Food Retailers Face New Type of Disruption

It’s been a year. That statement has a different meaning depending on how one says it. As a simple observation about the passage of time, it’s been one year since the outbreak of COVID-19 prompted former President Donald Trump to declare a national state of emergency on March 13, 2020. Said with a tone of relief and exasperation, however, the sentence describes a 12-month period that was challenging and unprecedented on many levels.

As we enter the second year of the pandemic, it promises to be as unprecedented as the first, but for a variety of reasons. For starters, our world remains disrupted by COVID-19-related restrictions and lifestyle changes that affect how people shop and where they eat, with rules on dining out varying by state, which then affects at-home food consumption and food delivery.

The number of deaths in the United States attributed to COVID-19 recently topped 500,000, but other data shows cases and death rates declining. Meanwhile, multiple vaccines now exist, and roughly 15% of the population had been inoculated as of the end of February. There is cause for optimism that this summer will mark the beginning of a return to normal, but the same thing could have been said last summer. Recall that the curve had been flattened, but then we got a resurgence of positive cases and deaths in the fall, leading to renewed uncertainty.

All of this makes for a challenging situation for an industry that likes planning so much that it invented the discipline of category management. Food retailers forecast demand, plan promotions and make purchase decisions a year or more in advance based on insights into consumer trends. Larger retailers are known to develop joint business plans with trading partners that extend years into the future.

While many unknowns remain, the coming months will offer an interesting look at consumer behavior and the potential for a great shakeout in food retailing once greater balance is restored to the at-home and away-from-home food equation.

For example, we know that last year’s surge in pandemic pantry loading benefited retailers mightily. Same-store sales last year increased 13.8% at Ahold Delhaize USA during its quarter ended March 29, 2020; 10% at Walmart during its quarter ended April 30, 2020; 21.7% at Dollar General during its quarter ended May 1, 2020; 10.8% at Target during its quarter ended May 2, 2020; 19% at The Kroger Co. during its first quarter ended May 23, 2020; and 26.5% at Albertsons Cos. during its first quarter ended June 20, 2020.

Those aren’t normal numbers. These companies and others in the industry are now lapping a prior-year period in which a once-in-a-lifetime driver of demand enabled them to achieve much stronger sales than normal. This powerful effect extended throughout 2020, and so pretty much any retailer with exposure to food and consumables categories was able to achieve stronger sales than they would have, based purely on the merits of their respective value propositions.

Eventually though, the COVID-19 tide will recede and marginal operators who were provided temporary cover by pandemic-driven demand will face pre-COVID-19 challenges. How soon this happens and the pace at which it occurs are currently great unknowns, but it’s something that can be planned for as the second year of the pandemic unfolds and the nature of industry disruption evolves.

In the coming environment, food retailers will need the same type of resolve, ingenuity and agility they displayed at the onset of the pandemic as they compete in a world free from distorted demand, where foodservice operators are able to more fully rejoin the share-of-stomach battle.