What will the post-pandemic growth slowdown do to grocers?
After scrambling for months to meet unprecedented demand, grocers are facing new challenges as vaccines roll out and consumers return to normal spending patterns.
Due to tough comparisons against last year’s stockpiling and home-cooking trend, several chains are already predicting a deceleration. According to fourth-quarter investor calls:
- Kroger is projecting same-store sales to decline three to five percent this year after expanding 14.1 percent in 2020;
- Sprouts Farmers Market is forecasting same-store sales will decline in the low-to-mid-single digits in 2021 after rising 6.9 percent last year;
- Grocery Outlet expects same-store sales in the first quarter to decline in high-single digits after climbing 12.7 percent overall in 2020;
Analysts expect a more promotional climate to arrive that will drive traffic as Americans get more comfortable returning to restaurants. Strong eat-at-home trends led to less discounting in 2020.
In January, Barclays’ analyst Karen Short downgraded her ratings on Kroger, Albertsons, United Natural Foods and SpartanNash on her belief that the retailers are more vulnerable to competition from Costco, Dollar General, Target and Walmart as consumers return to being price sensitive.
Already thin margins in the sector are expected to be pressured by elevated online purchases post-pandemic and profitability by continued investments to support same-day delivery and curbside pickup. Food inflation is also expected to remain a headwind due to logjams at ports.
Grocers, however, are encouraging analysts to focus on two-year same-store numbers to measure progress and believe changed behaviors resulting from the pandemic will create tailwinds in the years ahead.
On Albertsons’ recent quarterly call, Vivek Sankaran, CEO, noted that shifts to flexible workweeks and permanent work-from-home routines should support more breakfasts and lunches at home. He also said many consumers “rediscovered their passion for cooking” and are prioritizing healthy and fresh products. He said, “We believe that purchases of fresh product drives trips as our loyal customers often stock up on shelf-stable items in one trip, but come back frequently for fresh product.”
On Ahold Delhaize’s fourth-quarter call, CEO Frans Muller said, “Many consumers have found a new love for eating at home and found new ways to engage with our brands, both online and in-store, which are behaviors which we think will have a lot of stickiness.”
- Grocery stores’ pandemic boom is over – CNN
- 3 Reasons Kroger Stock Has a New Critic – Barron’s
- Analyst Sees Little Upside for Conventional Supermarkets in 2021 – Winsight Grocery Business
- The Kroger Co’s (KR) CEO Rodney McMullen on Q4 2020 Results – Earnings Call Transcript – Seeking Alpha
- The price of food and gas is creeping higher — and will stay that way for a while – NBC News
- Grocers will have to raise game after year of plenty – The Times
- Online grocery sales will skyrocket but margins take a hit, analysts say – MarketWatch
- Albertsons Companies, Inc. (ACI) Q3 2020 Earnings Call Transcript – The Motley Fool
- Management’s Prepared Remarks Q4 2020 Earnings Call – Ahold Delhaize
DISCUSSION QUESTIONS: Do you see a rocky path ahead for conventional supermarkets over the next year? What new challenges may they face? What pandemic-influenced tailwinds should grocers look to for continued momentum?