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Grocers have gained more US stomachs and wallets as people prepare their meals at home during the coronavirus pandemic.
Still, those gains could evaporate quickly in the coming year, unless grocers renew their approach and create lasting customer loyalty, according to a Bain & Co. report released on Monday.
Revenues for the U.S. grocery industry grew 10% year-over-year in 2020, according to the consulting firm. That rate could drop from 2% to 5% next year – or could even drop by 7 percentage points if a Covid-19 vaccine is widely available and diners return to restaurants in early 2021.
Pharmaceutical companies are rushing to develop a vaccine for the virus, which has killed more than 1.2 million people worldwide, according to data from Johns Hopkins University. On Monday, Pfizer and BioNTech announced the results of a terminal trial which showed their vaccine to be over 90% effective in preventing Covid-19.
From 2019 to 2030, aggregate grocery store profits will rise from just over $ 34 billion to $ 39 billion unless grocers take action, Bain said. That’s a compound annual growth rate of 1.2%
“There has been a windfall due to the shift in demand to the grocery and retail channel,” said Steve Caine, a retail expert at Bain and one of the authors of the report. “But it gave us a glimpse into the future, and no one was prepared.”
Caine said if grocers don’t fend off future threats, they’ll see consumers spending more of their money at restaurants like Panera and Chipotle, relying on third-party delivery services like Instacart and Uber Eats, and shopping at discounters. like Aldi.
This decline could also scare investors. From 2014 to 2019, the total return to shareholders of publicly traded grocers was 7.7%, lower than the retail average of 11.1%, according to Bain.
Grocers in the industry have reported growth in in-store and online sales during the pandemic. Sales at Kroger, the country’s largest supermarket operator, increased year-over-year by nearly 15% in the second quarter ended Aug. 15, excluding fuel. Its digital sales during this period increased by 127%.
At Walmart, the nation’s largest retailer, same-store sales in the United States rose 9.3% in the second quarter, fueled by food and general merchandise. And at Target, food and beverage sales grew about 20% in the second quarter.
Caine said that grocers’ expenses also increased as they hired more staff, gave workers special bonuses and had to cover the costs of sanitizing stores to shipping online orders. Even so, he said, grocers – who operate on noticeably low margins – have a rare opportunity to invest and innovate.
He pointed to creative strategies that could help grocers compete better. Some have teamed up with local restaurants to add main dishes or popular side dishes to coolers as a cheaper alternative to takeout. Others have improved door-to-door pickup or door-to-door delivery of online grocery orders to steer consumers away from third-party delivery services like Instacart. And some have added meal kits similar to those sold by Blue Apron or Hello Fresh.
He said grocers can beat delivery services at their own game if they come up with cost-effective ways to operate – minus the extra fees and fees that buyers typically pay to third parties.
“If they [grocers] take advantage of this moment, you can retrain some customers to transfer more of their share of the wallet to you, ”he said.
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