UNDERWRITTEN BY
UNDERWRITTEN BY
PRESENTED BY
– Dave Hirz, president and CEO, Smart & Final
Mike Troy, Jim Dudlicek,
Bridget Goldschmidt,
Gina Acosta and Abby Kleckler
Retail executives maintain optimism for success in 2020 while dealing with a wild card that few anticipated.
Retail executives maintain optimism for success in 2020 while dealing with a wild card that few anticipated.
By:
82%
of respondents rated their prospects for the coming year at a six or higher (on 1-10 scale)
“We went into 2020 very optimistic, as consumers were feeling good about their financial position in general. Inflation had come back into the industry after the longest period of grocery deflation in more than 60 years, providing a tailwind for grocery retailers that we haven’t had since 2015.”
80%
rated their business success during 2019 at a six or higher
Nearly
46%
are optimistic about success this year compared with a year ago
Nearly half
93%
of respondents told us that they expect wages to increase this year
63%
told us they expect to spend more on technology
RESILIENT AND AGILE
8 ways food retailing will change forever
3
Balance Sheets Matter
8
2
E-Commerce Acceleration
7
4
Supply Chain Simplification
5
The Death of Self-Service
1
The Advent of T-commerce
6
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The Advent of T-commerce
Every aspect of food retail operations will be impacted by consumers’ new aversion to touching surfaces, ushering in the age of touchless commerce. Some retailers have already moved in that direction with contactless payment features in their mobile apps, helping shoppers avoid in-store PIN pads and touchless deliveries. But there are countless other touchpoints in a physical store where retailers will need to proactively address shoppers’ angst through a continuation of enhanced sanitation measures.
1
8 Ways food retailing will change forever
resilient and agile
E-Commerce Acceleration
2
Balance Sheets Matter
3
Supply Chain Simplification
4
It’s tragic that it took a tragedy to wake many food retailers from their slumber, but it has and they are now all aboard the digital train racing into the future. COVID-19 has served as the ultimate catalyst to accelerate innovation around the shopping experience of the future. Food retailers demonstrated what they are capable of as a result of COVID-19, and going forward, success will come to those who continue to exercise their newfound sense of urgency.
The current scenario facing non-essential retailers, and the wide range of desperate cash conservation measures now in place, should serve as a cautionary tale for retailers of food and consumables. Check your balance sheet. How strong is it and what would happen if the shoe were on the other foot and a different type of crisis required operations to be curtailed? Senior leaders at food retailing companies will be asking, “what if,” a lot more in the coming years. At least they should be.
The situation that unfolded when COVID-19 broke out revealed the inherent conflict that has long existed between merchandising strategies rooted in breadth of assortment and the operational challenges of supply chain efficiency. The latter will play an even more important role in retailers’ merchandising strategies going forward as a result of lessons learned during the health care crisis. There is now a sharpened understanding of the correlation between the costs of offering expansive assortments and the value provided to shoppers who were forced to make new choices.
The Death of Self-Service
Even when the pandemic eases, hard choices will have to be made about sampling activities and other self-service features. The COVID-19 virus has shattered consumer confidence in the safety of unpackaged food. Understandably, consumers are worried about germs, which creates huge ramifications for retailers. There may also be new regulatory hurdles coming that restrict beverage dispensers, bulk food containers or salad bars. For now, it is imperative that grocers install more sanitary, touchless self-service stations (Lidl uses them in its U.S. stores), or remove them altogether depending on customer response.
5
Future of Foodservice
The shuttered foodservice industry lost an estimated $25 billion in sales and more than 3 million jobs in the first 22 days of March as the coronavirus outbreak swept the United States. The post-pandemic consumer will continue to avoid restaurants, but will still need to visit supermarkets to buy groceries, thus increasing the potential to purchase prepared foods as a surrogate for restaurant meals. But Americans are looking down the barrel of a recession, which means that even if foodservice comes roaring back in the fall, the average consumer isn’t going to be splurging on prepared foods in the deli as much as they used to. And then there’s the sanitation issue.
6
The Pandemic Pantry
With federal, state and local measures in place to promote social distancing and many restaurants closed, consumers are spending more time at home than ever before. Network data show that consumers are taking this time to cook and tackle recipes for foods that they would typically purchase as manufactured products at the grocery store. Spice maker McCormick said it sales in March soared as people pantry loaded. CEO Lawrence Kurzius told analysts on an earnings call that he expects consumption to continue at an extraordinary level.
7
Associate Investments
With millions of service-oriented Americans who previously worked at restaurants, hotels and non-essential retailers now unemployed, food retailers have emerged to fill the void. But can you take someone who previously worked on a cruise ship and put them to work in an Amazon warehouse or at the curbside pickup desk at Ralphs? Maybe, but retailers are going to have to revamp their hiring and training protocols to get those people up to speed quickly and increasingly with new skill sets.
