Channel Changing in the ‘New Abnormal’

While virtually all U.S. grocers have seen their sales rocket during the COVID-19 crisis, the thrust has not necessarily been distributed equally, sources and new data indicate. Patterns have been especially fluid, with shoppers careening from frenzied stocking-up in stores to a new urgency for reliable e-commerce solutions and store-trip patterns influenced by perceptions of availability, governed by social-distancing measures and in some cases fueled by stimulus checks. Shoppers are now approaching the effects of a damaged but reopening economy that some are calling the “new abnormal.”

These changes have already triggered abrupt effects on food shopping and consumption patterns going into the crisis, marked by slow growth among legacy supermarkets, faster growth by niche players and limited assortment stores, and tendencies from consumers to “shop around” and eat on the go. The overarching convenience and value trends that sparked much of this activity have continued in the pandemic but are expressed quite differently in the COVID era, sources say.

Have Discounters Been Infected?

An emphasis on value, quality and a quick and simple shopping experience has been a winning combination for small-box discounters such as Aldi, Lidl, Dollar General and Trader Joe’s, which have enjoyed years of increasing share and the benefits of a consumer reassessment of the discount model. But social distancing and store capacity constraints by their nature pose a larger threat to smaller stores than their larger rivals, and those with more developed omnichannel infrastructure—typically, larger grocers with larger stores and more robust click-and-collect and delivery options—are winning on that front, sources note. Kantar Worldpanel data from Europe, for example, noted that conventional supermarkets, for the first time in years, were growing faster than their efficient little rivals in places such as the United Kingdom, Germany and Italy as the pandemic hit.

A similar pattern has occurred in the U.S., Simon Johnstone, a Boston-based director of retail insights for Kantar Consulting, said in a recent interview with WGB.

“The problem is the smaller stores are hamstrung by the distancing guidelines, whether they are governmental or their own guidelines for social distancing. They are limiting five people to 1,000 square feet in their stores. So because of that smaller box size, it’s going to be a more difficult place to go,” Johnstone said, adding that the relative struggles of smaller stores to benefit the same degree as their larger rivals could been more acute in dense areas where shopping options are more plentiful.

Grocers with well-developed omnichannel shopping platforms in the meantime are moving to reclaim a greater share of a shifting perception of “value” from discounters, Johnstone adds. While Lidl (through Shipt and Boxed) and Aldi (Instacart) have nascent—and likely growing—online shopping options, Trader Joe’s doesn’t do any e-commerce, and Dollar General is focused mainly on nonperishable replenishment. All of them, Johnstone notes, rely on the store as the “heart of their proposition,” and those options have been relatively more compromised as the pandemic has continued.

“The new options for fulfillment are really key here, because if you look at the way discounters have been stealing share, it’s been on the proposition of price and value. But we’ve seen things switch gears, where what people see as value now are fulfillment options that for [discounters] are just not there,” Johnstone says. “The discounters aren’t capable of matching the big guys from a fulfillment options flexibility and agility perspective. So as long as these new fulfillment options are still valued and people are still thinking about safety and hygiene and social distancing, then I certainly think that over the short term, maybe for this year and into next year, that is going to help [larger grocers] regain some sort of competitive edge that they’d lost.”

Johnstone added that he anticipated smaller stores would continue to experiment with e-commerce. “They’re taking e-commerce and fulfillment a lot more seriously. I think we’re going to see increasing trial and test-and-learn in that space.”

All is hardly lost for these alternative concepts. Aldi this week reminded shoppers of its price leadership in what appears to be an increasingly gloomy outlook for shoppers between price inflation and rising unemployment. And it along with Trader Joe’s and Lidl, have largely gotten good marks from shoppers during the crisis. Dollar General’s massive store footprint has made it an essential convenience for shoppers who may not want to travel to larger stores during the pandemic.

A spokesman for Lidl told WGB the chain during the pandemic was seeing benefits of “investing heavily in safety and social distancing, and overall we see that customers appreciate the steps we’re taking to keep them safe.” Johnstone suggested doing just this was a wise strategy, particularly for stores such as hard discounters that rely on frequency of visits.

Aldi is also finding ways to address compromised stores in an efficient way, introducing in some European outlets an automated capacity technology that counts customers and alerts shoppers via a “digital traffic light” at the entrance. An Aldi U.S. spokeswoman declined to comment on whether the retailer was considering a similar rollout of the technology, from the German tech company Sensalytics, in U.S. stores.

Stemming the Distancing Effect

Exclusive analysis of grocery foot traffic for WGB by the location analytics firm Placer.ai provides indications that some food retailers have been better than others at limiting the traffic declines that came with the onset of social distancing measures following an initial period of stock-ups that defined the opening weeks of the pandemic.

Location data analysis shows the degree to which various retail brands maintained visits following initial stock-up. Graphic courtesy of Placer.ai

This analysis revealed something of a mixed bag. Conventional supermarkets with multiple fulfillment options—Albertsons and Kroger to name two—lost less traffic to distancing restrictions than some rivals such as Whole Foods Market and Trader Joe’s. It also noted Aldi, Lidl and Save A Lot were relatively strong in retaining foot traffic.

“Albertsons rode strong growth in late 2019 and early 2020 into an exceptionally strong visit performance during the pandemic, especially compared to other brands,” Placer said. “At its lowest point, weekly visits dropped just 11% under the baseline for the period from January 2019 through April 2020. And this week was further impacted by low visits on Easter Sunday.

“Kroger, too, has yet to see weekly visits drop below 14% below the baseline even while competitors are seeing decreases of as much as 50% or more,” Placer noted. “The Kroger example actually helps emphasize the boost that traditional grocers have received from a crisis that has only reinforced their central importance to their respective communities.”

Credit and debit card sales data provided to WGB by Commerce Signals indicate robust growth for food stores and discounters in general, although their character is different when looking the division between online and offline sales and their weekly cadences.

From the period between March 1 and May 2, Commerce Signals indicates discount stores (which includes mass merchants such as Walmart as well as food discounters such as Aldi) grew sales by 23.3% in all channels—consisting of a 6.7% decline in sales at stores and a 122.1% increase in online purchases.

Food stores, according to Commerce Signals, saw 23% all-channel growth and gains of 19% offline and 93% online over the same period.

Week by week, the data shows food stores seeing weekly gains as high as 54.48% in the week ended March 21. Since the week ending April 11, discounters have posted higher gains than food stores, seeing sales highest for the week ending April 25 when sales soared by 48.69%. Food stores saw sales grow by 27.2% that week.

Those trends were reflected as Walmart revealed phases of its U.S. sales performance during its fiscal first quarter, which ended April 30. Officials described initial sales strength behind a surge in essentials purchases, a second phase in which consumers shopped for goods and activities they could do while staying at home, like puzzles and sewing machines, and finally a surge in higher-ticket discretionary items toward the end of period when consumers were spending stimulus checks.