The Orange Report – 2020 Q3
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Online grocery shopping may be old news to retailers and the broader consumer community; however, the current pace of investment and innovation is quite unprecedented.
Not that long ago, neighborhood grocery stores were considered one of the last segments of retail to resist the dramatic shift to eCommerce that significantly reduced traffic and sales at brick and mortar stores. The present climate and state of our world has impacted consumer behavior in ways that seem to be changing radically.
In the wake of the pandemic, over 40% of U.S. online grocery sales came from first-time users. This shift in the business environment that we expected to take as many as five years, instead occurred in five short months.
The COVID-19 induced change in consumer’s grocery shopping behavior is startling. Every major supermarket chain in the U.S. has reported three all too similar results:
- In-store customer visits are fewer
- In-store sales are way up
- eCommerce sales are way, way up
Consider the most recent quarterly numbers from the three largest pure play grocery retail operators in the country:
Kroger which operates 2,800 supermarket across the U.S. (including Dillon’s and Gerbes in the Midwest) saw identical store (ID) sales increase 15% from prior year, while eCommerce jumped 127%.
Albertsons, operator of 2,250 national supermarkets, reported ID sales increased 14% while eCommerce skyrocketed 243%.
Ahold Delhaize, operator of 2,000 supermarkets in the Northeast, had a 16.5% increase in ID sales and a 115% increase eCommerce.
Yet all three reported decrease in number of in person shopping visits.
“We are seeing customers continue to come to our stores less often, but they are buying much larger baskets, including new categories as we fill their one-stop shopping needs.” Vivek Sankara, Albertsons CEO said. “Many have chosen to use our eCommerce offerings, both home delivery and curbside pickup, and overall have increased their household spending with us. This enduring secular shift in shopping habits is confirmed daily, despite the economy opening in most parts of the country.”
The role of the neighborhood supermarket as a key omnichannel retailer pre-pandemic was first capitalized by Amazon’s high-tech grab-and-go grocery concept, Amazon Go Grocery. Their brick and mortar entry debuted in October with two 40,000 square-foot stores in Washington, with hundreds more promised across major U.S. cities.
The million dollar question(s) seems to be, what does this mean for grocery operators? For their landlords? For ownership of the neighborhood strip shopping centers in which many of them are located?
For the grocery operators, investments must be made promptly in these areas: improved online shopping portals, ensured order accuracy, increased delivery speeds, and strategically placed store layouts for those that offer “buy online, pick up in-store”.
Operators who had been on a path to make these adjustments gradually over time must accelerate these investments immediately. Those that do not, or cannot afford to do so, risk losing market share to competitors that are on top of the inevitable eCommerce shift.
For the landlord of a single tenant occupied grocery stores that has successfully shifted to an omnichannel retailer, congratulations! You now own of the most coveted types of commercial real estate out there.
The same is true for owners of shopping centers anchored by a successfully transitioned omnichannel grocery store. Even though traffic to the center will fall due to fewer visits by grocery shoppers, the value of grocery-anchored centers will remain strong while asset values of all other multi-tenant retailers have fallen. But that will only continue to so long as your center’s grocery store has successfully transitioned to remain a relevant omnichannel experience.
Because of the drastic impact technology has left on society, the shift to online grocery shopping was likely inevitable, but slow to take hold. Consumers were not ready to fully surrender their ability to choose their own food products. The pandemic’s radical effect on consumer behavior accelerated this shift seemingly overnight. If there is one thing to take away from this year, it is the need for business owners of all types to be adaptive and responsive to rapidly changing conditions.