Will grocers maintain COVID share gains as restaurants reopen?

Discussion
Photo: Getty Images/Alex Potemkin
Jun 16, 2020
Ron Margulis

Just a few short months ago, the retail grocery industry was all about the expansion of e-commerce, growth in ethnic categories and the push for foodservice. While the coronavirus pandemic accelerated some of these trends, the FMI “U.S. Grocery Shopper Trends 2020” report* suggests that it has dramatically altered others.

For starters, supermarkets and other retail food stores had nearly a decade of spending growth compressed into four weeks ending mid-April. The erosion of sales to foodservice experienced for years did a 180° turn when most restaurants closed or switched to take-out only. In the first month of the pandemic, revenue for grocers jumped by more than 25 percent compared to the previous month, and reports are that subsequent months are more than 10 percent higher than pre-pandemic levels. Share of stomach for retail changed from 50 percent in February to 68 percent in April, according to David Feit of The Hartman Group, which conducted the study for FMI.

E-commerce experienced similar spending growth during those early months. The number of shoppers getting at least some of their groceries online nearly doubled in March to about 30 percent.

The third big impact from the pandemic for retail grocers is in the number of meals made at home. Two out of five consumers are cooking more meals at home, and Millennials and Gen Xers are now cooking meals at an even higher rate.

All of these dramatic growth trends are expected to fade at least a little after the country resets, Mr. Feit said. But the numbers for retail share of stomach, online ordering and meals cooked at home are certainly not returning to their pre-pandemic levels any time soon.

A few other points from “Grocery Shopper Trends 2020” include shoppers:

  • Wanting retailers to stress hygiene efforts, including keeping stores clean, providing sanitizing wipes and requiring masks for customers and staff;
  • Spreading their increased retail spend over an increasing number of stores;
  • Being concerned about the items they need being out of stock;
  • Remaining focused on the quality of fresh categories.

*The initial research for the report was conducted prior to the pandemic lockdowns that saw massive hoarding and related supply issues. FMI subsequently went back to shoppers and retailers to see how sudden pandemic changed their opinions.

DISCUSSION QUESTIONS: How can grocery retailers best take advantage of the sales growth and goodwill they’ve attracted during the pandemic? What grocery shopping changes made by consumers do you most expect to stick as states across the U.S. reopen more fully?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The big question for grocers is not how to keep the new demand they’ve seen, but how to anticipate and move with the shift back to restaurants as they reopen."
"There will be a drop in revenue in core areas because shoppers are already stocked up. Let’s hope these essential retailers are managing cash flow wisely..."
"Going forward it will take approximately five years for the EAFH sales to exceed the EAH sales. It is likely half the restaurants will never reopen as the owners are bankrupt."

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24 Comments on "Will grocers maintain COVID share gains as restaurants reopen?"


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Ben Ball
BrainTrust

Of course grocery retailers will lose share of the food dollar. There are reasons beyond food than people love to dine out. Depending on the venue, variety, entertainment, socializing and convenience can all be high points restaurants offer over eating at home. The greatest opportunity for food retailers to maintain share gained during lockdown is to focus on offerings that deliver as much of those restaurant qualities as possible with things like fresh meal kits. Shoppers will not continue to wipe out shelves of canned soup and pasta.

Richard Hernandez
BrainTrust

Looking at this a few months after the initial onset of the pandemic, I see the initial processes (employee masks, temperature taking, sanitizing before you enter retail establishments) all still in place. I see paper on the shelf has began to recover, but still see out-of-stocks on disinfectant sprays and wipes. I was reading another article this morning that showed that the initial interest in baking at home has began to wane as more business is opening up slowly. I will be interested to see if the increased interest in prepared foods (and restaurant tie-ins) remains for the customer base that was supporting this during the pandemic.

David Leibowitz
BrainTrust

Yes, many recent changes to grocery shopping habits will stick. Stores and restaurants will reopen, but with reduced occupancy levels which will vary by state and local mandate. And then there’s the general anxiety about going out that will need to ease. That’s not going to happen soon.

