Can Traditional (and Discount) Grocery Stores Survive an Ongoing Squeeze?

While persistent news headlines since the dawn of the COVID-19 era have been touting the grocery business, as essential as it is, as being resistant to consumer spending pullbacks, it appears that winners and losers -- both in terms of individual retailers and in terms of overall categories -- are emerging in the aftermath.

The major claim made by Consumer Edge via its latest U.S. Grocery Outlook 2026 report is that specialty grocers -- Trader Joe's most notably, as well as Whole Foods and Wegmans -- are outperforming traditional grocers such as Publix and Safeway, who are experiencing a decline in consumer appeal. A secondary point, that discount grocers who experienced significant growth of the past few years (including Aldi, Lidl, Food 4 Less, and Grocery Outlet) were actually seeing their growth pattern disrupted in 2025 and beyond after years of consecutive improvement, was also made.

Some of the more interesting findings included:

• Specialty grocers are gaining share across income cohorts as overall grocery normalizes: Specialty grocers saw a 20 basis point increase with low-income shoppers (judged as those earning up to $40,000 annually), a 0.3% increase with middle income shoppers ($40,000 to $100,000 annually), and a 0.4% increase in spend from high-income shoppers ($100,000-plus in annual income) since early 2025. By contrast, traditional supermarkets shed share across all demographics, most significantly from lower-income shoppers (down seventy basis points).
• Trader Joe's showing strength within specialty grocery, and grocery writ large: Not only is Trader Joe's showing resilience within its own specialty grocery category -- earning 44% of wallet from its own shoppers, 48% from Sprouts shoppers, and 47% from Wegmans shoppers, cementing "its unique position as the default secondary destination for specialty grocery shoppers regardless of where they primarily shop," per the study authors -- but it's also experiencing growth versus the overall grocery sector. For the 12-month period ending February 28, 2026, Trader Joe's grew by 3% as the overall grocery sector tumbled by the same percentage.
• Discount grocery share is leveling off: Aldi, Lidl, Food 4 Less, and Grocery Outlet saw sharp gains from early 2022 all the way through the middle of 2024, attributable to consumers trading down. However, a plateau is in evidence since the mid-point of last year. "Whether that trend continues will depend on the trajectory of food inflation and whether shoppers continue to shift spending toward specialty grocers," the study authors wrote.

Expansion of specialty grocers into traditional home markets of competitors is also increasing, with Sprouts moving heavily into a Texas where Whole Foods is headquartered. Sprouts has so far improved its Texas store count by 12% annually over the course of the past three years, hitting a total of 60 locations, and seven locations in Austin, where Whole Foods has its HQ. Further, Sprouts is seeing shift in its direction in what is shaping up to be a bit of a turf war, with the overlap of Whole Foods shoppers who also visit Sprouts jumping from under 29% (as of March 2024) to 33% by February 2026, and Sprouts shoppers who also patronize Whole Foods dipping from 53% to 49% in the same time frame.

Loyalty, Whatever That Means To Shoppers Today and in the Future, Could Be the Hinge Point for Grocery

Overall, it appears that loyalty is the battleground grocers need to be fighting for, whatever the differentiator.

"What's happening in grocery isn't just about price. Shoppers are making more deliberate choices about where they spend their money, and they're gravitating toward retailers that give them a clear reason to be loyal – whether that's unbeatable value at a hard discounter or a curated, private-label experience at a specialty grocer," said Michael Gunther, SVP, Research & Market Intelligence, for Consumer Edge.

"Traditional supermarkets are caught in the middle, and the data suggests that pressure isn't going away. The grocery retailers best positioned for 2026 are those with a distinct identity and a customer base that keeps coming back," Gunther added.