At a Crossroads: Progressive Grocer's 90th Annual Report

1. Addressing Asset Protection

Nearly a fourth of grocers responding to PG’s Annual Report survey chose “asset protection/security/crisis management” as one of the top five issues keeping them up at night. With the potential of supermarket shootings joining the threats that they’re already used to — chief among them theft and shrink — it’s no wonder that they feel concerned.

Theft from both employees and customers is a perennial problem in retailing, but organized retail crime in particular is growing in both scope and complexity, according to a recent report from the National Retail Federation. Criminal groups have become more brazen and are using new channels to resell stolen goods, which are often everyday consumer products that are easier to resell, as opposed to more expensive luxury items. Late last year, Target reported that organized retail crime accounted for more than $400 million in profit losses for the company. In response, the retailer has been increasing anti-theft measures in its stores while encouraging lawmakers to act on the issue.

Many grocers remain focused on how to get a better handle on overall shrink, and with the overarching goal of making their operations more sustainable, they seem to be making good progress in this area. Technology is helping, including computer vision systems, and robots roaming the aisles to give a bird’s-eye view of what’s going on in stores. 

2. Grocers Explore Alternative Revenue Streams

Grocery retailing has always been known as a low-profit business, but in recent years, more companies have been seeking alternative revenue in the form of fulfillment services, advertising, financial services and more.

Leading on this front is Walmart, whose global advertising business grew more than 30% to reach $2.7 billion in fiscal year 2023. The growth was led by Walmart Connect, the company’s retail media business that offers advertisers an opportunity to reach Walmart shoppers online, in the app and in its U.S. stores.

Additionally, in January, Walmart entered the last-mile fulfillment business for other retailers through a partnership with Salesforce. The retailer also runs a business e-commerce site for small- and medium-sized businesses and nonprofits. These initiatives are all part of Walmart’s future business model that has expanded from the three main pillars of e-commerce, financial services, and health and wellness to now include media, advertising and fulfillment services.

Kroger, another grocer that was an early adopter of retail media networks, is now partnering with Disney Advertising to share first-party shopper data that will target streaming audiences, starting on Hulu. The grocer’s retail media arm, Kroger Precision Marketing, will use its data science capabilities to help advertisers reach audiences and measure the sales impact of the initiative across Kroger’s stores, including sales and conversions by household. Look to see more retailers making use of customer data to grow their business in the coming years.

3. What’s Next for Grocery E-Commerce

This year’s Annual Report finds that a large chunk of grocers, especially smaller, independent operators, are still in the early or developing stages of omnichannel capability. Survey respondents chose online ordering, third-party delivery and mobile apps as their top focus areas for future omni strategies.

Of course, large national retailers such as Walmart and Kroger — and Amazon, which operates Whole Foods Market stores — are miles ahead in terms of omnichannel strategies, and pure-play online grocers like Misfits Market and Weee! continue to capture niche markets, but that doesn’t mean smaller players should exit the race.

In fact, some of the biggest retailers have chosen to change course in recent months as they react to learnings from pilots and newer initiatives. Walmart, for instance, said in February that it will close its e-commerce-only stores, since the company has added pickup and delivery operations to thousands of its full-service locations and has found that strategy to be sufficient.

In the meantime, Walmart and others will rely more on data and automation in the months ahead in an effort to create more efficient and predictable operations.

For now, as cost concerns remain top of mind for inflation-wary consumers, it seems that physical stores will continue to benefit regardless of retailers’ plans for online ordering. The most recent Brick Meets Click/Mercatus Grocery Shopping Survey, released in mid-April, reveals that online grocery sales were down 8% from the same period in 2022, with decreases in delivery, pickup and ship-to-home. At the same time, the average number of online grocery orders from monthly active users continued to dwindle from pandemic-era highs. Lower-income households were 34% more likely to use pickup over delivery in an effort to save money.

Sylvain Perrier, president and CEO of Mercatus, suggests that traditional grocers should focus on ways to maintain engagement with their existing shoppers. “Proven ways of growing your online revenue hinge on providing a great customer experience, encouraging your more loyal customers to use frequently, and benefiting from positive word-of-mouth advocacy that will attract others to use your online services,” notes Perrier.

Meanwhile, retailers are advised to align their buy-online-pickup-in-store and curbside pickup strategies to ensure that they’re encouraging shoppers to take advantage of these services according to need.

In short, dedicating resources to omnichannel development should be seen as an investment for traditional grocers — not as an expense — so that they can keep up with competitors in this increasingly digital landscape.

Even if online grocery has slowed down a bit for now, the future for this service still looks bright. The 2023 Brick Meets Click/Mercatus 5-Year Grocery Sales Forecast, released at the beginning of the year, predicts that overall e-grocery sales will increase to a 13.6% share of the market by 2027.