Ordering delivery or take-out to eat at home will still be on the rise, but within reason. Most cannot afford to pay restaurant prices for meals five days a week, so that will remain a splurge.

Meal kits? No so much. There was plenty of churn in that category. People want fresh, and they want it now. Consider that Instacart exploded from 180,000 to 500,000 personal shoppers during the pandemic.

And now with work-from-home or shelter-in-place orders, families can trade commuting time for attention devoted to preparing economical meals at home.

Ralph Jacobson
BrainTrust

As most restaurants are being forced to open at a fraction of their capacity, grocers still have time to capitalize upon their increased share. Good, old-fashioned “home meal replacement” (remember those?!) is a great opportunity for food stores right now, especially as home delivery meal services are popping up.

Kathleen Fischer
BrainTrust

Now that many consumers have tested the ability to get home delivery or curbside pickup, many will continue down this path, but grocery retailers need to ensure the experience is satisfactory for the consumer. Grocery retailers should be looking at how they can improve the processes and technology to support contactless shopping as it is likely to continue as a favorite way to shop for many, especially those who want or need to limit their contact with others.

Nikki Baird
BrainTrust

I don’t think grocers should anticipate keeping all of the gains they’ve seen from the behavior shifts. From what I’ve seen one of the desires consumers tend to express about “back to normal” is to be able to eat out again – to sit in a restaurant or a bar. That “normal” may not feel normal at all until there is a vaccine, but to me it says there is pent-up demand that will pull away from grocery spending. This is a black-swan type of event – while some of the behaviors will stick, it won’t be to the degree we saw when there were no other choices. The big question for grocers is not how to keep the new demand they’ve seen, but how to anticipate and move with the shift back to restaurants as they reopen – and how far that shift will go back.

Dr. Stephen Needel
BrainTrust

I’m not sure grocers have generated much good will – the sales growth is out of necessity, not anything they are necessarily doing. I think the biggest impact (and I don’t expect much long-term) will be on store brands, which have always had an issue of generating trial. Lots of shoppers have tried store brands that hadn’t before or hadn’t recently. To the extent that those products performed, they’ll see real growth as things settle down. But retailers should be sensitive to two factors – trial turns to repeat only if the product performs and much of the trial came from availability issues or economic issues. When those problems subside, be prepared for a drop-off for many shoppers in categories where store brands aren’t great.

Ryan Grogman
BrainTrust

The three critical focus areas for grocers moving forward should be: 1.) continued focus and attention on health and safety measures for their stores, 2.) continued expansion and process cleanup around non-traditional delivery methods such as online ordering and curbside pickup, and 3.) further investment into technology solutions in areas such as advanced category management, supply chain visibility, and consumer-facing mobile features. The pandemic has driven tremendous growth for grocers and, even as cities continue with their re-openings, consumers will be cautious heading back to restaurants and grocers aren’t going to be giving back those gains all at once. It will be up to them to see if they can continue to create an environment that maintains customers’ attention.

Lee Peterson
BrainTrust

I just saw a McKinsey study that answered this question with one word: price. Although it’s hard to argue that “duh” about the American consumer, I’d say the other factor is great human service. I can’t tell you the number of times I’ve been looking for a person (anyone!) in some of the newer, HUGE grocery stores and have not been able to find one. I just want eggs! BOPIS will be key as well, but I’d place customer service right up there next to the power agent of price.

Neil Saunders
BrainTrust

This is obvious: no. The share attained by grocery retailers when most of foodservice was shut down will not be completely maintained as foodservice reopens. The question is how much of that share can be kept. In my view, some of it will remain for at least the rest of this year. Why? Because many are reluctant to go to restaurants for health reasons, some can’t afford to go, there’s more working at home so less business meals, and restaurant capacity will be reduced as not all players will survive this. This will be a boost for grocers, even if it’s one that fades with time.

