Who Will Win the Consumers' Food Business – Retail Grocers or Restaurants?
The impact of Covid-19 was felt throughout the food processing, foodservice, and grocery industries. Consumers changed how they purchased their food and that resulted in companies reinventing their business plans. As the economy reopens and returns to normal, how will consumers react to the New Normal?
During the pandemic grocery retailers reversed a long term trend of market share moving from retail grocers to foodservice. According to The Food Industry Association (“FMI”)’s annual US Grocery Shopper Trends study, grocery stores benefitted at the expense of foodservice during the pandemic. The graph below shows retail grocer’s share of food spending reverted to 1992 levels and through March 2021 has continued higher than the foodservice share of food spending.
The share of food spending enjoyed by food retail peaked in April 2020, increasing to 70% of all monthly food spending. The foodservice share of food spending had decreased to 30% in April 2020, which is below the 1992 level.
As pandemic restrictions relaxed in the months after April 2020, the restaurant sector was able to reopen businesses and win back market share of the food dollars.
These overall trends were experienced differently based on geographic location, type of grocer, and type of foodservice.
Grocery retail trends show that mass merchants and club channels have been increasing their share of the retail grocery market. These two channels increased from 33% in 2018 to 41% in 2021. The largest growth was in mass merchants, at the expense of the supermarket channel which decreased from 49% in 2018 to 39% in 2021.
Consumer shopping trends also changed. The amount of online ordering has increased, as noted in the bottom two rows of the graph below.
The percent of consumers placing online orders during the preceding twelve months was 27% at supermarkets (an increase of 11 points), 25% at online-focused retailers (an increase of 10 points), 21% at drugstores (an increase of 16 points), 16% at clubs (an increase of 7 points), 7% at limited-assortment grocers (an increase of 3 points) and 5% at dollar stores (flat versus a year ago).
The amount of money spent for groceries also increased during the pandemic. Current data shows that consumers are spending $142 per week per household for groceries, which is a 17% change from 2020.
When evaluating grocery store performance it will be important to monitor these overall industry trends, compare performance to 2019 as well as 2020, and consider other emerging trends in inflation, labor, and supply chain.
The foodservice industry was severely impacted by the Covid-19 shutdowns and reopening requirements. Depending on the type of restaurant and the geographic location of the restaurant an individual operator’s or location’s sales recovered at different rates.
According to a June 4 – 6, 2021 survey by the National Restaurant Association (“NRA”), 50% of adults indicate they are not eating in restaurants as often as they would like, compared to 83% of respondents during the early weeks of the Covid-19 impacts. The graph below shows the total dollars spent per month at eating and drinking establishments dropping to a low of $29.9 billion in April 2020, and returning to pre-Covid levels by April of 2021.
The impact of Covid-19 caused restaurants to expand their off-premises options, incorporating meal delivery through third parties, direct meal delivery, and curbside pick-up. In December of 2020 the NRA reported that 53% of adults say purchasing takeout or delivery is essential to the way they live.
Not all restaurant categories were impacted the same way by Covid-19 and the recovery also varied by category. The data below shows the immediate impact in March and April 2020, and shows the recovery through November of 2020.
Industry experts anticipate more adjustments as the economy reopens in additional states and the work from home trend reverses, therefore, the prospects for restaurants will change again. For example, while the pizza and QSR has shown substantial growth, industry experts expect that growth to moderate.
Food processors have needed to adapt to increased demand for retail grocery packaging and changing restaurant demand. The ability to adapt quickly has been key to the success of individual processors.
Labor shortages and increasing labor and commodity prices have also impacted food processors. Companies are evaluating increasing the use of robotics and other automation to counter the impact of labor shortages. Companies are working to identify ways to tie prices and costs to commodity price changes.
The level of upheaval in the economy supporting the delivery of food to consumers has been astounding. In the days immediately after the March 2020 shutdowns, grocery store shelves were empty, processors’ inventory did not match demand, and restaurants struggled with approaches to deliver food to consumers.
The various government programs provided some relief, but there will be long term changes. Companies need to continue to monitor the changes in consumer preferences and industry trends, as well as identifying impact of the emerging trends of inflation, labor shortages and work from home changes, and supply chain issues.