Beyond the Pandemic: 4 COVID-related trends in food retail that are here to stay
The COVID-19 crisis has quickly swept over the US, amassing over 1.5 million cases and 90,000+ deaths through May 18 (NYT COVID Tracker). Consumers have responded with dramatic shifts in shopping and purchasing behaviors. While some of these new behaviors are probably short-term responses to the crisis, we expect 4 key trends to persist in the mid- to long-term as we begin to establish a new normal.
Trend #1: At-home food consumption will remain elevated and grocery numbers should remain strong compared to the rest of the economy. As the pandemic ramped up, US consumers spent on groceries and little else, and we expect this emphasis on grocery and in-home meals to continue.
Overall retail trade numbers show the importance of the Grocery segment. Looking at retail trade since the start of 2020, we can see Total Retail (dark blue line) began to drop precipitously in February as the number of COVID cases grew (orange line). Early declines were driven by Foodservice and Auto, the first sectors impacted by quarantining and economic uncertainty, but most other retail sectors followed with declines in March. In contrast, Grocery Store Sales (dark green line) grew +29% in March as consumers stockpiled food and necessities.
Grocery Store sales declined -13% in April from the March hoarding peak but were still up 13% compared to the same period in 2019. Grocery is expected to remain one of the few strong US retail sectors in the short- and mid-term as:
- Restaurant business is down in the US
- Despite measures to increase food pickup and delivery, overall restaurant transactions have remained down between -30% and -40% all April (NPD webinar, 5.7.20)
- Overall restaurant spend is down -55% in Q1 (Visa Q1 Earnings Call) and reservations are down -95% or more (OpenTable)
- Even as state-by-state legislation allows some sit-down restaurants to reopen, most have strict guidelines in place to limit occupancy, curtailing their sales potential
- Measures of in-home food consumption are up
- 67% of respondents are cooking/preparing more meals. Most plan to continue this after COVID
- 65% are consuming more groceries and buying more grocery items
- Only about 1 in 3 respondents are ordering more restaurant takeout or delivery
- (Source: Numerator webinar, 5.7.20)
- In-home food consumption increases in recessionary conditions
- In the 2008 recession we saw an increase in at-home meals and food expenditures when compared to food away from home. In the coming months, we are likely to face some of the same recessionary conditions and corresponding consumer behaviors as we did in 2008.
Numbers from the recovering Chinese economy show the importance of CPG and Grocery. Post-COVID consumption data shows that Supermarkets, Convenience Stores, and Food Specialized Retailers are doing relatively well when compared to Overall Offline Consumption (-21%) or Foodservice (-28%) vs pre-COVID conditions.
Trend #2: Grocery Ecommerce will remain important and keep growing
As consumption has shifted in-home, many consumers have pivoted to grocery delivery and buy online pickup in-store (BOPIS) fulfillment options. We predict these fulfillment options will remain important and continue to grow as consumers push for more convenience and safety while retailers improve their footprint and operations.
Grocery ecommerce exploded in Q1:
- 3rd party grocery delivery orders are indexing at 250+ this quarter vs. last year (NPD Webinar 5.7.2020)
- New users are trying grocery ecommerce options and plan to continue use after COVID
- Only 35% of online order and 18% of BOPIS customers were regular users before their recent purchase, the rest were new or previously infrequent users.
- 83% of new BOPIS users report they are likely to keep using this option after COVID.
(Source: Numerator Webinar 5.7.2020)
Online grocery visit frequency and spend has remained elevated in recovering APAC countries (MIYA Payments via McKinsey). Post-COVID, we expect grocery ecommerce to keep some of its share gains and continue to grow for the following reasons:
- Convenience-driven trends have been a common thread across retail. Many new consumers will continue opting for grocery delivery and/or BOPIS due to their convenience.
- Consumers will remain health-conscious and may avoid unnecessary trips to the grocery store or in shared/public transportation.
- As time goes on, retailers will improve the efficiency, reach, and customer experience of grocery ecommerce, increasing consumer access and appeal.
Trend #3: “Stockpiling” shopping patterns will continue to some degree throughout recovery
During March, as cases rose and many states instituted social distancing measures, we saw some very clear signs of stockpiling behavior. Foot traffic peaked across all grocery channels (Placer.AI) while according to Numerator, basket sizes soared to 2.5x-4x their pre-COVID average size. NPD data indicates that shelf-stable and frozen foods were key categories that over-indexed. Specialty Grocery lagged behind the Mass, Club, and Food-Only Channels as people shifted spend toward large pack sizes and household necessities instead of premium food.
During this period, NPD reports sales of stay-at-home related categories soared, e.g. cooking appliances, cookware and bakeware, office equipment, and puzzles, toys, and video games (NPD COVID News).
After the sharp drop in grocery shopping in the first 2 weeks of April, seen in both foot traffic and basket sizes, we have seen a blunted rebound. While some of the recovery in foot traffic comps can be attributed to certain states reopening and consumers returning to more typical shopping habits, there has been a concurrent rise in basket sizes (Numerator Webinar, 5.7.2020) and “stock-up” grocery channels are still greatly overperforming Specialty Grocery. This indicates that at least some consumers are continuing to stockpile, and the rebounds in foot traffic since mid-April are somewhat attributable to consumers restocking their diminished pantries.
We predict that stockpiling behaviors will continue as health and saving money remain top-of-mind. Despite being ahead of the US in terms of recovery, Chinese consumers are still making less frequent supermarket and grocery trips but buying more at once than they were pre-COVID (MIYA Payments via McKinsey). However, the degree to which stockpiling behavior will persist in the US is dependent on consumers’ perception of their own safety. News coverage, social media, and messaging from political leadership can have rapid and unpredictable impacts on this consumer behavior.
Trend #4: Grocery store foot traffic will have smaller peaks and valleys across the week
Pre-COVID grocery foot traffic tended to be much higher during weekends and certain times of day. We expect more parity in daily foot traffic across the week for the following factors:
- Consumers will likely remain hyper-aware of health risks for the foreseeable future and seek to avoid unnecessary crowds during grocery store peak days and hours. The degree to which this is true will depend on mass perception and our success against the virus.
- The number of full-time employees working from home has doubled (Gallup COVID Workplace Poll), and out-of-home activities are greatly reduced. Home-bound consumers have more flexible schedules, allowing them to shop for groceries at traditional off-hours.
- Retailers have taken measures to space out foot traffic across the day (e.g. senior-only hours, externally-visible lines when busy, etc.)
Preliminary results show traffic is already evening out:
- Daily foot traffic comps (versus the previous year) across retail are much lower on weekends than they are on weekdays (AI)
- Transaction data from China show that weekend grocery shopping remains depressed at this point in recovery
As the retail industry shifts from Survival to Recovery, expert advice and perspective is more important than ever. Armed with decades of experience, an unparalleled commitment to your team, and play-making insights, McMillanDoolittle can help you win in a post-COVID world. To stay up to date on the latest retail industry news and insights, connect with us.