4. Retailers as Health-and-Wellness Destinations

Health continues to be a major priority for American consumers, with GlobalData analysts even predicting in February that shoppers would remain more influenced by their personal health than lower prices when buying food in 2023. Food retailers are uniquely positioned to help consumers manage their health through diet, medication and more. A key development of late is grocers’ ramped-up adoption of online SNAP/EBT initiatives that enable lower-income consumers to conveniently purchase healthy foods and have the orders delivered to their homes or made available for pickup at nearby stores.

Also proliferating are food incentive programs such as Double Up Food Bucks, which allows SNAP recipients to earn free produce when they buy fresh fruits and vegetables with their benefit at participating retailers, and produce prescription programs that offer shoppers with diet-related health risks or conditions access to fresh fruits and vegetables “prescribed” by health care providers. Such endeavors are part of a wider “Food as Medicine” approach at retail that also encompasses individual consultations and customized store tours with retail dietitians, as well as products and recipes targeting those with certain health issues like heart disease or diabetes via informational signage, shelf tags and QR codes.

Other ways that grocers are tailoring health offerings for customers is through internet platforms such as Sifter, which facilitates quick, easy product discovery and shopping, especially for those with special diet needs, including food allergies and food interactions with prescription medications, as well as eating preferences such as Mediterranean-style and vegan. 

Retailers like Kroger and Walmart are also encouraging time-strapped shoppers to visit their in-store clinics for basic health care services and their pharmacies for vaccinations, saving potentially time-consuming visits to doctors or hospital emergency rooms. In another important development, specialty pharmacies operated by Hy-Vee, Publix and others are offering services for those with chronic and complex health conditions; these services include infusion clinics that Hy-Vee is opening in various locations across its Midwestern footprint.

5. Inflation and Operational Expenses Remain Key Concerns

Higher costs experienced by both retailers and their customers have been a major concern in the past year, and it looks like this hindrance will continue for the immediate future, even as inflation starts to soften. Grocers responding to PG’s Annual Report survey said that they expect operational costs (including energy, fuel and supplies) and overall inflation to see the largest increases for the remainder of 2023. Unfortunately, these thorny issues are also cutting into both their gross margin and net profit.

In addition to these rising costs, retailers are staying up at night worrying about labor issues such as recruitment and retention, and supply chain disruption. While they have only so much control over these challenges, some are responding by raising wages to attract and retain higher-caliber workers, and a growing number of retailers are looking to diversify their supplier network and keep a closer eye on inventory. All the while, they’re trying their best to keep prices competitive.

Different studies have offered slightly conflicting views on how inflation has affected shopping behavior so far. According to the “2023 Consumer Research Report” by software company Salsify, three-fourths of consumers say they’re looking for discounts or free delivery and are buying less or putting off large purchases (the survey included shoppers in the United States, the United Kingdom, Germany, France and Australia). Meanwhile, the latest “U.S. Grocery Shopper Trends” report from FMI — The Food Industry Association, conducted by The Hartman Group, affirms that shoppers are aware of and often concerned about inflation but aren’t scaling back their orders dramatically. Instead, those affected by high prices are looking for deals where and when they can across the omnichannel realm.

A report from Coresight Research finds that grocery discount chains such as ALDI and Grocery Outlet have outperformed the broader grocery market in foot traffic over the past few months, and, of course, the private label sector has been another beneficiary, with store brands accounting for 18.2% of total U.S. food and beverage sales as of Feb. 19, up from 17.4% for the entirety of 2022.

According to the report’s authors, Research Associate Sujeet Naik and Sector Lead Anand Kumar, a key takeaway is that the inflationary pressures are persistent. “Although U.S. grocery inflation is forecast to ease gradually over the course of 2023, the fallout of high prices and consumers’ associated behaviors will linger for some time,” they write, “This implies we will see significant stickiness in grocery shopping priorities into 2023, with many shoppers favoring low-cost options over quality and convenience. We anticipate that dollar stores and discounters will be more sought-out channels again this year.”

Yet as grocers look to offer more discounts and promotions as a competitive response, they would be wise to balance this strategy by highlighting premium in-store offerings, such as special events, full-service departments and fresh and/or local selections. After all, these are the niches that help them stand out from more mainstream discounters.

One retailer responding to PG’s Annual Report survey says that he sees loyalty programs as the best investment in the next one to three years because, “with inflation driving price increases, this is a great incentive for customers to drive stickiness.”
FMI’s VP of tax, trade, sustainability and policy development, Andy Harig, recently n

oted that while he expects high food prices to remain the norm for most of 2023, the food industry is working on advancing technologies that will save time, money and resources to help get more affordable food onto consumers’ tables. This includes the use of driverless trucks, robotics, vertical farming, artificial intelligence, blockchain and more.

