Despite an unstable business climate, grocery retail stands well-positioned heading into 2023, according to Coresight Research CEO and founder Deborah Weinswig.
Improvement in key economic indicators—notably inflation—plus strong food-at-home demand and consumers’ return to shopping in stores, among other trends, already are playing in grocery retailers’ favor through the early part of the year, Weinswig said in an interview with Winsight Grocery Business at the FMI Midwinter Executive Conference in Orlando, Florida.
“I think we'll see lower levels of inflation. Last February was when the [Ukraine] war started, and nobody was prepared for that. And we had very challenging supply chains, on top of already challenging supply chains. Much of that—not a 100% of it—has been worked through,” said Weinswig, formerly a star Wall Street analyst for the consumer staples and discretionary sectors, including food, drug and mass retail channels. “With China opening up, we’re starting to see some really different GDP growth forecasts. So I think we’re going to see greater demand. There’s going to be a level of positivity.”
Indeed, just days after Weinswig’s comments, the U.S. Commerce Department reported 2.9% GDP growth for the 2022 fourth quarter and 2.1% growth for the full year, above most observers’ estimates. U.S. consumer spending also rose 2.1% in the quarter and 2.8% for the year.
Though a bit concerned about the housing market, Weinswig doesn’t expect a recession this year and is positive on the outlook for grocery retail stocks.
“The data doesn’t look that way,” she explained, referring to a looming recession. “You’ve seen that consumer sentiment has bottomed. You’re seeing that, with GDP, many people have raised their estimates in the last week or so. We also have seen real wage growth at the lower income levels for, like, the first time in my career. And you just saw the unemployment rate fall again in December. So nothing that I look at worries me, [although] I do worry about home prices softening and, of course, about the markets.
“So I think 2023 will turn out to be better than people expect,” she noted. “And, going back to retail, there are so many ways that [companies] can monetize. We should see a great performance in the stocks as well.”
Looming over the supermarket arena will be the planned $24.6 billion merger of The Kroger Co. and Albertsons Cos., according to Weinswig. While that deal, announced in mid-October, isn’t expected to close until 2024 or later due to an extensive antitrust review, grocery retail players will be mulling their options, she said.
“I think that is going be a game-changer,” Weinswig said of the Kroger-Albertsons deal, “because we’ve done a lot of work—as I’m sure many other analysts have as well—looking at the [geographic] overlap. Maybe there will be a few stores that are divested, but ultimately it’s a shockingly good fit. So then you have Walmart, Costco and Target and whatever this new company will be called, Kroger-Albertsons, and you have Amazon. I mean, you’re going to have a few behemoths. Those will continue to perform well be cause they can invest in innovation. Tech companies are going to want to invest in them. Brands are going to want to partner with them.
“I worry more about the boutique brands, the regionals or super-regionals. They will have to really think and may have to have some kind of coalition,” she said, citing solutions like a purchasing group to boost scale. “Or more mergers,” she added.
A big tailwind for the grocery sector is consumers’ ongoing embrace of food-at-home, which many analysts and Wall Street—as well as industry executives—expected to dissipate as the pandemic receded but has remained strong.
“This is why I’ve always loved to cover this industry. I can get what I want, when I want it and exactly how I want it,” Weinswig said of grocery stores. “I don’t have to go to a restaurant,” which she sees as more of a social opportunity.
In Coresight’s hometown of Manhattan, only around 40% are regularly coming back to the office after the end of pandemic restrictions, meaning that many people have retained a food-at-home orientation, Weinswig explained.
“If 60% of people in New York are not going into office, that is the majority. You could have more balance over time, especially as we see some companies mandate [returning to the office]. But when we go to our office, and we’re virtual first, people bring their lunch because they're so used to it. There’s a complete change in terms of how people are thinking.”
Similarly, she sees a sharper focus on “food as medicine” by consumers as a plus for grocery stores, which can use their pharmacies, nutritionists/dietitians and digital content to help foster wellness.
“Consumers having more access to data about themselves will help them make more knowledgeable decisions about healthy eating,” she said. “We’re going to see more about this and, as a result, people are going to rethink the grocery store as a place where they can get healthy versus just as a place where they’re buying food.”
The food-at-home trend and the rebound of in-store shopping likely will nudge grocery retailers to experiment more as consumers spend more time in the physical store, according to Weinswig. She cited such technologies as artificial intelligence, computer vision, digital shelf labels, retail media and personalization solutions.
“I’ve never seen personalization talked about so much as it has been in 2023,” Weinswig said, including at FMI Midwinter and the National Retail Federation’s Retail “Big Show” in New York, which she recently attended. “The average retailer has about 7% of the consumer spend. If you can take that from 7% to 8% because you know the consumer, you can recommend to them better on their digital or physical journey, and the more that you can also better utilize vendors’ spend in a personalized way. It’s like everybody wins because everything’s more efficient.”
On the e-commerce side, Weinswig doesn’t expect 2023 to be the year when online grocery becomes profitable.
“I don’t, because of the last mile,” she said, noting that drone delivery appears to be an alternative but the devices have minimal load capacity for grocery. “And if you’re doing BOPIS [buy online, pickup in store], you still have the associates picking. It’s incredibly difficult [to achieve profitability]. You just have to have a whole different kind of infrastructure to make that happen.”
In an FMI Midwinter keynote on “grocery resiliency” amid difficult economic times, Weinswig named six actions that grocery industry players can take now: focus on market share over margins, tap retail media and monetize your data, strengthen food-away-from-home alternatives, drive loyalty through social responsibility (including addressing food insecurity), reduce food waste and expand private label.
“While e-commerce is great and is a wonderful place to start a shopping journey and do research, having that transaction made in a physical score is really what is winning right now for consumers, retailers, brands and the like,” Weinswig said in her presentation. “And I think that will continue.”