Can Restaurants and Retail Both Come Out of COVID in Better Shape?

Grocery stores are losing the food budget share gains they made related to the COVID shutdown of their peers in the restaurant industry, but the spending they absorbed from the associated work-at-home trend and some new buying habits are likely to stick around, new research from Barclays indicates.

The report, assembled by restaurant, retail and food stock analysts from the investment bank, should come as good news to a beleaguered U.S. restaurant industry as it projects a full recovery of in-store spending for the sector and then some—a bonus associated with COVID gains in consumer spending on food-to-go, which the analysts argue is more likely to stick around than the gains made in grocery as in-store dining resumes.

When the COVID lockdowns abruptly wiped out the in-store dining industry last year, Barclays estimated that a portion of the money consumers spent there was dispersed to grocery at a rate of about 8 cents for every in-store restaurant dollar and to takeout at about 5 cents per dollar. The report this week indicates grocery stores will give back just about all that as restaurants reopen while takeout and delivery of restaurant food retains all but a penny of that spend. That indicates restaurants, when fully recovered, will actually have gained dollar share at recovery vs. where the channel was before the pandemic.

“As we enter the post-COVID-19 recovery phase, the evidence suggests that restaurant operators are poised to have an outsized recovery, holding on to delivery [and] to-go gains as in-person dining returns,” the report indicates. “But grocers, while they are likely to give back some of their gains, could retain a portion that appears to have been captured from commuter spend, which we see as consistent with spend gains from working from home. In other words, total spend on food could remain elevated through the COVID-19 recovery.”

The Barclays report used credit card data during state reopenings over the past year and geolocation data in areas where consumer behavior is closer to “normal” to develop its perspective on emerging trends. It emphasized its findings were exploratory in nature, primarily to investigate seeming incongruency to confidence expressed by CPG brands that their gains in grocery could hold; and foodservice suppliers forecasting a quick recovery for restaurants in reopening communities.

Grocery stores can also come out of COVID in better shape than they went in, the report adds, as they stand to benefit from a prolonged disruption in work patterns and reduced commutes that are resulting in a greater percentage of their budgets available to support them. “Even as restaurants draw a pool of funds away from grocers, there are other buckets within consumer budgets—such as commuting—that could effectively fund higher grocery spend.”

In reopening places such as Florida, for example, grocery spend has remained elevated even as restaurants rapidly recover. “To us, this supports the idea that grocers could hold some gains even in the face of sustained delivery [and] to-go spend as restaurant reopenings roll out.”

Grocers have also testified to benefits of shoppers “trading up” during the pandemic months, as they found themselves with money that wasn't otherwise spent on travel, gasoline, parking and other expenses associated with work, and to a relative reduction in promotional spending.

Barclays believes the environment will become more promotional, potentially wearing away some of those gains. “Even if total food spend remains elevated, grocers could be poised for a more onerous environment," it said.