In hindsight, salad bars and touchscreens were always kind of icky.
Even before the pandemic, giving shoppers the opportunity to stick their fingers in the ranch dressing of a salad bar or press a button on a grimy screen at self-checkout was probably a bad idea.
Now, as we enter the second year of the COVID-19 era, the self-service food stations and greasy self-checkout touchscreens that have long played a key role in grocery stores are poised to become vestiges of 2020, replaced by pre-packaged containers and contactless checkout methods. Some of these changes instituted temporarily as a result of COVID-19 are likely to become permanent — and these are just a few of the ways that food retailing will evolve.
“The impact of COVID-19 will be felt by countries, consumers and businesses around the world for years to come,” affirms David Rawlinson, CEO of Chicago-based NielsenIQ. “As countries ease restrictions in an effort to restart their economies, the evidence of significant economic, employment, structural change and policy adjustments will manifest in permanent, altered consumer behavior. Manufacturers and retailers will need to consider the long-term implications today in order to reconfigure their strategies for the future.”
One year after COVID-19 hit America, it’s difficult to count the long-term implications for food retailing. But here are seven key changes and challenges for food retailers and suppliers navigating the new world.
1. The ‘Revenge Shopper’
The theory of the Revenge Shopper goes like this: Once the pandemic is over, people will flock to physical stores and spend more as “revenge” for being physically restricted for so long. A new shopper survey may end up proving that theory correct.
Skaneateles, N.Y.-based ChaseDesign, which helps retailers build better commerce experiences, has published new research showing that 78% of shoppers plan to shop in-store more in 2021, after a year of having trips to retailers curtailed by the coronavirus. Other key data points from the ChaseDesign research include the following: 63% of shoppers said that their No. 1 motivation for shopping in a physical store is “to get out of the house”; 47% of shoppers said that what they miss the most about shopping in person is same-day availability of items; and 67% said that their favorite in-store technology is self-checkout.
“Looking forward, in-store experience will be hugely differentiating,” says ChaseDesign President Joe Lampertius. “In our survey, the No. 1 thing people miss about stores is the ‘inviting in-store atmosphere.’ Tie that to the fact that 63% of people just want to get out of the house, [and] you’re going to see a return to retail as the pandemic recedes. It’s in-store experience, combined with shopping convenience, that will provide retailers — and brands — with their strongest levers in creating differentiation.”
So what can retailers do to attract more of these revenge shoppers in 2021?
“A strategic focus on omnichannel capabilities is essential to keep consumers engaged in the long term,” Rawlinson suggests. “COVID-19 accelerated e-commerce adoption, and we should expect some of these online shopping and purchasing behaviors will become ingrained among consumers who have learned the ease of use and convenience of online shopping, while others will relish the ability to leisurely stroll through grocery stores, discovering new products and interacting with staff.”
2. Battle for the Omnicustomer
If we weren’t already in the omnichannel age for grocery shopping, we certainly are now, and that’s only going to accelerate, according to Rawlinson.
“Nearly one year later, that early reliance on e-commerce has expanded into a fundamental dependence on still-evolving omnichannel shopping experiences,” he says.
But grocery retailers looking to drive growth will have to create a shopping experience that delights the consumer who wants all of the options: click-and-collect, delivery or shopping in-store.
“We’ve seen a significant shift in customer behavior, with a greater dependency on on-demand delivery — not only same-day, but ASAP deliveries — bolstered by people who are working from home and companies who have extended stay-at-home working conditions,” notes Tom Fiorita, founder and CEO of Greenwich, Conn.-based Point Pickup, which offers a mobile app that matches drivers already on the road with same-day delivery orders. “We expect this growth to continue as companies and people prepare for a long pandemic, even beyond the year ahead.”
Of course, the challenge for grocery retailers is how to create omnichannel shopping experiences and supply chains that deliver customer service seamlessly and profitably. For now, building out this omni-fulfillment infrastructure is the most significant headwind ahead for food retailers.
