It was a year unlike any other before—and hopefully, unlike any to come. Amid a deadly global pandemic the country was poorly prepared for, grocery stores were shopped hard, then thrust into the spotlight as the economy ground to a halt; workplaces, travel, entertainment and dining out tanked; and the steady equilibrium between consumption of food at and away from home was flipped on its ear. While operations, the supply chain, e-commerce and crisis preparedness were put to the test—and at times, badly overwhelmed—sales and profits for food stores soared. Availability, reliability and convenience—the great strengths of the traditional supermarket format—were rewarded, “share of wallet” went up for grabs, promotions and price sensitivity vanished, inflation and new costs raged, and an ongoing digital transformation of the industry got a jolt of new urgency.
A poisonous political climate, in the meantime, proved just as contagious and collided with the pandemic amid social and racial tension, worker activism, conflicting and shifting regulations, and a grotesquely contested presidential campaign.
Against a backdrop of consumer confusion and widening opposition, supermarkets, even as they admirably tried to lend a hand, became epicenters of both strains of this national sickness unspooling like toilet paper. What follows is WGB’s year-end recap.
Consumers Rediscover Their Kitchens
Emergency measures to mitigate the virus spread—including work and school conducted at home—had enormous near-term consequences for food retailers and suppliers as dozens of more meals were consumed at home every week, millions of Americans baked bread for the first time. But what excited retailers most was the potential for those habits to continue.
“We’re working hard to try and make sure people fall in love with eating as a family again,” said Kroger CEO Rodney McMullen.
This development couldn’t have been a more abrupt or unpredictable change in direction of the industry, particularly as it came during conditions—a humming economy and an overarching convenience trend—that favored meals on the go, birthed a generation of kitchen illiterates, and had supermarkets increasingly looking up at their foodservice rivals’ shares of consumer wallets and stomach.
Strategically minded supermarkets at the same time were taking no chances. “We are going to get into the meals business,” said Albertsons CEO Vivek Sankaran. Kroger struck a timely deal with the ghost kitchen operator Clustertruck and leveraged its ownership of the meal-kit player Home Chef. And stores hustled to reinvent pandemic-compromised departments catering to food-on-the-go.
Choice, Trips and Promotions Dwindle; Profits Soar
Though pockets of the economy suddenly crumbled and unemployment soared, consumers didn’t necessarily feel the effects those things might have had in any other year. Economic stimulus payments helped to build sales over the summer was one factor. Another was the accompanying reduction in alternatives: Fewer vacations taken, and nobody spent much on sports tickets, concerts or movies. That left more for the family food budget and as a result, some supermarkets took profits and were largely able to pass along their own higher costs.
At the same time, stresses in the supply chain changed the nature of promotions. Several chains discontinued paper circulars altogether, found buy one, get one wasn’t prudent or ever necessary, and the trend toward “personalization” took off in earnest.
Everyday low-price retailers such as Walmart and discounters like Aldi, in the meantime, maintained their emphasis on pricing while lacking the relative location convenience or selection of their supermarket rivals. Equity in pricing will come in very handy eventually, observers say.
Where the Money Went
Between enhanced safety measures, new signage, miles of plexiglass, cleaning and worker bonus pay, retailers absorbed millions in new costs that added sales volumes helped to pay for. Additional profits went right back into investments in the ongoing digital transformation, to pay down debts, and to address future obligations, as when the three largest U.S. chains reached agreement with their union workers on a complex pension buyout scheme. Ahold Delhaize had enough cash on hand to buy rival FreshDirect, along with 62 Bi-Lo stores.
Walmart’s Next Phase
Taking over as Walmart’s U.S. CEO just over a year ago, John Furner within months appointed a slate of new executive leaders and prescribed a vision for the big merchant based on building on the company’s operational momentum, eliminating “friction” between its online and physical storefronts, and “innovating for the future.” He mostly delivered. While Walmart didn’t realize the comp explosion its rivals in the supermarket field did, its price advantage grew, analysts say, while it dealt with repercussions of operating hour reductions and ushered in a Supercenter workforce reset that some found controversial.
