Inflation pulls grocery retail food-spending dollars back to restaurants

Consumers’ inflation concerns have pushed grocery retail back below the restaurant sector in the market-share seesaw for food spending dollars, according to FMI-The Food Industry Association’s 2023 U.S. Grocery Shopper Trends study.

At the same time, traditional supermarkets have largely held their ground versus other grocery retail channels but lost some share to mass merchants, based on findings from FMI’s report, released Tuesday and prepared with research partner The Hartman Group.

The onset of COVID-19 in February 2020 reversed a decades-long trend of market share gravitating from retail to foodservice, which ended up benefitting grocery stores at the expense of restaurants. That edge in share flipped back to restaurants for most of 2021 and then evened out by the year’s end before shifting decidedly to foodservice, as grocery price inflation surged during 2022 and remained elevated into 2023.

Market share for grocery retail and foodservice stood at roughly 50-50 during the 2021-22 holiday sales period (November to January) but diverged thereafter, with food stores declining and restaurants rising. As of February 2023, grocery retail accounted for 47% of overall food spending (around $81 billion in monthly sales), compared with 53% for foodservice (about $93 billion monthly), U.S. Census Bureau data cited by FMI show.

According to FMI’s shopping trends tracker, weekly grocery spending per household averaged $164 as of this past February versus $148 in February 2022 and $142 in February 2021. The latest estimate marked the highest figure since the height of COVID panic buying in March 2020, when weekly grocery spending jumped to $161 from $121 in February 2020 and an average of $114 for all of 2019.

Elevated inflation has played a big role in hoisting food spending levels, and consumers know it. In a survey of over 2,100 primary grocery shoppers, part of the 2023 Grocery Shopper Trends research, 71% of respondents attributed price hikes on certain items to increased grocery spending. They also cited choosing more expensive brands (54%), buying a larger amount of food (17%) and purchasing higher-quality items (15%) as driving up their grocery expenditures.

In perceiving year-over-year grocery spending, 68% of those polled said their dollar outlay increased as of February 2023, compared with 65% in October 2022, according to the study. Just 7% reported decreased grocery spending versus a year ago, while 25% said their spending stayed the same.

Among shoppers concerned about high grocery prices, 32% said in February that they’re buying fewer items, down from 41% in October—coinciding with inflation levels starting to relax. Consumers also have noticed elevated restaurant pricing, with 85% at least somewhat concerned and 55% very or extremely concerned. Fifteen percent of shoppers indicated they eat out less often, which usually translates into buying more groceries, FMI’s report noted.

“Our national survey reveals persistent consumer concern about food and beverage prices, as the weekly spend for groceries increased in late 2022 and early in 2023,” FMI-The Food Industry Association President and CEO Leslie Sarasin said in a statement. “To address higher prices, shoppers are visiting more stores and seeking deals to stretch their dollars but are now less likely to cut back on the number of items purchased compared to six months or a year ago. This is an opportunity for our industry to continue connecting with shoppers on food-inflation-mitigating solutions.”

Indeed, grocery shoppers are looking beyond the conventional supermarket to rein in their food retail spending—especially to mass retailers.

Through February, 38% of consumers surveyed cited supermarkets as their primary grocery store, down from 40% in 2022. That continued a mostly declining trend for supermarkets, with more than half (52%) naming them as their main grocery destination in 2014 and the percentage falling to 50% in 2015, 49% in 2016 and 47% in 2017, before hitting 49% in 2018 and 2019 and then dropping again to 44% in 2020 and 39% in 2021.

Meanwhile, 33% cited mass merchants as their primary grocery store, up from 30% in 2022. That percentage had climbed from 24% in 2019 to 26% in 2020 and 33% in 2021.

Also gaining favor as a primary grocery destination were warehouse clubs, from 5% in 2019 to 9% in 2022 and 2023. The percentage of shoppers naming online-focused retailers as their main grocery shopping venue has leveled off, rising from 2% in 2019 to 4% in 2020 and 6% in 2021 but holding at 6% in 2022 and 5% so far in 2023.

“Primary store receives an average of 74% of a shopper’s grocery spend, a return to the pre-pandemic levels of early 2020 and an increase over the past two years [70% in 2022 and 2021],” FMI’s report stated. “Shoppers who consider supermarket and mass as their primary store spend 76% of their grocery spending within that channel, a figure that is similar to last year for supermarkets but is an eight-point increase for mass from February last year. This suggests that mass may be improving its ability to fill needs previously met by supermarkets.”

For in-store and online purchases, as of February 2023, 83% of consumers polled said they shop supermarkets “almost every time” or “fairly often” for groceries, up 2% versus a year ago. That compared with 66% for mass merchants ( 1%), 41% for club stores (-3%), 30% for limited-assortment grocers (-5%), 28% for dollar stores (-3%), 25% for drugstores (-6%), 25% for natural/organic grocers (-4%), 24% for online-only/online-primarily retailers (-6%), 19% for convenience stores (-6%) and 19% for ethnic grocers (-5%).

“Overall, the competition between supermarket and mass channels continues to heat up as the latter builds on momentum gained from pandemic-driven reshuffling of shoppers’ channel preferences,” FMI observed.

The online channel has largely plateaued in the grocery arena but continues to snatch a healthy percentage of spending, the study’s findings show. As of February, online grocery services represented 18% of total weekly grocery spending, down from 19% in February 2022, 21% in February 2021 and 28% in the pandemic-driven peak in March/April 2020. The latter marked a surge from 11% in February 2019 and 15% in February 2020.

Frequency of online grocery shopping, too, remains well above pre-pandemic levels despite leveling off over the past couple of years. As of February, 63% of those surveyed said they shop online for groceries “at least occasionally,” compared with 64% in both February 2022 and 2021 yet up from 49% as of late March 2020. A smaller percentage of consumers now go online for the vast majority of their grocery shopping, with 10% doing so “almost every time” as of February 2023, down from 15% in February 2022 and 17% in February 2021 but still higher than  8% in late March 2020.

“The group of ‘online-reliant’ shoppers, who doubled over the course of the pandemic, have clearly substituted some of their online reliance for in-person grocery shopping,” FMI said in the report. “Still, retailers should note that concerns about COVID-19 continue to drive at least a small minority of shoppers to avoid in-store shopping and to continue to shop online ‘almost every time.’ At the same time, rising prices now also play a role in supporting online shopping as a cost-saving strategy.”