In just one example of artificial intelligence (AI) implementation, BJ’s Wholesale Club is partnering with Simbe to roll out the latter’s business intelligence solution, Tally, to all BJ’s club locations. The AI-powered robot will provide greater visibility into club conditions and deeper business insights, with the goal of ultimately improving operational efficiencies and enhancing the member experience.

Expect to see more retailers following suit with AI and other tools as they focus on better serving customers while cutting costs and improving efficiencies.

6. Innovations in Payment and Checkout

Contactless forms of payment are being accepted at an increasing number of grocery stores, while a few retailers continue to experiment with completely checkout-free technology. Further, in a more emerging field of payment, Giant Eagle made headlines in March by revealing that it’s installing Bitcoin ATMs (called BTMs) at 125 of its GetGo convenience stores in various Midwestern and Mid-Atlantic metropolitan areas.

In PG’s 2023 Annual Report survey, 31% of respondents chose “mobile wallet app” as one of the smartphone features that their customers value most when grocery shopping.

A recent PYMENTS.com study finds that while just 6.1% of grocery shoppers say they prefer to pay for their groceries with digital wallets, groceries now account for 62% of all purchases made using a digital wallet. Also, 4% of all in-store checkouts made by members of Gen Z are done using a digital wallet.

Perhaps the most aggressive retailer on the checkout innovation front is Amazon, which is expanding its Amazon One and Dash Cart contactless payment solutions to more Whole Foods Market stores across the country, the latest being 11 stores in the Denver market. Amazon is also making its Just Walk Out technology available to other retailers on a third-party basis.

East Coast retailer cooperative Wakefern Food Corp., meanwhile, has expanded its pilot with Israel-based checkout technology provider Trigo to include an autonomous convenience store at Wakefern’s corporate campus in Edison, N.J.

Whole Foods CEO Jason Buechel recently shared with news website Axios that he foresees a future in which grocery technologies like frictionless Just Walk Out checkout and Amazon Dash Carts co-exist with service provided by people, including store team members and “foragers” who scour local farmers’ markets and other community sites for new products. “I see a hybrid that takes place,” he noted. “I want to be sure we provide all the options that customers are looking for.”

7. Plant-Based Options Grow

With the Plant Based Foods Association (PBFA) reporting earlier this year that plant-based food dollar sales grew 6.6% in 2022 to $8 billion, it looks like plant-forward eating is here for the foreseeable future as consumer eating patterns evolve in response to health, animal welfare and sustainability imperatives.

Suppliers and retailers are continuing to respond to this demand, with the result that shoppers now have more choice than ever when it comes to plant-based offerings. In the protein case, for instance, not only are there more chicken, pork and seafood analogues to join those already long-established meatless beef-style burgers and crumbles, but items are also available in a variety of formats across the store: fresh, frozen and even shelf stable. Meal kit companies Green Chef and Sunbasket offer options free of animal proteins, while plant-based charcuterie is starting to spark interest.

Product innovations in this space include items from the very busy Impossible Foods: Impossible Beef Lite, boasting no trans fat or cholesterol, and 75% less saturated fat, as well as 45% less total fat, than 90/10 lean beef from cows, and three plant-based chicken SKUs, Impossible Spicy Chicken Nuggets and Patties and Impossible Chicken Tenders, thereby doubling the company’s plant-based chicken portfolio to six products. Meanwhile, equally busy rival plant-based brand Beyond Meat has come out with Beyond Pepperoni and Beyond Chicken Fillet for foodservice, following its successful rollout of Beyond Steak.

There’s a whole plethora of products out there beside meat alternatives, however. According to the PBFA’s report, plant-based categories saw considerable unit growth in the following five categories: creamers, eggs, protein powders, ready-to-drink beverages, and dips and spreads.

So, while recent stats suggest that plant-based meat consumption may have peaked — dollar sales for combined refrigerated and frozen alt meats were down 8.9% year over year, according to March 2023 data from Circana — there’s no reason to believe that plant-based eating will end up a flash in the pan.

8. Power to the People

There’s no “i” in team, as the saying goes, but in today’s economy, having a full and engaged roster of team members requires a certain amount of personally important compensation and benefits. Following the era of the essential worker in 2020 and 2021 and The Great Resignation in 2022, grocery employers certainly recognize the importance of recruitment and retention.

According to The Food Retailing Industry Speaks survey published by FMI — The Food Industry Association, retailers continue to invest in their associates. An overwhelming 86% of retailers are offering higher compensation, and 72% are offering improved benefits.

In such a tight labor market, benefits go well beyond previously standard health coverage and time off. As workers demand flexibility, grocers are meeting that need with more shift options and tech-driven scheduling tools. Schnuck Markets, for example, has broadened its flex force employment options that allow associates to select shifts and store locations that best align with their schedules.

