There have been three major recessions in the new millennium, but the latest one has a different feel to it for the grocery store market. Grocers have been able to capitalize on all of them: the Dotcom Recession, the Great Recession and the COVID-19 Recession. However, the most current one has changed the landscape, and a recent study released by FMI, the Food Industry Association, in partnership with Coresight Research, outlines how store owners can capitalize.
Perhaps the biggest new wrinkle according to the study titled U.S. Grocery Retail and Recessions: Learnings from the Past and Recommendations for the Future is the vast expansion of discount chains like the Dollar Store and Dollar General. The research looks at the growth of Dollar General, which has increased its revenues sevenfold, and the Dollar Tree, which has grown its revenues 15-fold, since 2000. In a 20-year span, the number of discount stores have gone from 6,729 to over 34,000. Aldi, Lidl and Grocery Outlet also have upped store coverage.
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The e-commerce market has been created and is now well established, forming another factor during this recession. According to the report, online food and beverage sales totaled $77 billion in 2022, and a higher prevalence of online grocery means a greater strain on retailers’ profitability. Moreover, Coresight Research continues to see multichannel retailing as the dominant format for grocery for the foreseeable future.
Demand has exploded. The study says consumers have grown their spending in grocery retail on top of the grocery boom of 2020, which puts some retailers in a position to reinvest in maintaining competitive prices.
Related: Dollar stores pose increasing threat: report
To further lockdown success during the COVID-19 Recession, the study makes the following recommendations:
Retain long-term market share at the expense of margins: Retailers should be prudent with passing cost inflation on to their customers, even if that means some erosion of margins in the short term
Strengthen alternatives to eating out: Recessions tend to prompt a relative outperformance for grocery retail versus food away from home as some consumers switch some restaurant spending to at-home dining. Grocery retailers can capitalize on this scenario by developing meal solutions and shopping experiences designed to match the convenience and indulgence of out-of-home eating
Capitalize on the lipstick effect: As big-ticket spending comes under pressure, consumers typically turn to small treats to perk up their day or week. Grocery retailers have an opportunity to tap this lipstick effect
Build value perception through pricing: Precision pricing will be an important strategic lever to increase profits and market share
Expand private label: As inflationary pressures persist, private label is gaining ground over name brands. Retailers should double down on their private-label push by investing in product improvements, promoting unique attributes and maintaining a strong product pipeline
Drive loyalty through social responsibility: Retailers can build stronger and deeper relationships with consumers and communities by launching initiatives that reduce the likelihood of food insecurity
Target reductions in food waste: Keeping in mind the environmental impact of food waste, it is important that grocery companies reduce their in-store waste, such as through donations and recycling programs
Leverage loyalty programs: Loyalty programs are pivotal in increasing customer retention and driving customer engagement during an economic downturn
Tap margin-enhancing opportunities: Retail media and other data monetization opportunities are levers that retailers can pull to counter falling prot margins impacted by rising cost inflation and online sales
Data monetization: As supply chain management solution providers have technology expertise, they can help retailers to monetize data — sell data to consumer goods suppliers — which presents a growing opportunity to increase incremental prot while also realizing the benefits of data sharing (such as optimizing inventory management and improving supply chain operations by providing suppliers with access to valuable data)