Declared an essential business when COVID-19 was deemed a pandemic, grocery was able to keep the doors open to feed their communities—but to the tune of $24 billion, FMI–The Food Industry found in a report released March 31.
According to FMI’s Receipts from the Pandemic: Grocery Store Investments Amid COVID-19 and the Resulting Economics of an Essential Industry report, the food retail industry invested $24 billion in pandemic-related expenses since March 2020, including increases in payroll, employee benefits, personal protection equipment and other safety expenses, cleaning and sanitation.
FMI surveyed 52 member companies, representing about 40% of the food retailing industry, from Feb. 24 through March 15, and President and CEO Leslie Sarasin offered an analysis of the results during a media call the day the report was released.
Click through for a closer look at the costs retailers incurred in the past year, as well as an outlook for what’s ahead.
Ensuring grocery stores remained a safe place for customers to shop and employees to work was key during the pandemic. As such, FMI found that food retailers spent more than $1 billion on PPE and other safety expenses, including $65 million on hand sanitizer, $160 million on gloves, $225 million on masks and visors, $20 million on safety signage and $110 million on plexiglass dividers.
“In addition to all that, grocers spent $2 billion on increased cleaning and sanitation hires, or even external partners to handle that for them. And more than $400 million on cleaning and sanitation products,” Sarasin said.
And while more vaccines are being administered every day, safety still remains a priority for retailers. “I think it’s fair to say that while we’re beginning to see some light at the end of the tunnel, we know we still have a long way to go, so we’re not letting our guard down by any means. We’re continuing to take every step possible to keep our employees and our customers as safe as possible,” Sarasin said.
COVID-related expenses also include accommodating consumer demands for alternative means to shopping in-stores. Through its survey, FMI found retailers have spent nearly $450 million on technology to accommodate online shopping, and $1 billion in delivery services or partnerships with third-party providers to accommodate online orders.
“The investments that retailers have had to make in their digital platforms—the technology and the personnel that are necessary to be successful in that space—I don’t think we are going back on that. That’s going to continue,” Sarasin said. “Hopefully, over time, we’ll get better at it and be able to learn ways to do it more efficiently. I think those types of expenses are going to be with us for some time to come.”
The food retail industry was one of the few to increase their workforce amid the pandemic. FMI found grocery stores increased their total number of employees by 10%, or about 500,000 individuals. This, in turn, led to an increase in payroll costs of about 12%.
“The industry has helped to provide full-time, part-time and bridge work to millions of people in the U.S. during this crisis,” Sarasin said. “Between 2019 and 2020, food retailers added more than 350,000 part-time jobs, an increase of 14%, and more than 100,000 full-time workers, an increase of 5%. And there are still many more jobs available.
“If the food industry could fill all the openings they have available today, they could likely add another 100,000 additional jobs this year,” she added.
The industry, according to FMI, also paid nearly $40 billion in employee benefits, a 14% increase over 2019, and almost $10 billion in bonuses throughout the pandemic.
Revenues and Profits
Backed by an increased demand for food-at-home, grocery sales increased by 11% from 2019 to $1 trillion, but Sarasin noted, “while sales increased, profits didn’t rise to commensurate levels.”
Inflated costs of goods caused revenue to drop by 70%, resulting in a gross margin of 30%. When the additional $24 billion for pandemic-related expenses is factored in, FMI estimates overall industry profit was actually $6 billion.
Retailers surveyed by FMI, Sarasin noted, reported on average a 1.44 percentage point increase in profits to 2.5% of total sales.
“Importantly, the companies we surveyed don’t anticipate sales increases seen during 2020 to continue throughout 2021. … And as consumer spending and food consumption habits begin to reflect the pre-pandemic environment, we’re expecting to see a natural decline in sales this year,” Sarasin said.
Sixty-three percent of respondents expect sales to decrease from 2020 levels, while 13% expect sales to remain flat and 23% expect to see an increase. Meanwhile, 75% forecast a decline in profits, and 10% expect to see an increase in profits.
“Many of the added pandemic-related expenses aren’t expected to dissipate until late 2021, which explains expectations for many respondents to our survey of lower profits this year,” Sarasin said. “If we look at this a little more broadly, the results of the survey indicate that a majority of America’s grocers didn’t have exceedingly large profits in 2020 as some have hypothesized. In fact, the respondents to our survey reported a modest average profit increase from 2019, of 1.44% to 2.5%.”