In a high-stress decade, employers are also ramping up their mental health-and-wellness benefits. Walmart, for its part, recently introduced a new workplace course that guides managers in helping workers who are struggling with mental health issues.

Even as jobless claims are starting to tick up again, grocery industry employers continue to invest in engagement to maintain their workforces and build their businesses for the future. Whether it’s offering more perks for e-commerce gig workers, expanding paid parental leave to full-time store associates or continuing hybrid work models at corporate offices, efforts to maintain individual workers’ satisfaction are pivotal in staying competitive.

9. Push for Personalization

With today’s consumers being constantly inundated with new products, advertisements and promotional offers, next-generation personalization has been adopted by many grocers in an effort to stand out among a crowded field. Where retailers once used generic segmentation to offer personalization, more are now moving toward an individualized approach.

Personalization has taken on many different forms in the grocery industry, but providing targeted communications, product recommendations and more is the name of the game in this technology-forward day and age. Sujeet Naik, research associate at Coresight Research, asserts that proper personalization, especially in terms of promotions and recommendations, can help food retailers increase both sales and basket size. Data, consumer analytics and machine-learning technologies can give grocers the ability to tailor these things at an individual level to create true customer satisfaction.

While privacy concerns have cropped up for shoppers in recent years, 90% of consumers still appreciate personalized offers, according to customer experience management company Merkle. As Shekar Raman, CEO and co-founder of Birdzi, notes in an online Progressive Grocer column, true personalization has a greater effect on long-term customer relationships, since the shopper is consistently shown effective messaging and deals.

11. Private Label Builds on Its Popularity

As inflation surged over the past year, driving up CPG prices, customers stepped up their purchases of the affordable options offered by store brands. Using data from Circana, PLMA reported in April that store-brand sales were maintaining double-digit growth rates and gaining market share in both dollars and units. During the first three months of 2023, store-brand dollar volume rose 10.3% on a year-over-year basis, compared with 5.6% for branded products.

As a result of this heightened consumer interest, retailers are introducing even more new store-brand offerings. Among those that have recently done so are Albertsons Cos., which has expanded and redesigned its health-conscious Open Nature line, now featuring an updated logo and 12 new dairy-free products; Dollar General, which has launched the OhGood! collection of gummy vitamins and supplements, as well as reformulating and rebranding its super-premium Nature’s Menu pet food brand and beefing up its store-brand skin and hair care assortment; and Weis Markets, which has debuted the Weis by Nature ice cream brand with 11 crowd-pleasing flavors.

As evidenced by these examples, store brands have moved far beyond their humble generic origins to become items able to compete on quality with premium national brands — but not at premium prices.

“We believe every customer should have access to affordable organic options that support healthy lifestyles and diverse shopping preferences,” said Jennifer Saenz, EVP and chief merchandising officer at Albertsons, when the grocer unveiled a new visual identity for its O Organics brand in March. “Over the years, we have made organic foods more accessible by expanding O Organics to every aisle across our stores, making it possible for health- and budget-conscious families to incorporate organic food into every meal.”

Offering shoppers value-priced premium products is a winning proposition for customers and grocers alike. In 2018, O Organics became a $1 billion brand and one of the nation’s largest brands of USDA Certified Organic products. Today, it’s the leading organic brand sold at Albertsons banners, boasting more than 1,500 products in its assortment.

12. The Sustainability Imperative

Along with this year’s Earth Day came a slew of reports from grocers large and small detailing their efforts to help protect the planet — and they mean business. Sprouts Farmers Market, for example, is literally laying the groundwork for a more sustainable future by contributing food waste diverted from its stores to create compost and feed for regenerative farms in Tennessee and Missouri. Kroger, meanwhile, is helping to reduce food waste by partnering with Upcycled Foods Inc. to create private label packaged breads that contain 10% upcycled grain.

More grocers than ever are signing on to curb food waste through the Flashfood app, and others, including Walmart, Amazon and The Giant Co., are rolling out electric delivery vehicles that avoid standard gasoline usage and prevent harmful greenhouse-gas emissions. Conserving natural resources is on the agenda for Fareway Stores, which is building a 1-megawatt solar facility near its headquarters, and also introducing electric vehicle-charging stations at several of its stores throughout Iowa.

These examples of supermarket sustainability efforts just scratch the surface of an issue that has become table stakes for the industry. Consumers are becoming hyper-vigilant about identifying sustainable practices, with Shopkick recently finding that 55% of shoppers consider those practices when making a purchase. Additionally, Kroger’s retail data science, insights and media arm, 84.51°, reports that 51% of shoppers are especially concerned about sustainability related to items at the deli, meat and fish counters, further proving that now is the time to walk the walk when it comes to doing right by Mother Nature.