Nearly one year after the COVID-19 pandemic began ravaging the globe, your local grocery store is likely looking a little different.
Few businesses have been affected as dramatically by the virus as the grocery industry. Initially slow to adapt to e-commerce, the grocery industry has shoveled billions of dollars this year into developing online platforms to keep up with consumer demand for home delivery, in-store pickup and new categories of merchandise.
In the process, they have transformed themselves into omnichannel businesses keeping pace with new consumer habits. Demand for online groceries has skyrocketed, rising 74% in August compared with a year earlier, according to Nielsen data. Meanwhile, brick-and-mortar groceries are scrambling to digitize their operations to compete with online retailers from e-commerce behemoth Amazon to Instacart, a third-party grocery delivery mobile app reporting a fivefold rise in order volume from March to May.
But for brick-and-mortar grocers, their investments aren’t confined to the web. Some measures are cosmetic—plastic partitions separating customers from cashiers, arrows on the floor directing the flow of traffic—but others are likely more fundamental as people adapt to dining at home. They’re reexamining product lines and expanding sections that have drawn more demand during the pandemic, such as prepared food, alcohol, and paper products. Some grocery retailers are closing off sections entirely to devote more space to in-store pickup orders.
Here are five grocery industry trends we expect this coming year.
The sharp rise in demand for home delivery has been a clear windfall for online retailers like Amazon. This has left brick-and-mortar grocers racing to build out their own delivery channels while trying to mitigate the high costs of door-to-door service that already put so much pressure on the restaurant business.
Retailers with both a physical footprint and an online presence are funneling resources into developing a multichannel platform that capitalizes on both. In particular, the BOPIS (buy online pickup in store) model has grocers dedicating more floor space for customers and gig workers from third-party delivery services like Instacart to fulfill their orders. Minnesota-based Cub Foods is doubling its square footage devoted to staging online orders, while Whole Foods Market, which is owned by Amazon, has converted several stores in New York, Chicago and other cities to delivery-only service.
Meanwhile, Albertsons, the country’s second-largest grocer, is piloting temperature-controlled lockers in certain stores for customers to pick up perishable online orders, and Midwest chain Hy-Vee is reconfiguring its stores and parking lots to accommodate the rise of BOPIS, one of the fastest-growing grocery industry trends.
Future-Proof Supply Chains
As anyone who has walked down an empty aisle in search of toilet paper knows, the pandemic’s rapid fallout this year underscored vulnerabilities in grocers’ supply chains. In response, larger retailers such as Amazon and Walmart invested billions of dollars in building out their shipping and fulfillment infrastructure.
To compete, smaller retailers are turning to micro-fulfillment centers to consolidate operations, combining the speed of in-store pick-up service with the efficiency of a large, automated warehouse. The small footprint of these high-automated warehouses allows them to be located closer to customers clustered in urban areas for quicker delivery.
Larger retailers, like Target, are allocating space within their own stores to open micro-fulfillment hubs that accommodate a range of delivery methods, including click-and-collect, curbside delivery, and same-day home delivery. The demand for dark stores, warehouses used to fulfill online orders, is on the rise among smaller retailers, who can rent space to open micro-fulfillment centers near their customers.
The supply chains of tomorrow will rely upon this technology to adapt to inventory supply and consumer demand with flexibility and speed.
Meanwhile, cultivating customer loyalty has become more critical than ever. A report from Periscope by McKinsey shows that 40% of consumers have tried new brands during the pandemic and that just 12% of shoppers plan during the holiday season to shop from the same retailers and brands they frequented last year.
As the pandemic jolts consumers out of their routines and drives them to try new products and purveyors, grocery retailers are devising ways to retain their business and encourage repeat purchases. Retailers from Amazon to Walmart are beefing up their paid loyalty programs, hoping to give customers an incentive to stick with them during and after the pandemic.
Walmart’s new Walmart+ program is designed to compete against Amazon Prime, which provides benefits from free delivery to on-demand entertainment to more than 100 million members. For $98 annually, Walmart+ offers unlimited home deliveries, discounts on fuel, and a scan-and-go shopping feature to make in-store checkout more convenient.
Other grocers are doing the same. Hy-Vee launched Hy-Vee Plus, a $99-per-year membership program that offers grocery delivery and two-hour express pickup free of charge, as well as other savings and benefits in-store and online.
Private Label Levels Up
Another significant change evident in grocery industry trends is the rising popularity of private label products. While shoppers once sneered at the perceived quality of private label items or snapped them up solely for their low prices, the pandemic has brought an about-face in attitude. When their go-to brands ran out of stock earlier this year, consumers forced to try store products for items like toilet paper were impressed.
As a result, sales of private brands have outpaced sales of regular-branded products, according to Nielsen data. Now retailers are rushing to scale their private label business to capitalize on changing consumer sentiment toward groceries carried under a retailer’s own brand. Target ‘s fast-growing Good & Gather food and beverage brand is projected to become the retailer’s best-selling line.
Roughly 25% of consumers reported trying private label brands for the first time in March, according to a survey by research firm AlixPartners. The survey also found that at least 30% of consumers who tried new private label products said they plan to stick with them.
The popularity of private label items from Costco, Trader Joe, Whole Foods, and Kroger suggests that a major grocery industry trend in 2021 will see retailers competing on the strength of their private label brand identity.
Safety will remain a primary concern throughout 2021, with retailers continuing to implement health protocols, such as admitting a certain number of shoppers into the store at a time. According to CB4’s COVID-19 Shopper Priorities and Experience Survey, eight out of 10 shoppers admitted to being “very afraid,” “a little afraid, “ or “afraid” to shop in stores during the pandemic. Creating a sense of safety in store is likely to remain a grocery industry trend in the new year.
The U.S. Food & Drug Administration released safety tips for shoppers. Among the givens such as wearing a face mask and keeping six feet from employees and fellow shoppers, the agency advises shoppers to use wipes to clean the handles of the shopping basket or cart before entering the store. Retailers that dedicate resources to helping shoppers do these things are positioned to reap the rewards.
A survey by market research company Ipsos named Whole Foods, Costco, and Trader Joe’s the three safest food retailers based upon employees’ use of facial coverings as well as social distancing markers that keep customers six feet apart. Trader Joe’s scored high marks for limiting the number of shoppers allowed in the store at once. The survey looked at additional factors such as whether the retailer provided antibacterial wipes or solution at the entrance, used plexiglass separators at checkouts, and cleaned high-traffic areas regularly.
2021’s Grocery Industry Trends
The pandemic has forced significant change within the grocery industry. Online grocery shopping quickly went mainstream, elevating e-commerce to one of the most significant grocery industry trends this year. Retailers large and small invested billions of dollars in developing their shipping infrastructure and building fulfillment centers to deliver orders quicker and more efficiently.
But survival in the grocery business this year will mean more than delivering staples to customers’ doors. Catering to changes in consumer behavior will be key, through both paid loyalty programs and an emphasis on developing attractive private label businesses. Retailers from Walmart to small-town independent stores will keep reconfiguring their aisles to align with an evolving appetite for goods and comply with safety protocols.
CB4 helps grocers like Associated Food Stores, Wakefern, and Festival Foods continuously adapt to what customers want, driving 0.5%-2% in net new sales all the while. See how quickly we got AFS up-and-running in this short video. Or, if we had you at hello, watch a short video demo.