The Grocery Dive Outlook on 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 2022.

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

A few months ago, Albertsons launched its own retail media network, and Kroger, which debuted Kroger Precision Marketing in 2017, announced a programmatic marketplace for advertisers. 

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.

To help deal with a persistent labor shortage that has severely tested their ability to keep stores staffed and stocked, grocers are stepping up efforts to mechanize a range of essential tasks that historically have been handled by people. 

This includes adding more self-checkout terminals to stores and relying on automation tools that help them update prices and manage their inventory. Many of these tools have been available to food retailers, and they're getting a closer look nowadays as the industry confronts what looks to be a long-term hiring and retention challenge.

But as retailers increase their reliance on time-tested automation solutions, they are also tackling pressing questions about the role human workers will play in supermarkets in the future, industry experts said.

Having workers perform tasks that technology can easily replace probably isn't the best use of people's time, said Gautham Vadakkepatt, director of the Center for Retail Transformation at the George Mason University School of Business. "Companies are getting smarter to that and saying given the new environment we're operating in, let's do this with automation and use our talented workforce in a context that actually adds value to the company," he said.

Automation may be able to save retailers money and speed customers through stores, but human workers play a critical role ensuring that the experience of going shopping is satisfying for shoppers, Vadakkepatt said.

"Humans have that innate tendency to be able to address problems, solve problems, and that's where we'll see humans being deployed," he said.

A balancing act for retailers

The challenges retailers are facing in hiring and retaining workers are presenting a compelling reason for grocers to embrace technology in ways they might not have in the past, said Henry Michaelson, co-founder, president and chief technology officer of Halla, which provides personalization technology to retailers.

"I think labor shortages are pushing us into the future, and the grocers are smartly using this as an opportunity for growth," said Michaelson. 

Neil Stern, CEO of West Coast supermarket chain Good Food Holdings, said retailers are facing a complex balancing act as they navigate the labor crisis confronting the industry. "We have physical stores, we have customers coming in, we have shelves that need to be stocked," he said. "I still need people to show up for work ... in an environment right now that's pretty challenging" because of the pandemic.

Good Food, which operates about 50 supermarkets under banners including Bristol Farms, Metropolitan Market and New Seasons Market, is significantly increasing its use of technology to maintain operations, Stern said. Self-checkout is a particular area of focus for the company because of its ability to help move customers along, he said.

"This is not just about an opportunity for retailers to save some labor on the front end, but it's actually what the customer is preferring as a way to check out," said Stern, noting that the Good Food dedicates one worker to monitoring every four self-checkout units.

Reflecting the importance shoppers place on convenience, more than three-quarters of consumers who participated in a survey conducted in December by mobile data company Anyline said they would be more likely to shop in a store if it offered scan-and-go checkout technology. Anyline is working on technology to allow shoppers who use scan-and-go systems to buy age-restricted products such as alcohol without interacting with a store employee, said the company's co-founder and CEO, Lukas Kinigadner.

Stern said shoppers are increasingly interested in moving through stores quickly, a dynamic that in many cases is causing people to place a premium on automation when visiting Good Food's stores. That focus is especially noticeable at foodservice counters, where shoppers sometimes have to wait for service, he said, so Good Food is installing sandwich-ordering kiosks to speed things up.

"You can say, 'Isn't it wonderful, all that interaction you're going to get from us?' but I think customers are also saying, 'There's got to be a better way. If I want to get a sandwich made, I'll go use an app or use a kiosk to get it made, and I'm just picking it up,'" Stern said.

Good Food also will be testing smart carts, which use computer vision to record items as shoppers remove them from shelves, in some stores this year in partnership with Veeve, according to Stern. The retailer is also planning to pilot electronic shelf tags in 2022, he said.

While electronic shelf tags can help save on labor costs because they take less work to maintain, that alone doesn't provide a substantial enough return to justify investing in them, Stern said. But when the digital price displays are used to also facilitate dynamic pricing, they become much more compelling, he said.

"That's a big use case that I think a lot of retailers are going to be looking at," he said. 

Stern said Good Food is also looking into technology like the aisle-scanning robots produced by Simbe Robotics to automate inventory tracking in its stores, but hasn't decided whether to proceed.

Wholesalers, which have had a hard time hiring and retaining workers during the pandemic, are also embracing automation in more areas, said Marco Di Marino, director in consulting firm AlixPartners' retail and grocery division. He cited as an example robots that can efficiently build pallets of products before getting loaded onto supply trucks.

"When robots put stuff on the pallet, they do it better," Di Marino said.

