This story is the first in a series on key trends that will impact grocers in 2022.
Retailers are heading into a 2022 filled with challenges. The supply chain shortage continues to batter shelves, and record-high inflation doesn’t seem like it will resolve any time soon, forcing companies to raise prices and potentially frustrate their customers.
Grocers are also struggling to keep their stores and warehouses staffed in what many fear is a foundational readjustment in the labor market.
Industry experts alluded to these challenges when discussing their top trends for the year. But they also pointed to numerous opportunities that lie ahead for grocers — many of which are driven by the fact that significantly more people are still ordering and eating food at home than before the pandemic.
Expect grocers to elevate their meal offerings and offer new digital purchasing options this year. And despite the focus on finding value amid price hikes, look for many consumers to seek out premium products.
Here are the top trends that promise to shape the grocery industry in 2021.
Quick delivery expands
Following the ultrafast delivery boom in New York City and the rollout of faster service from e-commerce platforms like DoorDash and Instacart in 2021, this year will see widespread adoption of faster operations among top retailers, especially as they look to court younger shoppers, experts said.
Jordan Berke, founder and CEO of Tomorrow Retail Consulting, said retailers are looking for new ways to boost e-commerce demand as digital shopping has declined in recent months from its 2020 high point.
“We see quick commerce falling into this demand generation space, which is why we see an urgency around it,” said Berke.
Thirty minutes will become the new expectation for shoppers in delivery, and if grocers don’t meet it, they’ll need to develop some other differentiator, said Anne Mezzenga, a Target veteran and co-CEO of retail blog Omni Talk.
“Whether that's dark stores, whether that's sortation centers, whether it's partnerships and acquisitions, every grocer is going to have to figure out a long-term solution for instant delivery [in order to] stay competitive,” Mezzenga said.
She expects instant delivery to grow beyond urban cores and into suburbia, putting greater pressure on regional grocers.
Meanwhile, for quick-commerce startups, 2022 may give a better indication on whether they pose more competition to convenience stores, local stores or traditional grocers, and how much they impact grocers’ margins and product mix, said Vishwa Chandra, partner at McKinsey & Company.
“None of the players are at scale. None of the players have really made a dent in terms of absolute volume, so the question is, ‘How big can this get?’” Chandra said. “And No. 2 is, where will that volume come from?”
Mezzenga said she expects consolidation among the rapid delivery firms, which are burning through money as they scramble to gain more footing.
Turning to automation to offset labor shortages
Given the continuing difficulty it's facing in hiring enough workers, the grocery industry needs to combat the perception that retail jobs are not bona fide career opportunities, said Nicole DeHoratius, a professor of operations management at the University of Chicago Booth School of Business.
But many companies need immediate solutions to handle the heavy flow of in-store and digital business. Gautham Vadakkepatt, director of the Center for Retail Transformation at George Mason University, predicted that retailers will hasten their adoption of automation technology to manage tasks not only in the backroom and warehouses but also in customer-facing areas of stores.
This includes adding self-checkout kiosks and aisle-scanning robots to retail floors. Down the road, it could lead to the integration of equipment that picks center store items robotically while customers shop for items like produce, meat and seafood, Vadakkepatt said.
Investing in operational efficiencies like this could allow retailers to offer higher salaries and better benefits to their workforce, boosting longevity and satisfaction, DeHoratius said.
Neil Stern, CEO of Good Food Holdings, which oversees West Coast chains Bristol Farms, New Seasons Market and Metropolitan Market, said he thinks grocers will turn more heavily to self-checkout terminals in the coming months to quickly deal with worker shortages and serve customers.
When Good Food added self-checkouts to a Metropolitan Market store in Gig Harbor, Washington, the retailer found that the terminals quickly accounted for a third of its transactions, reflecting increasing comfort among customers with self-service equipment in food stores, he said.
"We're going to keep on working to hire more people, but the reality is we're going to have to go to automation," said Stern.
Improving the use of consumer data
As the grocery business increasingly migrates online, retailers are seeing a growing need to use the data they collect through their digital channels to improve their ability to satisfy customers who have grown accustomed to personalized shopping experiences.
That trend is likely to intensify in 2022 as supply chain unpredictability shines a spotlight on the ability of grocers to avoid out-of-stocks and offer suitable alternatives when items people want are unavailable, said Spencer Price, CEO of Halla, a technology company that helps retailers understand and respond to shopping patterns.
Improving substitutions is especially important, because dissatisfaction can lead to shoppers switching retailers, Price said.
DeHoratius said grocers have plenty of runway for improving their ability to use consumer data. "Right now a lot of companies are operating in two independent silos with data and analysis, and [they] need to have the consumer behavior data effectively inform [their] operational choices," she said.
Beyond helping retailers manage their inventory, analytics can give product manufacturers an edge as they look to deal with supply chain issues.
"One thing that I've been hearing from vendors … is they need better information about what's going out the door through an online customer versus a regular customer," DeHoratius said. "That impacts their ability to forecast and their ability to deliver."
Meals get fresher and more convenient
Grocers have been improving their prepared meal selections in recent years. To truly compete with restaurant and meal delivery services like HelloFresh, they’re continuing to level up their meal selections while also adding digital ordering tools, said Tanja Ebner, principal with consulting firm Oliver Wyman.
