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Grocery Update - Who Is Best Positioned?

by 
Ethan Chernofsky
 on 
April 20, 2020
Grocery Update - Who Is Best Positioned?

There are two major questions when looking at current data in the Grocery industry. Who is performing well during the crisis and what could it mean long term?

We dug into the data to try and answer these questions.

The Overall Picture

From an overall perspective, most players in the grocery sector followed a fairly similar pattern with visits seeing significant year-over-year growth leading into a huge peak in the second week of March. Yet, from this point, as traffic declined, the differences began to show. The combination of social distancing regulations and self-imposed restrictions had a significant impact on in-store traffic.

And these impacts were hardly uniform in their effect.

The Hardest Hit

Two of the hardest hit brands in Grocery were Whole Foods and Trader Joe’s, and the impact can tell us much about the current situation and potential rebound. Whole Foods was an exceptionally steady performer when looking at weekly visit data from January 2019 through the second week of April 2020. And this consistency puts the precipitous decline felt in the last few weeks on display. Whole Foods has seen visits decline over 50% year over year for the last two weeks. 

Trader Joe’s, too, has suffered major declines of over 45% year over year in the first week of April and over 55% for the second week - though this was exacerbated by the Easter holiday.

Both of these brands are affected by their location distribution, which prioritizes major cities on the coasts - among the hardest-hit areas. But they are also penalized for their approach. Whole Foods and Trader Joe’s saw an average of 5.9 and 5.6 visits per visitor over the period from January 2019 through March 2020, this was nearly half that of Wegmans or Safeway and a third of the number for Publix or Kroger nationwide. The combination of high prices and an orientation towards less frequent visits hurt both brands with Trader Joe’s also being affected by its perception as a niche grocer - as opposed to a ‘one-stop-shop’ like a Publix or Wegmans.

The Bright Spots

While Kroger and Albertsons may not have been the hottest names in grocery in 2019, the coronavirus period has reinforced the strength of these brands. Their ceilings were among the highest in the sector with year-over-year weekly traffic growth peaking at 50.0% and 33.0% for Albertsons and Kroger respectively the second week of March. But, equally impressive, their lows have been relatively moderate with weekly visit drops of 11.3% and 12.% marking their respective low points. 

The performance of these brands seems to rest on their traditional approach - they are the old school grocer that aims to serve as the core grocery for its local community. And this works with great effect, especially in the current climate. Nowhere was this more evident than on the Saturday before Easter. Kroger saw visits that were 24.6% above the daily baseline for the period from January 2019 through April 13th, 2020, and while these visits were much lower than the day before Easter in 2019, it was still significant to see such a high point amid the current situation.

Albertson’s too saw visits that were 34.4% above the baseline for the period, and again, while lower than the day before Easter in 2019, the growth is impressive.

Both brands benefit from a few key factors. Firstly, they are certainly not ‘niche’ grocers and are among the more traditional players serving the full needs of their audience with value in mind. Secondly, both Kroger and Albertsons have a geographic distribution that is better suited to this crisis with a large contingent of stores in areas in the midwest, west coast and south that were less affected. These factors not only position the brands to do well now but to perform well during the inevitable economic downturn to come that is likely to prioritize grocery shopping over eating out.

Hard Hit, But Well Positioned

Another group of stores falls into the in-between area. Wegmans and Publix have both seen significant hits to their traffic, though their relative performance may be all the more impressive considering their respective circumstances. Wegmans and Publix both suffer from geographic distributions that put them right in the middle of the pandemic. Yet, they still remain far better off than some of the other grocers facing those same challenges.

Publix, operating heavily in a hard-hit Florida with a large older population among the most at-risk, has actually seen fairly steady numbers. Visits to the chain were 18.9% above the baseline the day before Easter, and overall year over year weekly visit declines have capped out at under 15%, excluding Easter week when they closed all stores on the holiday Sunday to give employees a well-needed break.

Wegmans too has seen relative stability in the last few weeks in spite of increased self-imposed measures to limit store traffic while operating primarily in the incredibly hard-hit northeast. 

Yet, even more than the current situation, both brands seem well-positioned moving forward. Publix and Wegmans both saw an average of over 10 visits per customer during the period between January 2019 and March 2020 with Publix coming in among the very best in the space with over 14 visits per visitor. This number is incredibly high, especially when considering the average is nationwide and is pulled down considerably by people who come in once or twice during that period. 

The combination of high customer loyalty with a strong mix of value and high-end appeal positions both brands to perform well in the economic downturn as well. Even more, elements like Wegman’s Market Cafe could provide an added value during the coming months when families look to find cost-effective ways to eat. This ‘QSR-ish’ component is something worth following closely as it could be a huge asset that other grocers look to replicate.

Takeaways

The good news for the sector is that its overall relative performance during this period has been exceptional. The better news is that grocers offer a unique value during periods of economic uncertainty, one of which is almost certainly coming, helping families stay fed and healthy when customers increasingly orient themselves to value. 

Even more, there are opportunities for these brands to deepen the central role they play for their communities. Ideas, like selling ready-made meals from local restaurants or offering Blue Apron style products, could provide high margin, high-value producest giving customers a needed cost-effective ‘date night’ or substitute for a dinner out.

Traditional grocers like Publix, Albertsons, Kroger and Wegmans are all benefitting from this wave, with the likelihood that they’ll benefit even more as the pandemic subsides. 

Yet, there are brands in this space who could face challenges. Whole Foods has an urban orientation and a perception as a high priced grocer - both elements that could negatively impact visits even when a sense of normalcy returns. On the other hand, they are also well oriented to ready meals, giving them a potential opportunity. Trader Joe’s has a very strong following, but the lack of focused delivery mechanism combined with the same cost and loyalty issues as Whole Foods could provide a significant obstacle. 

In short, even in an industry doing better than most and positioned to do well during this period, there are different degrees to the potential success. How these brands orient themselves for the coming months may have a lot to say about who the leaders of the sector are in the years to come.

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