners? – RetailWire
- Should retailers push Congress for a more robust stimulus plan? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: How do you expect grocers to adjust their merchandising and marketing practices as money becomes tighter for large numbers of American households? What do you see as the mid- and long-term impacts of pandemic-related developments on the grocery sector?
Poll
BrainTrust
Richard Hernandez
Merchant Director
Sterling Hawkins
Co-founder, CART
I agree that growth in grocery has moderated slightly over the past month. However spending remains up over last year simply because, for all meal occasions, more people are eating at home rather than dining out. Foodservice spending is coming back, but it is at nowhere near the level of 2019 so the net transfer of trade to supermarkets and grocers continues.
That said, I do expect the grocery sector to focus more on value as household income tightens. It will start with the reinstatement of promotional deals that were, to some extent, phased out during the depths of the pandemic. That’s good news for consumers but bad news for margins.
The current decline in grocery sales may be attributed to tighter spend, it is also likely impacted by patrons feeling more comfortable with eating out again. Grocery sales will level out, but likely not dramatically decline. Mid-term impact to the grocery sector is that they’ve quickly innovated to meet customer demands; with a platform in place, the next round of winners is working on additional innovation.
A great majority of retailers suspended any promotional activity (weekly ad circulars, temp price reductions, etc.) during the pandemic due to supply chain issues and because there was not a need to have them (people were going to shop regardless). Now is the time for grocers to review their playbook – people are still eating at home, working at home and the supply chain is slowly getting back to normal, but people are still watching or holding on to their money. How to convey the best bang for the buck is the challenge now.
There is no doubt that the absence of the extra $600 a week for the unemployed is having an impact on spending. However most of the reduced spending will impact apparel and other discretionary products. Groceries are essential, especially with many restaurants still closed for dine-in in some areas and some consumers that are still uncomfortable dinning out. Take-out and delivery for restaurants have increased dramatically, however if you are looking to cut spending, it is much less expensive to buy groceries and cook at home. Grocers will be offering more deals, but it is still a great industry during the pandemic.
Grocery reaped the benefits of panic stock-up buying, but the party is over. Most stores ratcheted TPR activity down while margins skyrocketed. Now consumers are feeling pinched, their pantries are full, and few grocers have differentiated for the long term. Even if more stimulus money is deployed, there are more options to spend it — like eating out. Grocers need to refocus on their basic value proposition or risk irrelevance.
I don’t see a problem yet for grocery staples–people still need to eat. If there’s no employment or stimulus, grocery will be far safer than disposable spending verticals like fashion or furniture.
If the economy stalls further and/or there is no stimulus and/or ultimately no basic rebound and things like the projected 40 million evictions by the year’s end happen, then all of retail will be gone and we’ll need some new term for the system we live under.
It will still be months before most families will feel comfortable going out to eat. In some areas it is just not practical or safe, even at outdoor tables, NYC is a case in point. Yes you can have outdoor tables on the sidewalk, but if people walking by are 1.) Not wearing masks or 2.) Do not have even three feet between those walking by and those eating, let alone six feet, then how is that considered safe or smart? Grocers can take this opportunity to start to promote more on certain staple items that drive traffic and also to aggressively merchandise meal solutions that can be promoted between categories for those CPGs that have complementary categories as well as with other CPG companies that have categories that are a good fit for meal solutions.
Money may be a little tighter, and therefore consumers might spend a little less. Still most consumers are eating more at home rather than at restaurants. That is a habit that started in March. While restaurants are opening up with lower capacity seating and shifting to more carry-out, consumers are still spending more at the grocery store. Daily changes may be hard to spot, but weekly and monthly buying patterns will show grocers what they need to do for inventory management.
Before the pandemic hit grocers were fighting the big box stores for share of market. Nothing has changed. Consumers counting on $600 in stimulus or consumers preferring to eat at home (or having to eat at home due to lockdown) all need milk, bread and eggs. It is up to large chains (Kroger, Albertsons, Publix) or more nimble mid-tier chains (Hy-Vee, Festival, Bashas, Raley’s et. al.) to leverage their new found relationship with newly identified shoppers and find out their preferences, and how best to satisfy their weekly needs. They are paying big bucks to consultants for insights on promotional co-op to drive traffic and yet discounting has been significantly reduced while profits/margins are way up. Time for a new grocery optimization model that leverages data/insight to lift total basket – purchases in high margin adjacencies – bakery, fresh food, organics, health and beauty.
This cause and effect situation is really interesting. More eating establishments are opening up, so wouldn’t grocery tend to slow down just a bit? People have cabin fever, and the grocers enjoyed unprecedented spikes in revenue over the past six months. That spike wasn’t going to endure, also because so many shoppers continued to hoard staples, so is the current grocery slow down really that surprising?
Also, consumer spending is through the roof on so many other categories, including other consumables, durables and recreation products.
So, again, I think grocers needed to be aware that the spike was only temporary until the rest of their traditional competition in sister industries (QSR, fine dining, bars, etc.) gets back in business.
