Are we over the inflation hump?

Sales expectations for 2023 are not quite as high as they were for 2022, but most retailers expect both dollar sales and unit volumes to increase in center store categories, according to the Supermarket News 2023 Center Store Trends Survey.

Retailers continue to rely on product innovation, merchandising strategies, and delivery/pickup to help boost center store sales, while they also remain focused on competitive pricing in an uncertain economy.

The survey, conducted in late August, polled 179 retailers, wholesalers, brokers, manufacturers, and others in the industry about trends in center store category performance and their outlook for the year ahead. Among the findings were increased concern about the competitive threat of dollar stores and a reversal in the online sales growth trajectories of center store vs. fresh categories.

Inflation continues to factor into the forecast, although its impact on driving sales gains may be waning. Respondents on average expect center store dollar sales to increase by about 3.5% in 2023. A significant percentage of respondents, however — 15% — said they expect dollar sales to decline in 2023 vs. 2022, up from 12% who had that expectation a year ago.

Driving unit sales amid high price inflation has been a significant challenge across the industry, and it appears that it will continue to be a concern. Although survey respondents on average predicted a 1% increase in unit sales in 2023, nearly a third of respondents — 31% — said they expect unit sales to decline.

Inflation impacts shopping behavior

Inflation has been the impetus for higher dollar sales for most retailers and wholesalers, according to the survey. Nearly three-fourths of respondents — 73% — said inflation increased their sales at least somewhat this year, including 14% who said inflation drove sales gains of 10% or more.

One participant said center store sales at his supermarket have been up about 10% to 15% on average, about half of which has been driven by inflation.

“Customers have definitely changed the way they shop,” that person said. “If a family has $200 to spend each week, they can’t spend $250.”

They also said customers are tending to buy only what they need for the week rather than stocking up.

“Customers are now shopping the aisles looking for ‘sale’ tags or ‘temporary price reduction’ tags,” the retailer said. “With inflation, everyone is looking to save money, and nobody wants to pay full price.”

Inflation is also impacting brand loyalty in center store, they said.

“Customers will change their cereal brand on a weekly basis to buy the cereal on sale,” they said.

Amid rising prices, consumers also continue to switch from brand-name products to private labels, the survey found, with 84% of retailers and wholesalers reporting that customers are trading down to private brands. That’s only a slight decrease from the 87% who said consumers were trading down a year ago.

Retailers and wholesalers, meanwhile, continue to invest in updating and expanding their private label assortments, with 39% saying they plan new-product innovation in these brands. Many of the planned new products are in the specialty, better-for-you and natural/organic segments. That includes 33% who plan to update or expand their natural/organic private labels, and 10% who said they plan to add private labels in new product categories in center store.

Driving center store sales

When it comes to growing sales in center store in the year ahead, retailers said they are counting less on product innovation, which was cited as a strategy by 37% of retailers and wholesalers. That’s down from the 49% who listed this strategy a year ago.

Merchandising strategies and ecommerce delivery/curbside pickup, both of which were cited by 39% of retailer/wholesaler respondents, were more popular strategies this year than last year, according to the survey.

Several of the survey respondents said pricing and merchandising initiatives were keys to driving sales in the next 12 months. These initiatives include reducing product sizes to avoid increasing retail prices, offering more discounts and promotions, and focusing on private labels.

One retailer said it seeks to minimize the impact of retail price increases through multiple strategies, often at the expense of profit margins.

“We have also partnered with many of our broker/vendor/manufacturing partners to offer our customers long-term temporary price reductions, giving customers several weeks of savings,” he said. “This program has been highly successful as our customers now look for these yellow dangler tags when shopping the aisles.”

Another retailer said his store eliminated mailers and shifted the cost savings from doing so into providing “deal of the week” discounts for customers.

“Center store sales have been doing great,” he told Supermarket News.

One survey respondent said their company’s sales-driving strategies would include “making product in general easier to locate and adding discounts and coupons.” That retailer also said it is exploring artificial intelligence-based predictive shopping models based on customer demographics.

A few retailer respondents said they plan to continue to focus on optimizing their assortments. One said they plan to “renovate the shelving, do a better distribution according to ABC sales [a method of ranking product performance], and remove obsolete or ‘dead’ products.” Another retailer cited “the usual weeding out duds and repositioning stronger items.”

One retail respondent, who said they specialize in perishables, is planning to add more center store items in the perimeter of the store to help drive sales.

A consultant who answered the survey agreed with that strategy, saying that “cross-merchandising provides the opportunity to add at least one item to the cart of each customer, thereby increasing sales and profits.”

Encouraging home meal prep

One retailer respondent said they are seeking to inspire customers to cook meals at home, and focusing on the economic value of home cooking vs. dining out. Promoting meal solutions was also a strategy favored by some broker and manufacturer respondents.

One sales agency respondent said retailers need to recognize the struggle that families face in assembling quick, affordable, nutritious meals. They suggested a weekly email that highlights how certain sale items can be combined to create a meal.

“For example, send an email stating that ‘Ground turkey is on sale and makes a great taco or burrito filling,’ or ‘Did you know adding beans can stretch your dollars and add nutrition and fiber?’” they said.

Finish the email message by giving the customer a recipe with the option to add the ingredients to an online shopping cart or shopping list, the sales agency respondent suggested.

Shifts in the competitive landscape

A notable change in this year’s survey was in how grocery retailers view the threats posed by competitive retail channels. Retailers were more concerned with competition from low-priced dollar stores, and less concerned with the threat of club stores, which tend to attract higher-income customers. In fact, 24% of retailers and wholesalers cited dollar stores as a threat this year, outpacing the 20% of retailer/wholesaler respondents who cited Walmart and other mass merchants.

Online retailers remained the second-most formidable competitors in the minds of respondents. They were cited by 22% of retailers/wholesalers and 21% of respondents overall.

Pricing, private label and specialty products remained the most popular strategies for competing against these other channels.

In comments accompanying the survey, several retailers mentioned offering unique, local products not found anywhere else, including private label items, among the strategies to compete with alternative retail channels.

“Buying local produce, sauces, unique items and specialty foods,” said one retailer.

“Promote our own brand; it’s only available at our locations,” said another.

Pricing strategies also were a major focus for retailers when it comes to battling competitors, although one cautioned not to “go head-to-head with mass merchants or hard discounters.”

Seeking online opportunities

One retailer cited the potential to drive increased sales by leveraging ongoing interest in ecommerce, and said they are adding online shopping with no fees as a sales-driving strategy in center store.

In fact, the survey indicated that the online sales growth of fresh foods has been outpacing the online growth of center store products, a reversal of the 2022 survey results. This year, only 26% of retailer and wholesaler respondents said their customers were buying more center store products online, vs. 33% who said customers were buying more fresh products online.

Last year, 35% said center store products were leading the way in online sales growth, followed by 23% who said customers were buying more fresh foods online.