The challenging labor market is also causing retailers to look for ways to increase the efficiency of their e-commerce operations, particularly the speed with which they are able to fulfill orders, according to emailed comments from Neil Moses, CEO of Wynshop, which provides e-commerce technology to retailers.

Nearly 80% of grocers who participated in a 2021 study conducted by Wynshop and research firm Incisiv said "improving picking efficiency" topped their list of ways to improve profitability, Moses said.

Mike LaVitola, co-founder and CEO of convenience store chain Foxtrot, said he is looking to technology that handles repetitive tasks like ringing up orders to enhance his company's ability to provide products that help it stand out with customers. Foxtrot is investing heavily in technology, an effort that includes testing computer vision-based frictionless checkout technology in multiple stores, as it works to enhance capabilities like inventory management and personalization.

LaVitola said he wants Foxtrot's staff to be able to focus as much as possible on curating its selection of products, which includes a broad array of locally sourced and private label goods.

"If you think about our [stores], everything on that shelf has been tested and argued over … and so that means that all those products have a story behind them," LaVitola said. "That's really what we want the teams in our store focused on."

Recognizing the limits of technology

While the convergence of swiftly rising labor costs and rapid advances in fields like artificial intelligence and computer vision has created conditions ripe for retailers to embrace innovation, it is also raising questions about the level of automation that makes sense for grocers, said Saibal Ray, academic director of the Bensadoun School of Retail Management at Canada's McGill University.

"From an economics viewpoint, more and more automation in some way is going to make more and more sense," because technology is becoming less expensive at the same time that retailers are having to offer higher pay to attract and retain workers, said Ray.

At the same time, systems like self-checkout kiosks, smartphone-based ordering facilities and technology that records people's purchases automatically can introduce obstacles that frustrate shoppers by adding friction to the shopping experience even as retailers seek to remove it, Ray said.

For example, requiring people to download an app or set up an account to make purchases can make shopping less convenient, potentially turning shoppers away, he noted. Meanwhile, self-checkout systems may provide benefits to retailers, but they can also turn off shoppers asked to do work store employees used to handle, Ray added.

"The consumer is doing the job for self-checkout and [asking], 'Am I getting any benefit out of it? Am I getting a cost reduction or not?'" he said.

LaVitola agreed that going too far down the tech route can disrupt the retail experience for consumers.

"What we want to be really careful of is not just jamming a whole bunch of technology in … but to really have it fade away in the background to create a better experience for both our employees and for customers," he said.

Beyond helping retailers manage their operations with fewer workers, technology can serve as a draw for prospective employees by adding a dose of excitement to retail jobs, said David Gottlieb, chief revenue officer of Trax, a computer vision company that serves retailers.

"There's definitely an opportunity as you think about these next-generation technologies to provide benefit not only to the store as a whole because you're driving down costs and driving up availability, but also to the associate and to their appetite to stay with the job, because now you're giving them a cool piece of technology" to work with, Gottlieb said.

The delivery landscape is changing rapidly, and last year saw grocers modify delivery fees and order minimums as a result.

The most notable shift was Whole Foods Market's announcement last fall that it would do away with free two-hour delivery for Amazon Prime members and institute a nationwide $9.95 delivery fee.

The move prompted outrage among many shoppers. Within industry circles, however, the move has sparked debate over how to make e-commerce profitable — a top concern for grocers — while also catering to the needs of online shoppers. Although the specialty grocer's steep and sudden fee hike makes it an anomaly so far in the industry, it underscores the rapid changes in consumer demand and the need to bring fees in line with new services.

Consumers in a growing number of markets can now choose in-home service, instant-needs delivery in under 30 minutes and less expensive next-day delivery. As the pandemic continues to influence demand, the U.S. population over 65 continues to grow and young, digital-savvy consumers gain spending power, the need to offer a variety of services, along with the fee structures and promotions to support them, is increasing.

Lower or no fees and order minimums can boost customer acquisition and make online shopping more accessible financially to shoppers, while higher ones can help cover the costs of picking and delivering orders while also encouraging bigger baskets. Meanwhile, subscriptions, which often promise lower or no delivery fees, can serve to lock in shopper loyalty, but run the risk of alienating customers who don’t plan to be frequent shoppers. 

Experts said they expect — and encourage — grocers to continue testing strategies for dealing with delivery costs. 

"Right now, it's all an experimentation game," said Anne Mezzenga, a Target veteran and co-CEO of retail blog Omni Talk. "I think all every retailer is trying different levers. … to eventually make this more scalable, more profitable.”