The height of the pandemic (sure hope we’re past that) had tight supply, customers willing to buy whatever was in stock, and price/margins never healthier. No need to promote. These days, tighter money, more competition with better in-stocks, time for promotions to reappear.
The grocery market still has a bit of a runway to pull in customers. Customers have not shifted gears completely and COVID-19’s cousin, wave 2, still looms. There have been some permanent changes by some consumers to cooking and eating their own meals. However, the most significant change is opening of restaurants and eateries. This will dampen some of the lift that grocery stores have seen in the past few months.
The challenges for grocers remain however, and they’ll resort to promotions, loyalty programs, and similar to keep their reins on the market. This pandemic was not easy for groceries either, and there was substantial investment in making sure stores had plexiglass, signage, reduced hours, and stock to address the marketplace. The grocery margins will sink a bit, but not to levels prior to COVID-19.
Mid long-term developments will include broader adoption of curbside pickup and deeper reliance on the digital market, which many groceries have found seems to be working. We’ll also see continued engagement with the delivery companies and personal shopper solutions like DoorDash and Instacart to support and continue growth.
It’s too early for returning to anything resembling the world in January 2020.
Based on recent articles discussing digital coupon redemption it appears that the Grocery channel will quickly move away from “print and pray” marketing to drive their customers to the store. Historically, it has always felt they struggle with the notion of a fostering relationships past the trip “to the store.”
Kroger’s recent TV ads showing animated customers redeeming and rejoicing to the savings seems to be reinforcing this new trend.
Ultimately, I see this as less of a savings challenge and more of a value challenge. Why do people go to a Chipotle? They likely enjoy the food and feel it provides the value of them not cooking.
Feels like there is an opportunity for grocery to go after prepared meals more aggressively. Shoppers can pick up dinner and get food for later in the day or week.
Grocery has to move past selling items to selling solutions. We all have to eat.
The pandemic has helped many supermarkets for a variety of reasons, and now most of the hoarding and stockpiling on staples has come to a halt. Long term will not change much, as cooking more at home will help grocers, and restaurants are going to continue to struggle. Consumers want value, and those who jacked up their prices beyond the increases in actual cost, they will be the losers. Fighting for business is never going to end, but staying focused on what we do best vs. the mega stores will help grocers continue to do well.
Smart retailers have been carefully managing their customer relationships thru the pandemic and used the time to strengthen the ties. They’re ideally positioned to know what and how to market to customers on an individual basis and how to merchandise for their best customers. Long term, the relationships they’ve built will be even stronger than before.
Grocers are in a uniquely beneficial position because they sell essentials that people need to live and because people are still mostly unwilling to dine out. Instead of resting on their laurels, smart retailers are leverage the best analytics available to understand how things have changed in the post-COVID world and making the investments and strategy adjustments to ensure sustainable growth for the future. People will always need to eat — they will choose to buy their groceries at the retailer who best understands their needs and prices and promotes accordingly.
When it comes to understanding pandemic grocery shopping, it’s not just about “how much.” It’s also about “how.”
For many households, less-frequent stock-up trips at the primary supermarket have prevailed versus numerous smaller shops at several stores. Those bigger baskets are different in several dimensions: fewer promoted items, fewer prepared ready-to-eat meals, more shelf-stable and frozen foods.
If money gets tighter for lower income households, especially, grocers may feel some pressure to resume TPR deals on some high-demand items that are boosting margins at present. A little competitive verve is a good thing for shoppers. The stores where folks can afford to stock their whole pantry for a week will likely win the trips.
While I don’t doubt that grocers will see tightening — less “chateaubriand” more “Hamburger Helper” — is that really the sector we should be asking about? Hint: food is usually the last thing given up, not the first.
Looking at value for money spent is going to become more important as consumers tighten spending. Of course, there are a couple of unknowns — will this fall season with the pandemic still ongoing, coupled with influenza, alter consumer willingness to go out versus eat at home? Will certain pockets of the country fare worse or better? Carefully looking at the playbook and keeping a pulse on local market conditions is a must at this juncture.
Consumer demand for key grocery store categories has been significantly higher than historical norms throughout this COVID period. In response, promotional activity has slowed to a degree because, in many cases, shoppers have been willing to buy products even without the benefit of additional price incentives. If unemployment numbers don’t significantly rebound, the gap in the continued government unemployment funding will force some shoppers to be more selective with their choices, driven by price. But this is only part of the story – as shoppers’ buying behavior starts to revert to the norm, we’re also seeing brands begin to move back to more regular promotions and deals. That need to stimulate demand will be amplified by this next government move.
Our research shows that even some affluent households continue to be more focused on value-based products. We anticipate many grocers will target their merchandising and marketing on value. However, even among households under financial stress, there is often room for the occasional indulgence, it may just be a pint of that favorite ice cream versus a quart. For those that offer private brands and are frequently introducing new products, there remains widespread uncertainly about how shopper behaviors will evolve. We believe many retailers will launch a larger number of products with more modest first-year revenue expectations, rather than betting the farm on a more limited number of high-profile launches.