Brandon Rael
BrainTrust

To say these were and continue to be extraordinary times is an understatement. Grocers and their associates stepped up to the challenge and performed admirably across the entire supply chain to fulfill the increased consumer demands during the heart of the pandemic. While certain shopping habits such as online shopping for grocery staples/household products, the demand for localized produce, prepared foods, etc. may stick, we should expect the share gains to reduce somewhat, as restaurants reemerge from their slumber.

However not everyone can afford, or honestly wants to eat out in a restaurant on a regular basis. Grocers and their wholesale distributor partners, now have an opportunity to drive all their strategies around driving outstanding customer experiences. Which include farm to table, localized assortments, premium prepared foods, cafes, grocerants, enhanced loyalty programs, as well as continued flexibility around fulfillment options.

Lee Kent
BrainTrust

Obviously grocers will not likely maintain the share they have seen during the pandemic but yes, there are opportunities still ahead. I am seeing and hearing more and more about some work continuing at home. This means those workers who, in the past, went out for lunch will still be eating at home. There is great opportunity for grocers to fill that gap. I am just a bit surprised I haven’t seen more cool, ready-to-eat sandwiches in the grocery story over the pandemic. And I don’t mean meal kits. Good, fun and tasty sandwiches with sides. For my 2 cents.

Dave Nixon
BrainTrust

They will lose some of the “share of stomach” due to restaurant re-openings and the waning home meal prep that was forced on us, but more important to watch will be the reduced spending on replenishment items that have been stocked up on previously. There will be a drop in revenue in core areas because shoppers are already stocked up. Let’s hope these essential retailers are managing cash flow wisely for this dip in spending in those areas.

Suresh Chaganti
BrainTrust

I think largely the consumption patterns will revert to mean over next 12 months or so. The two factors that will ensure grocers maintain their advantage are the second wave of COVID-19 and the continued recessionary trends. Already, we are seeing COVID-19 numbers up in 18 states, so it could be slow uptake for the restaurants.

Frank Riso
BrainTrust

Until there is a cure, grocery retailers will need to continue their current pandemic operations for their staff and their customers. Their customers will continue to shop where they feel safe and that will continue long after the pandemic is over. The major change will be more cooking at home as the country opens, more customers will continue their new life style even as the economy continues to gain. A real life lesson for many! Lastly, I do hope the grocery retailers get the recognition they deserve for their outstanding contributions during the crisis.

Mark Heckman
BrainTrust

The exaggerated sales and customer counts will fade away over time, depending upon the speed and perceived safety of restaurant re-openings. In terms of keeping “more than a fair share” of the resulting business, retailers should develop both an in-store and an online strategy, with each anticipating changing customer behaviors. In the in-store realm, elements such as managing shopper traffic flow, efficiency of finding popular items, SKU reductions, and new layouts that provide more spacing for shoppers and associates, ought to be leading priorities. On the e-commerce side, keeping existing customers and attracting new ones will largely depend upon the ease and convenience of ordering and pick-up, mitigating wait times at the curb, and out of stocks within the orders. Also, adapting technology that provides the retailer an automated opportunity to communicate to online customers through standing orders, relevant suggestions and meal planning ideas will provide competitive advantage with this group, knowing that for this part of the business to get anywhere close to break-even, the volume must grow.

W. Frank Dell II
BrainTrust

It took 120 years for the Eating Away From Home (EAFH) sales to exceed the Eating At Home (EAH) on a dollar basis. The greatest growth occurred with the increase in working wives. Then that plateaued at 62 percent+, Generation Z or the Millennials carried the sales to 50.2 percent in 2010. In my March 23 post I forecasted supermarket sales increasing 20 percent to 40 percent, which has been right on the mark. Going forward it will take approximately five years for the EAFH sales to exceed the EAH sales. It is likely half the restaurants will never reopen as the owners are bankrupt. Seniors, who frequently eat out, will be slow to return. Generation Z will carry the eating away ball as they continue home delivery.