In February, Canadian grocery chain Loblaw Cos. reported that growth in e-commerce sales had dragged down its operating income by CAN $100 million (US $78.5 million) during the fourth quarter. “The shift from in-store to online is expected to be a headwind to profitability over the medium term,” noted Galen Weston, CEO of Brampton, Ontario-based Loblaw Cos., when the quarterly financials were released. The company’s annual report noted that it will improve its profitability on e-commerce “over time” as the system grows in scale and grows more efficient.
In the United States, Walmart, Target and Kroger are employing best-practice efficiencies when it comes to weaving digital and physical grocery, according to Lampertius.
“The most innovative approach is what we’ve seen with Target, where the store has become a total commerce hub,” he says, “but the [grocery omnichannel] model will go through a huge evolution in the next six to 12 months to be sustainable. Many retailers were already working on thin 2%-3% margins, so the extra resources put toward curbside services caused retailers to lose money. Worse still, shopper satisfaction levels have dropped close to 30% from November 2020 to January 2021, and progress is needed.”
3. Center Store Revival
The pandemic has brought the center store back to life, after consumers returned to shopping previously unfashionable categories such as canned meats, boxed milk and frozen vegetables as a way to save money or even relieve pandemic stress.
Over the past year, sales of powdered milk shot up 82%, according to new research from St. Petersburg, Fla.-based Catalina, while baking/biscuit mixes were up 64%, breakfast drink mixes jumped 61%, flour increased by 55%, brownie/cookie mixes were up 45%, and canned pork and beans jumped 45%.
At the same time, frozen food sales grew in both dollars (up 21%) and units (up 13.3%), with nearly all types of frozen foods seeing double-digit sales increases, according to the “Power of Frozen 2021” report from the American Frozen Food Institute (AFFI) and FMI — the Food Industry Association.
“Constrained spenders will continue seeking out cheaper alternatives to the product options they would normally buy, opting for more value offerings and private label products, at least for their everyday staples,” Rawlinson says. “Meanwhile, brands and retailers have an opportunity to continue to deliver on the needs of consumers whose incomes remain unchanged by the pandemic and may even have more disposable income in 2021 after deferring the travel, dining and entertainment costs they anticipated in 2020. From higher-priced, sustainability-focused products for insulated consumers who are reinvigorated to follow eco-friendly practices, to premium specialty goods for those who want to treat themselves and others, 2021 presents opportunities for sustainability and premiumization.”
Retailers should also look at their perimeter departments to reimagine fresh and convenience, which has a different definition for the 2021 shopper.
“As many consumers took to working from home and cooking more, quick trips to the local grocery store deli have fallen,” Rawlinson observes. “In fact, meal combos (down 21.3%), deli pizza (down 15.9%) and prepared foods (down 9%) all saw substantial declines.”
Many retailers have also closed or shut down their cold and hot bars due to sanitation concerns, and masked-up consumers still wary of coronavirus germs aren’t in a hurry to return to serving their own mashed potatoes or salad from self-service food stations.
Lampertius suggests that retailers lean into new categories such as plant-based meats and dairy products.
“For example, 48% of shoppers find plant-based meats a confusing category to shop,” he says. “This remains an opportunity for grocers to bring forward shopper-driven category designs.”
4. Home Is Where the Heart Is
The pandemic consumer is getting used to being at home, mostly alone, and not spending money on travel, restaurants, theme parks or even Fourth of July celebrations featuring a big barbecue.
New McKinsey & Co. research shows that four out of 10 Americans believe that their finances won’t return to normal until the latter half of 2021 or 2022 and beyond. Only about 24% of Americans feel safe engaging in “normal” out-of-home activities. Consumers have also adopted many in-home alternatives, and many of these activities, such as online streaming and cooking regularly, are expected to stick post-COVID-19, according to New York-based McKinsey. These huge societal and cultural shifts — working out at home, cooking at home, working from home, celebrating holidays at home — are expected to become permanent as consumers realize the convenience and financial benefits of not commuting.
