The Impact of COVID-19 on Food and Drink Retailing - US - June 2020
Introduction
 
Analyst perspective: COVID-19 and Food and Drink Retailing
“Few industries have been more closely entwined with the COVID-19 pandemic than food and drink retailing. In mid-March as the crisis quickly escalated, consumers flocked to supermarkets to stock up on groceries and other essentials, stressing the supply chain and emptying shelves in many staple categories. Since then grocery retailers and suppliers have done their best to keep shelves stocked and have taken significant steps to keep shoppers and employees as safe as possible. 

Shoppers have continued to make fewer but bigger shopping trips, an approach that favors the shelf-stable and frozen items of the center store over perishable foods in the perimeter. Faced with out-of-stocks they are also reaching for new brands or trying private label. Shoppers are also taking a more resourceful approach to grocery shopping, turning to a greater number of retailers and channels, including online, to take care of their needs.

Significant challenges and uncertainty remain, even as some retailers take steps back to more normal operations. But substantial opportunities exist to align with new shopping behaviors and preferences that are emerging or growing stronger in the crisis, and that will likely persist for a long time.”
-John Owen, Associate Director, Food and Retail

Definitions
This Report covers the impact of the COVID-19 pandemic on consumer attitudes, preferences and behaviors related to food and drink retailing overall, as well as to the center of the store, the perimeter and private label. For the purpose of this Report, Mintel has used the following definitions:

Groceries are defined as products such as food, beverages, household goods (eg cleaning products, toilet paper, garbage bags) and/or personal care products. The primary focus of the research is on food and beverages.

The center of the store, as defined for this Report, includes food categories typically found along the interior aisles of supermarkets, grocery stores and most supercenters. Items within these product categories may not be physically located in the center of all stores due to differences in layouts, but these are generally considered to be “center-of-store” categories.

The following segments are included in this Report:

●	Shelf-stable grocery: including processed meats, meat products and meats included in processed food, canned produce, shelf-stable snacks, cereal
●	Frozen foods: including frozen fruits and vegetables, frozen prepared meals, frozen meats, frozen snacks

The perimeter of the store, as defined for this Report, includes food categories typically found along the interior perimeter walls of supermarkets, grocery stores and most supercenters. All retail sales of the specified items are included, even though differences in store layout may mean that not all stores (particularly food retailers that are not traditional grocers) position these items along the store perimeter. The following segments are used in this Report:

●	Fresh refrigerated meat, poultry and fish/seafood
●	Fresh produce: Fresh fruits and vegetables, including bagged salads and pre-cut vegetables 
●	Milk, dairy, eggs: Fresh dairy and non-dairy milk, cream; butter; fresh eggs
●	Bakery: In-store baked goods including breads/rolls and cakes/pies/desserts
●	In-store deli/prepared foods: Deli meat and cheese and freshly prepared foods such as entrées, sandwiches, appetizers, salads, sides, trays, dips, desserts, soups and spreads

For the purposes of this Report, Mintel has used the following definitions: According to the Private Label Manufacturers Association, private label products encompass all merchandise sold under a retail store’s private label. That label can be the store’s own name or a name created exclusively by that store.

Key Takeaways
Short term: sales spikes and rapid adjustments for shoppers and retailers
The sudden escalation of the COVID-19 pandemic in March of 2020 had unprecedented impact on grocery retailing overall, as consumers quickly cut back on foodservice spending and flocked to supermarkets to stock up on groceries and other essentials. The rush put strain on the supply chain and emptied shelves in many staple categories. Nearly all food categories received a substantial short-term boost, although the spike in sales for non-perishable products in the center store was roughly double that of the perimeter. Amid substantial out-of-stocks, brand preferences often became secondary, giving private label new trial opportunities.

Concern about exposure to the virus quickly shifted grocery shopping behaviors, as shoppers cut back on quick fill-in trips in favor of bigger, less-frequent stock-up trips. Many also turned to online grocery shopping, although limited capacity made it difficult to reserve pickup or delivery time slots.

Grocery retailers and their suppliers kept their focus on the basics in the first weeks of the crisis, working to keep shelves stocked and implementing safety protocols. Many reduced hours of operation to allow for cleaning and restocking and temporarily closed high-contact perimeter departments such as in-store bakeries and service delis. Both online and primarily store-based retailers accelerated work to expand ecommerce capacity, including turning some stores “dark” to supply curbside pickup and delivery.

Medium term: marching forward into uncertainty
The crush of panic-driven shopping has eased, but the pattern of bigger baskets and less-frequent shopping trips persists. Grocery sales remain at elevated levels, especially for shelf-stable and frozen center-store products. A few retailers have begun to expand hours of operation and reopen perimeter service departments while still mandating strict social-distancing policies.

Still, uncertainty about the coming months has only intensified. New infection rates have eased in some areas but are spiking in others. Some states continue to make moves to reopen their economies while others are halting planned reopenings as cases surge. Of significant concern to the grocery industry, infections have spread rapidly among workers at meat processing plants, putting the food supply at greater risk than initially thought. More broadly, the country stands at the edge of a deep recession.

The economic downturn, as well as continued concern about infection, is likely to keep food and drink spending tilted in favor of grocery retail over foodservice. It will also motivate more shoppers to consider lower-priced private label products. On the whole, food and drink retailers must contend with a patchwork of opportunities and threats and respond to a variety of diverse, even conflicting, consumer needs. Some shoppers will need help stretching their food dollars, while others may pay a premium for fresh produce delivery. 

Longer term:
While it is impossible to predict when the pandemic will wind down and the recession will ease, both will have a long-lasting effect on how US consumers shop for food. Especially in areas that were hard hit by the pandemic, shoppers will remain cautious. Retailers will need to continue to highlight and follow safety protocols. Other potential longer-term shifts:

●	Greater interest in local or regional foods, in terms of both provenance (to reassure quality and safety) and cuisine (to tap into a heightened sense of community). The opportunity for local extends throughout the store, in both perimeter departments and center-store aisle, and could serve as a key theme for private label. It may also give an edge to local or regional retailers.
●	A focus on healthy eating as a contributor to overall wellness in general and to immunity in specific. Fresh foods and those making well-substantiated functional health claims will benefit.
●	A greater appreciation of frozen foods driven by continued improvements in quality and cuisine variety as well as the idea that a well-stocked freezer is a good hedge against unpredictable events.
●	Shopper-led omnichannel shopping. More grocery shoppers are venturing online, but online is just part of a bigger network of channels and retailers that shoppers are piecing together on their own to meet all of their food and drink shopping needs during the pandemic and the recession. Shoppers realize that no one retail channel or store can meet their needs as the crisis forces them to be more resourceful. To maintain loyalty in this increasingly dynamic environment will require grocery retailers to emphasize both online and in-store shopping and explore ways to integrate the two more closely.

The following Figure provides a traditional stoplight analysis of the impact of COVID-19 on grocery retailing overall as well as to the center of the store, the perimeter and private label, and it includes Mintel’s analysis for how we anticipate consumer behavior, as it relates to these markets, to evolve in the wake of the pandemic.

FIGURE 1: Impact of COVID-19 on the grocery retailing category, June 2020
  
Source: Mintel