Work to advance technologies and e-commerce capabilities was dizzying however. Just as prescribed, the company broke down the divisions between its grocery and general merchandise commerce portals, began testing a myriad of new fulfillment capabilities, introduced a paid loyalty program and by year-end, Walmart’s U.S. stores had begun to look like its app.
Amazon Fresh Rising
Amazon, whose acquisition of Whole Foods Market in 2017 sounded the gong on grocery’s digital revolution, quickened the beat in September when its long-awaited grocery format, Amazon Fresh, debuted near Los Angeles. Aimed more directly at the mainstream than its specialty sister banner (which opened plenty of is locations this year), the new store opened eyes with aggressive pricing, a range of new private brands and a novel shopping cart that drew enthusiastic reviews. The Seattle commerce giant is still playing expansion cards close to the vest but all indications are Amazon didn’t get into this to test the technology behind it. Dozens if not hundreds more are on the way.
Albertsons Has a Moment
After 12 years in the hands of private investors who bought and sold their way to a slow-motion comeback, Albertsons Cos. went back to the public markets in June. The chain had all kinds of momentum, driving big sales gains and profits on strong regional brands and a large—and largely realized—opportunity to grow its digital footprint and private brands in the pandemic.
Down Goes the Specialty Store
Only weeks before the pandemic provided a volume boost they all could have desperately used, three well-loved retail brands beset by financial burdens—Lucky’s Market, Earth Fare and Fairway Markets—sought liquidations under bankruptcy protection within days of one another. Their issues were financial in nature (Earth Fare and Fairway had crippling debts, and Lucky’s had just lost its backer in Kroger Co.) but also pointed to the difficulties that niche players were experiencing.
Most of the doomed units were gobbled up piecemeal in short order, with Amazon, Food Bazaar and Village Super Market dividing up Fairway; and Winn-Dixie, Publix, Whole Foods and others taking over former Earth Fare and Lucky’s units. Earth Fare’s original founders, in the meantime, got back into the game, and had relaunched the brand behind 15 reopenings by year-end.
In late summer, another brand with debt issues and a specialty concept, KB Holdings, parent of Balducci’s and Kings stores in the Northeast, also succumbed to Chapter 11, with most of those units destined for a more conventional operator, Albertsons’ Acme division.
Pay to Play
Suddenly, everything has become a paid subscription, even the egalitarian supermarket. Chasing Amazon and its powerful Prime program, Walmart relaunched its Delivery Unlimited business as Walmart+, betting that at least some of their shoppers will lock in and receive benefits like gas discounts, delivery and in-store conveniences—shifting their overall share of wallet as they go. By year-end, Hy-Vee and Ahold Delhaize’s Giant Co. stores had intentions to do similar things. Long demonstrated by stalwarts like Costco and BJ’s, subscriptions have become a way of life in omnichannel.
E-Commerce Jumps 3 Years
The coronavirus for all its damage worked as a kind of accelerant for ongoing trends, most dramatically in e-commerce.
“The customer demand we expected over the next two to four years has happened on the Instacart platform in the last two to four weeks,” Instacart CEO Apoorva Mehta said in early April. This made 2020, and will presumably make the future, better for those who best serve the omnichannel shopper.
BJ’s Wholesale Club, for one, realized benefits of digital investments made over the previous years-- a well-regarded app and the addition of club pickup, for example--and combined with a trend toward big baskets posted dizzying figures, accelerated store-opening plans, and it saw its stock climb by more than 65% in the calendar year to date.
The fragmented food wholesaling market continued to see shifts, including big wins for SpartanNash, which forged a promising seven-year agreement with Amazon that included a stock investment, and United Natural Foods, which won a 10-year deal to supply New York’s Key Food Stores Cooperative from rival C&S Wholesale Grocers. All three of those big companies also made or forecasted leadership changes. Tony Sarsam succeeded Dennis Eidson as CEO of SpartanNash shortly before his counterpart at UNFI, Steve Spinner, announced plans to retire. And at C&S, which was also absorbing the loss of Ahold Delhaize’s move to self-distribute, CEO Mike Duffy was replaced by Bob Palmer.