Grocery Dive talked to several experts who weighed in on the factors grocers can consider when determining order fees and minimums, and how they can leverage them for different desired outcomes. 

1. Speedier service as a premium

The rise of instant needs companies in the U.S. is pushing grocers toward faster delivery service and also challenging the traditional retail strategy of speedier service equating to higher fees. Some instant-needs startups operating in major cities have no order minimums or delivery fees. The largest player in the emerging channel, Gopuff, charges a delivery fee of just under $2.

But given the volatility and challenging economics of this business, industry observers don't expect grocers and third-party marketplaces to follow suit, though fees and minimums will still need to be competitive. Mezzenga expects 30 minutes to be the threshold for grocers to charge for speedy delivery as a premium service.

Kroger Delivery Now, the 30-minute convenience delivery service powered by Instacart that launched in September, for one, charges a $2.99 fee and carries a $10 minimum.

While younger shoppers are coming to expect instant delivery, online shopping is becoming fragmented and faster service warrants premium fees, said Wendy Liebmann, CEO and Chief Shopper of WSL Strategic Retail. Higher fees for convenience delivery could prompt shoppers to switch to a delivery subscription to save money and stay stocked up on essential items, like diapers, while locking in loyalty for companies, Liebmann noted.

2. Lower fees to influence shopper behavior 

Wanting faster service doesn’t necessarily mean customers will pay the premium for speedy delivery, unless the item is a necessity. 

Low or no delivery fees are more compelling to grocery shoppers than choosing the fastest option in deciding where to shop for same-day or faster delivery service, Coresight Research recently found. In its consumer survey released in October, 60.6% of respondents picked low or no fees as the factor most important to them — placing it above pricing (53.4%), availability (49%), quality (45.2%) and choice (43.3%) of products. Only 40.4% of respondents said getting the fastest delivery option is their priority.

Grocers can use the attractiveness of low or no fees to influence shopper behavior. Retailers often leverage free delivery as a promotional tool around specific events, like during the holiday season, to help manage sales volumes, Dennis Moon, chief operating officer at delivery platform Roadie, wrote in an email. Many grocers also offer free or lower-fee delivery to attract new customers.

Giant Food recently reduced its delivery fees and minimums and added lower-priced weekday service. The changes incentivize customers to use its Giant Delivers service and get deliveries on days that were less busy for workers, said Gregg Dorazio, who heads up e-commerce for the grocer. The grocer has also worked with CPGs to offer delivery promotions when customers buy a certain amount of products from the brands, Dorazio said. 

So far, customers have responded the way Giant Foods hoped they would: “Tuesdays have now become as popular as Sundays in terms of delivery windows," Dorazio said. 

3. Make operations more efficient

To lower the costs of delivery operations and fees passed onto consumers in the long-term, sources recommended grocers invest in technologies now to improve operational efficiencies.

Batching orders is one way grocers can make delivery more financially viable, said Mezzenga and Tom Fiorita, founder and CEO of gig worker delivery company Point Pickup.

Increasing the number of deliveries by a single person improves not only delivery costs for companies but also per hour labor for workers, since they'll be able to earn more tips in less time, Fiorita said, noting grocers can invest in cold chain technologies, like environmentally friendly cooler packaging, that let drivers deliver more orders.

Ethnic e-grocer Weee has said its next-day delivery service, which is free for orders over $35, allows for improved efficiencies, like being able to deliver a higher number of orders per day and combine separate orders from a customer into one delivery. 

Automation is another area grocers can explore to improve efficiencies. While technologies like micro-fulfillment centers can be expensive upfront, Mezzenga sees long-term payoff: "That investment in one micro-fulfillment center that can serve online orders for 15 stores and maybe even some of the fresh produce that just needs to be picked, there are huge advantages in that and I'm surprised that retailers have been so reluctant to make that investment already."

4. Incentivize bigger baskets 

Whole Foods' fee hike last year sparked industry chatter about how grocers can pass delivery costs to customers and drive bigger baskets. 

At the time the fee was announced, a Whole Foods spokesperson noted that "average basket sizes have continued to increase since the beginning of 2021" and said customers keep using delivery to stock up on groceries. 

The specialty grocer, which differentiates itself with a product selection that already comes at a higher price point, can potentially benefit from a higher fee, said Carol Spieckerman, president and CEO of Spieckerman Retail.

"Charging a fairly nominal fee like $9.95 can actually have the effect of encouraging larger basket size because it becomes, 'Well, while I'm there and since I'm already paying this flat fee, I'll just load up.' …  I think that's a really good model for for Whole Foods," she said. 