In addition, the American consumer is on a home-sprucing spree. More than 76% of homeowners in the United States have carried out at least one home improvement project since the start of the pandemic, according to a survey by Seattle-based home improvement website Porch. Additionally, 78% said they plan to undertake at least one home improvement project in the next 12 months. Finally, 61% of homeowners said that gardening or patio work was part of the project. Food retailers should be looking to leverage the opportunities in shoppers shifting much of their spend to home projects and home-based activities.
5. Permanently Enhanced Sanitation
Early on, most grocery retailers moved quickly to implement enhanced sanitation protocols to keep employees and shoppers safe. Nell Alverson, director of channel marketing at Greenville, S.C.-based technology solutions firm ScanSource, says that grocers should be looking at self-checkout, and if they already have it, they need to increase the number of stations.
“It’s important to accommodate the store layout to allow for the use of self-checkout and self-service kiosks, especially in areas like the deli and bakery where consumers now expect a much more contactless, self-service experience,” Alverson notes. “This is an expectation we will see for quite some time — if not permanently — and retailers and grocers alike need to adapt to stay competitive.”
Designing the grocery store of the future might also entail social-distancing best practices such as wider aisles, wider shelves and physical barriers, as well as hand-washing stations, heavy-duty air filtration and other measures.
Finally, the use of mobile entry or payment devices — Amazon One’s palm recognition innovation is one example — to decrease touchpoints or face time with employees is the future, so retailers should plan ahead now.
6. The New Workforce
A year since the beginning of the pandemic, one of the biggest challenges retailers face is anticipating the employment and staffing needs of an omnichannel business model, according to Will Eadie, chief revenue officer at Montreal-based WorkJam, a digital workplace platform.
“Organizations must create a direct line of communication from the head office to front-line workers if they want to react quickly to change,” Eadie says. “Continual communication, on-demand resources and real-time mobile training are no longer nice-to-haves; they are fundamental to protecting margins.”
Fortunately, technology has caught up to the demands of the workplace, according to Eadie.
“Digital workplace technology enables organizations to communicate with their workforce in an instant — targeting employees by role, geo-location and a number of other identifiers,” he notes. “If we’ve learned anything, it’s that businesses must know how to prepare for black-swan events of the future. They must build a foundation to mitigate the critical impact on the business by keeping close tabs on operations, communication, staffing and compliance.”
In five to 10 years, retailers may see the need to train staff on augmented-reality/virtual-reality shopping experiences and automated curbside pickup. Other workforce challenges may include refocusing the workforce on complementary tasks to automation, having the accurate driver capacity for delivery and training employees on customer service in a virtual environment.
As a result, retailers should turn to new technologies to quickly and efficiently train new and existing front-line associates to deliver exceptional customer experiences under these new business models, Eadie advises.
7. Grocery Infrastructure of Tomorrow
Before COVID, when consumers picked which food retailer to shop, that choice used to be centered on work hubs and transit routes, but the pandemic has pushed grocery spend out of busy city centers to residential areas, according to NielsenIQ data.
“This seemingly small shift has tilted the retail landscape,” Rawlinon asserts. “Today, some of the world’s highest-revenue grocery store chains are experiencing significant changes in demand across their network.”
This means that retailers need to consider taking permanent action to prioritize or rebuild retail infrastructure in areas that will matter most to the remote-working consumer of tomorrow.
In addition, American consumers aren’t just prioritizing new neighborhoods when they shop, Rawlinson points out.
“Store-level sales trends indicate that consumers may be prioritizing their local food stores to fulfill a wider assortment of needs,” he says. “Across U.S. cities analyzed, we see food channel sales driving growth to local stores. In postal neighborhoods that are experiencing overall sale declines, consumers have relied less exclusively on grocery stores to meet their shopping needs.”
It’s clear that many of these “temporary” shifts in food retailing are here for the long haul. As the second year of the COVID-19 era continues to challenge grocery retailers, the companies that put innovation and customer service first will achieve long-term growth and success in a post-pandemic world.