What’s the Story?

Coresight Research analysts discuss their outlook for their sectors for the 2021 holiday season, with a focus on the directional outlook and themes that they expect to see. In this report, we discuss the grocery sector.

US Holiday Outlook: Grocery Retail

Directional Outlook

Grocery witnessed a solid first half of 2021, increasing by an estimated 6% year over year. However, we estimate that total grocery year-over-year growth will ease to low single digits in the holiday quarter—but will be up 10%–15% compared to pre-pandemic 2019. We expect slower year-over-year growth in grocery sales due to demanding comparatives from the holiday season in 2020 and a partial shift in spending to foodservice—we believe some consumers are likely to return to typical celebratory on-premise consumption after low-key celebrations last year.

Nevertheless, other consumers will continue to organize small get-togethers at home rather than dining out or attending social events, as a cautionary measure due to rising Covid-19 cases. The grocery sector will benefit from this at-home consumption trend, as was the case last holiday season. Coresight Research’s weekly US Consumer Tracker surveys regularly confirm that a substantial share of US consumers (over one-quarter) are buying more food or non-alcoholic beverages than before the pandemic. In our September 13 survey, around 19% of respondents who expect to spend on the holiday season stated that they would buy more food and drink than last year.

However, grocery prices are rising in tandem with the broader inflationary trend in the US, which will likely persist into the holiday season. Over two-thirds of respondents have noticed recent price rises in grocery items, according to a Coresight Research survey conducted on August 30, 2021. In response, many of these consumers are adjusting their shopping behavior to save money: 46.1% stated they did or expect to seek out grocery promotions and discounts, and 34.5% reported that they would trade down by switching to cheaper brands.

The ongoing rise in Covid-19 cases also may prompt consumers to consolidate store trips, providing a tailwind to grocery-heavy “one-stop” retailers, such as Walmart and Costco. Discount formats such as Aldi and Grocery Outlet are well positioned to capture share among a price-conscious consumer base feeling the effects of inflation.

In addition, we anticipate that supply chain disruptions tied to labor shortages will be a key issue for grocers this holiday season. Grocers will have to compete within a tighter labor pool, driven by competition from reopening restaurants.

We expect that retailers will capitalize on expanded digital capabilities to capture online grocery demand. Despite consumers’ return to in-store shopping, many are still choosing to fill their carts virtually. Even against tough comparatives, year-over-year growth of food and beverage e-commerce has not yet turned negative, reflecting retention of online shopping behaviors—demand has remained higher than historical norms. According to IRI E-Market Insights, online food and beverage sales grew 7.2% year over year for the four weeks ended September 5, 2021, and 113.6% from 2019 levels. Concerns over the Delta variant are likely to play a role in keeping consumers shopping online further into the holiday quarter.

Three Themes To Watch in the Grocery Sector this Holiday Season

• Retailers will have to meet the needs of both pandemic-weary consumers who want to splurge for their holiday celebrations and price-conscious shoppers choosing their purchases more carefully. In response, we anticipate that grocery retailers will fine-tune their assortments, strengthening both premium and value offerings. Retailers must ensure adequate opening price points and value products to cater to low-income shoppers—while also driving sales of premium items for those with more disposable income.
• Amid rising Covid-19 cases, we expect that the online channel will show sustained strength. We are seeing retailers upgrading their e-commerce infrastructure to support the anticipated uptick in demand, such as using physical stores to fulfill online orders and extending capacity for collection services, including curbside pickup.
• The pandemic has seen consumers place a heightened emphasis on healthier and more sustainable wellness habits, including the food they eat. We anticipate that retailers will carry a larger range of healthier options, such as plant-based alternatives, in addition to traditional holiday product assortment.

IRI Disclaimer: The information contained herein is based in part on data reported by the IRI E-Market Insights™ solution and as interpreted solely by Coresight Research. The information is believed to be reliable at the time supplied by IRI but is neither all-inclusive nor guaranteed by IRI or Coresight Research, Inc. Without limiting the generality of the foregoing, specific data points may vary considerably from other information sources. Any opinion expressed herein reflect the judgement of Coresight Research, Inc. and are subject to change. IRI disclaims liability of any kind arising from the use of this information.