8
Future of Foodservice
The Pandemic Pantry
Future of Foodservice
Nearly half of grocery retailers in the United States are more bullish than last year about their prospects and the future of the food retail industry, with 46% of retailers surveyed saying they feel more optimistic than a year ago. That’s up slightly from last year, when 45% reported increased optimism. About 26% of retailers said this year that they’re less optimistic than last year, and 29% reported no change. Even without the boost that grocers received from COVID-19, consumers were feeling optimistic about the channel. According to Chicago-based IRI’s Q4 2019 Consumer Connect Survey, traditional supermarkets still rank among consumers as the top channel for groceries. The 2020 coronavirus outbreak could, however, have a lasting effect on the supermarket industry in terms of pushing consumers to shop for food online more frequently.
competition
61%
of grocers said competition will increase
49%
of grocers said that they expect profits to stay the same in 2020
80%
expect benefit costs to increase
About
93%
said that they expect wage costs to increase
More than
CLEAR-EYED OPTIMISTS
Source: Progressive Grocer’s 87th Annual
Report of the Grocery Industry
63%
The most pressing issues cited by grocers:
the price of keeping up with technology
51%
the cost of employee benefits
41%
51%
of retailers said that they expect gross margin to stay the same this year
When asked which departments of the store were most successful at generating sales, respondents to Progressive Grocer’s 2020 Annual Report survey once more looked to meat, with a whopping 68% singling it out as a top-selling section, the same as in 2019. Other huge sales magnets, according to the survey, were frozen foods, at 63%, way up from 22% last year; produce and fresh bakery, both at 61%, with produce having slid from 68% and bakery having risen from 33%; beer/wine/liquor (where applicable), deli/prepared foods, and seafood, all, at 59%, higher than last year; and center store, general merchandise and gourmet/specialty, all, at 54%, showing considerable increases over 2019. Floral, health, beauty and wellness, and private label were all pegged as big sales generators by 51% of respondents, again revealing solid increases, while organics were noted by 49%, quite a jump from last year’s 21%.
Sales Drivers Revealed
In terms of the
No. 1 traffic driver:
59%
41%
40%
37%
34%
Meat
Center Store
Deli/Prepared Foods
Organics
Fresh Bakery
OMNICHANNEL INVESTMENTS
Technology continues to change at a rapid pace, and grocers have every intention of trying to keep up, according to Progressive Grocer’s Annual Report survey. A majority — 63% — of retailers expect technology spending to increase at their companies during 2020. Advancements in technology hit No. 4 on the list of issues keeping retailers up at night, with online sales/omnichannel coming in at No. 7 and data protection/security coming in at No. 9. Grocery has traditionally been slower to embrace e-commerce sales, but the demand for omnichannel will continue to grow — and maybe even explode — in the coming months and years, especially as COVID-19 accelerates customers’ usage of
home delivery and click-and-collect services. Technology as a whole is top of mind for most grocers, and for PG’s Annual Report, retailers were asked about the best investment their company could make to be successful in the next five years. The top response was technology upgrades/new investments.
GROCERY
DELIVERY
GROCERY
DELIVERY
43%
of retailers currently offer third-party vendor home delivery
40%
offer store-supported home delivery
39%
said they have a strategy that they’re executing for connecting with consumers at multiple touchpoints
20%
of retailers said that they have a fully integrated strategy using in-store, online and digital channels
Source: Progressive Grocer’s 87th Annual Report of the Grocery Industry
CONCLUSION
Throughout Progressive Grocer’s 98-year history, various events had a seismic effect on consumer behavior and food retailers’ operations. Another one of those times is at hand. Vastly different than the wars, civil disruptions, financial meltdowns and terrorism-induced crisis that preceded it, COVID-19 will have many lasting effects on the food and consumables industry. An already disrupted industry will be subjected to a new and historically unprecedented pathway of change.
Grocery retailers are critically important in times of crisis, and historically come through at their best. Dave Hirz, president and CEO
of Commerce, Calif.-based grocery chain Smart & Final, elaborates on this topic in Progressive Grocer's 87th Annual Report on the food retail industry. The impact of coronavirus is continuing to unfold in real time. During this uncertain period, we’re grateful to be in a position to provide customers the items they need.” The overall long-term impact remains to be seen, Hirz acknowledges. “But I believe sales will normalize as the virus runs its course and a vaccine comes to market. The habits of cleaning, disinfecting and hand sanitizing might become a new normal and could drive up sales of those categories on a permanent basis,” he says. “Right now, Smart & Final has a unique opportunity to show our current and new customers the quality and value we’re trusted for, and our associates are rising to the occasion.”
Source: Progressive Grocer’s 87th Annual Report of the Grocery Industry
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20%
of retailers said that they have a fully integrated strategy using in-store, online and digital channels
Grocery Delivery
Grocery Delivery
Source: Progressive Grocer’s 87th Annual Report of the Grocery Industry
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