Richard J. George, Ph.D.
BrainTrust

It’s a new game for food retailers as restaurants begin to reopen. No doubt the pent up demand for going out to eat will have an adverse impact on food retailers. One should not expect their shares of the categories noted in the article to continue at these high levels. However, going forward, while the fresh prepared meals sourced via food retail will be negatively affected, there is still an opportunity to further develop e-commerce grocery sales. The pandemic forced lagging online food retailers to invest in this critical area. Now they have experienced a steep learning curve. Something that they can further invest in and grow. The future here is dependent on retailers’ strategic efforts in this area.

Mel Kleiman
BrainTrust

Yes — grocery stores win, restaurants lose. They win for a couple of reasons. One, they have expanded their offering of better quality prepared meals. Two, they have made it easier to shop. Three, they have shown the consumer how to save money and still have an enjoyable meal. Will they keep all of the gains? No, a significant part of eating out is the social experience and not having to clean up afterward.

Ken Morris
BrainTrust

Grocery needs to expand their online BOPAC and delivery capability to keep the market share they gained during the pandemic. The percentage of people shopping grocery online was only limited by the volume they could accept in their reservation systems. I shopped both Peapod and Instacart and it was next to impossible to obtain a reservation in their two week windows for months.

I am convinced that the time has come for increased focus on grocery micro-fulfillment. The existing online order fulfillment paradigm of walking stores with shopping carts to fulfill customer orders must change. Much of the massive increase in online ordering caused by COVID-19 will remain after the pandemic and grocers must develop new processes to make online orders profitable.

Chuck Palmer
BrainTrust

For the foreseeable future, trust will be a driving force in consumers’ minds. I have seen a few examples of how retailers partner with local restaurants to effectively become distribution points–either in-person or via home delivery. The concept of “share of stomach” assumes a pie divided. Whereas a consumer-centric model would allow for partnering.

Large grocers have a moment of trust that could allow them to expand their relevancy and necessity in consumers’ lives. A single source for all their needs, whatever they are.

This would entail re-imagining business models and operations, but now is the time to innovate and accelerate.

Craig Sundstrom
Guest

Curiously, the choice most selected is the one few actually chose to write about: e-commerce. Perhaps, like me, they think that while a trend likely to remain, it still won’t be that big of a share.

Ricardo Belmar
BrainTrust
The grocery segment is due for more change in the next 6 to 12 months than they’ve seen in the past decade if they are to maintain any of the newfound sales growth seen during the lockdown periods. The majority of those gains were forced due to enforced stay at home orders, work from home, and restaurant dining rooms closed. These factors, plus economic uncertainty as millions of people lost their jobs created a perfect storm for increased grocery purchases and more meals prepared and eaten at home. Sure, many restaurants pivoted to curbside pickup and delivery, but not enough to maintain the previous levels of demand. Consumers also learned to try new grocery brands when they encountered out-of-stocks and shopped significantly more online and via curbside pickup. Where loyalty comes in, it’s more a function of consumers now having multiple preferred grocers to shop with than they did pre-pandemic. Will those consumers return to their previous preferences, or have they learned to trust multiple retailers now? As curbside and delivery have grown enormously, grocers… Read more »
Inna Kuznetsova
Guest
24 days 19 hours ago

The restaurants will take a long time to get to pre-crisis capacity: reduced business meals and travel, sanitary restrictions, remaining health concerns among certain segments, bankruptcies — all of it will contribute. So a higher share of stomach may last for a while. But at the same time, it does necessarily translate into more cash due to protective measures to fund, small CPG brands going out of business, and reductions in many non-essential categories that may go on for a while.

The best thing retailers can do is to invest in better visibility and analysis of trends in customer behavior that is changing very fast and often has a local nature. And to rewire the category management and supply chain to base decisions on recent data.

wpDiscuz
Braintrust
"The big question for grocers is not how to keep the new demand they’ve seen, but how to anticipate and move with the shift back to restaurants as they reopen."
"There will be a drop in revenue in core areas because shoppers are already stocked up. Let’s hope these essential retailers are managing cash flow wisely..."
"Going forward it will take approximately five years for the EAFH sales to exceed the EAH sales. It is likely half the restaurants will never reopen as the owners are bankrupt."

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