She cited Kroger’s integration of ghost kitchens into select stores as an example of how grocers are looking beyond prepared foods to kitchen-prepared meals that have digital ordering capabilities through apps like DoorDash and UberEats. To boost the creativity and quality of dishes, grocers are hiring more culinary talent and preparing more meals on premises or in nearby commissaries.
“We’ve started to see them doubling down on everything that's a meal solution,” said Ebner. “Ready-to-heat, ready-to-eat, ready-to-cook meals and even a restaurant-quality fresh meal that’s ready for pickup and for delivery.”
Good Food Holdings has had success partnering with local restaurants on in-store meals during the pandemic, said Stern. Now the company is stepping up its own meal operations. Its Metropolitan Market store in Gig Harbor recently opened a Sweetgreen-style custom salad bar. In March, a Bristol Farms store in Irvine, California, will open a food hall concept with homemade restaurant brands, including Horton’s, a chicken sandwich joint, and Swell, which serves fish tacos and lobster rolls. All of the restaurants will be available for delivery on DoorDash.
“We're planning on elevating food service really to a much higher level than we ever have before,” Stern said.
Retail media networks expand
Chandra and Mezzenga both expect grocers and e-commerce platforms to ramp up their retail media networks in 2022 as a way to tap into the CPG sector’s extensive wallets.
“I think a lot of 2022 will be about how ... they actually create the tools to monetize some of this data,” Chandra said.
Retailers and e-commerce firms have loads of customer data, and retail media networks serve as a way to leverage that consumer insight with brand spending. As retail media networks take off, providing brands with performance data will be a key feature, Chandra said.
For brands, retail media networks are the “best way” to better understand consumers and gain customer data, Mezzenga said. For retailers, she noted, they are an important way to help fund their technology investments.
While major retailers are building their retail media networks in-house, Mezzenga expects to see firms pop up that can help grocers, particularly smaller ones with fewer resources and capital, manage their advertising and media.
The costs retailers face as they build e-commerce operations are motivating them to find ways to capitalize on the online relationships they are developing with shoppers, said Jason Goldberg, a retail analyst who is chief commerce strategy officer at Publicis, an advertising company.
"Grocers are heavily leaning into selling their own ads to try to make more money to recoup the lost margin from digital grocery," Goldberg said.
Premium products accelerate
Even with economic challenges during the pandemic, premium food in categories like alcohol, specialty coffee, meal kits, frozen meals and spices have gained popularity among shoppers, IRI found in 2020. The recent momentum premium CPG gained will continue to build in 2022, said James Richardson, a CPG expert and author of “Ramping Your Brand.”
“We’re seeing premium return to being the growth engine in almost every category,” Richardson said.
In recent years, market share at the category level for premium has skewed toward meals — packaged and semi-prepared ones — and startups like Daily Harvest offering “fresh frozen” are pulling volume out of grocery stores, particularly in the perimeter, while tapping into consumer demand for convenience, Richardson said.
The intersection of fresh and CPG has been an underexplored area by package food companies, manufacturers and investors, but new startups are disrupting the space and hauling in investors’ dollars as customer demand rises, Richardson said. “Where the demand is shifting is to higher-priced, higher-quality fresh, fresh-like or ‘fresh frozen’ food.”
Inflation has soared during the pandemic, hitting records in recent months, and has put pressure on grocers to be more mindful of price-conscious shoppers. But it’s unclear how much inflation is impacting the demand and price elasticity of premium products. During Kroger’s earnings call in early December, Chairman and CEO Rodney McMullen acknowledged that more than 80% of consumers are feeling the impacts of inflation, but said premiumization remains a strong trend.
“All across the board, you see premiumization on what people do,” he said.
Getting into the business of B2B
Sales to corporate clients, school districts and other non-consumer entities have typically been the specialty of foodservice companies like US Foods and Sysco. But the growth of e-commerce has leveled the competitive playing field, allowing grocers to turn their digital playbooks toward a new set of business customers, said Berke.
“Previously [B2B sales] felt very non-transparent, hard to crack. It was all human sales teams and traditional bidding, whereas now businesses are saying, ‘I want an online portal that I can order from where I can see all pricing transparently and I don't need to be calling someone every time I place an order,’” he said.
Nicholas Bertram, president of The Giant Company, said the grocer has a “growing” B2B platform that it plans to scale through investments like its new automated fulfillment warehouse in Philadelphia. Online wholesale retailer Boxed, which recently went public, also sells its bulk-sized goods through a B2B division that has been rapidly adding staffers, according to a recent LinkedIn post from the head of the division.
Capitalizing on the opportunity, however, requires some operational updates. Business clients want larger pack sizes — think 64-ounce bottles of olive oil instead of 16-ounce bottles, said Berke — along with a dedicated buying portal and payment processing that allows them to pay via monthly invoice rather than on a per-order basis. Retailers also need to hire dedicated sales teams that can pitch the service, negotiate terms and manage relationships.
The payoff comes in having large, reliable orders that are also profitable, said Berke. As retailers look to generate demand for their growing online investments, look for major chains to scale up their business ordering services, he noted.