Retailers like Whole Foods that have the "one-two punch" of loyalty and price-resistant shoppers are better positioned to charge fees than discounters with a price-sensitive consumer base, Spieckerman said.

Other grocers will likely find $10 hard to sell to shoppers. If grocers need $10 or more per order to cover delivery costs, Mezzenga instead recommends they explore other areas to generate revenue, like a subscription model or retail media networks. 

To drive bigger baskets, Harris Teeter took the opposite approach with the tiered service fee structure it rolled out last year for its ExpressLane service. The grocer has a $25 order minimum, except for subscription members, and charges a $4.95 fee for orders between $25-$49.99. The fee gets lowered to $2.95 for orders between $50 and $100. 

5. Experiment with subscriptions

Subscriptions with a monthly or annual fee for unlimited delivery are becoming more common, Moon of Roadie said. Several grocers, including Albertsons, Kroger and Ahold Delhaize, have recently launched offerings that bundle no-fee delivery with other perks like bonus fuel points and product savings. .

"When you have people locked into a subscription model, you really have them locked into your ecosystem. They'll look for excuses to shop with you and it will be an exception to look around," Spieckerman said.

Large retailers with broad assortments, like Amazon and Walmart, and marketplaces are better positioned to offer subscriptions, sources said. Spieckerman said it can be harder for grocers to convience consumers to add yet another subscription service to their lives, unless they have high customer loyalty or can lean into superior quality of produce to justify subscriptions.

"There's a real danger of shoppers saying, 'Well how many of these subscriptions do I want to pay for?'” she said. Other experts have raised concerns that grocers' subscription programs don't offer enough perks to make them valuable.  

6. Consider vulnerable shoppers

The exploding availability of online shopping for SNAP recipients last year and financial hardships brought on by the pandemic have brought more attention on shoppers facing financial obstacles. Testing of online purchasing for the Special Supplemental Nutrition Program for Women, Infants and Children (WIC) has just started as the federal government looks to modernize redemption of WIC benefits. 

Retailers face decisions over whether or not to waive or reduce fees or order minimums for shoppers receiving government assistance to help pay for their groceries. 

For example, Amazon offers reduced pricing on its Prime subscription for students and for EBT and select government assistance recipients. Shoppers using SNAP funds don't need to be Prime members to shop Amazon Fresh. The Giant Company and Giant Food waive order minimums for pickup and delivery for customers using SNAP funds to their orders. 

In looking to incentivize older people to turn to e-commerce, Harris Teeter waived its service fee for customers ages 60 and older and lowered delivery to $4.95 on Thursdays from 9 a.m. to 2 p.m. 

7. Offer transparency to consumers 

As grocers continue to experiment with fees, they face challenge of determining how much to information to share with customers so they aren't surprised when they go to checkout, sources said. 

Flat fees, while straightforward to customers, can leave grocers without room to tweak costs and spark backlash from customers when raised. Variable fees can provide more flexibility but can leave customers confused if they are not clearly explained, potentially leading to diminishing returns, Spieckerman said. 

“If it becomes too complex and too convoluted, you risk alienating shoppers, because especially for something like delivery, they really want it to be straightforward, easy to understand and easy to execute," Spieckerman said.

One option to bypass the problem of determining fees and order minimums is to instead build the costs of e-commerce operations into product pricing, she said. De-coupling online prices from and in-store can work as long as category pricing is competitive, Jordan Berke, founder and CEO of Tomorrow Retail Consulting, wrote on LinkedIn. 

Fiorita of Point Pickup, which has grocery delivery comprising 63% of its business, said he is seeing some grocers following in the footsteps of third-party marketplace models, which can increase product prices between 20% to 30%, by raising some prices while promoting lower fees and better service through their own e-commerce platforms. 

While it's understandable companies won't give away the exact algorithms with how they determine fees, some public-facing insight can let shoppers know what to expect, sources said. 

"More transparency is generally better, but most importantly, customers hate to see surprise fees at the point of sale," Moon of Roadie said. "Hidden fees or surcharges at checkout can cost you a sale, and sometimes a customer."

8. Provide a range of options

From faster but pricier service to lower-priced but slower delivery, grocers will want to have a range of options to meet different consumer needs, sources said.

Spieckerman broke delivery into three main categories: stock-up, urgent and the in-between shop for items customers need but not instantly. 

"The same shopper will make different decisions for different purchases, and smart retailers will offer them choices. It’s all about offering that optionality," said Moon.

While order minimums for free delivery aim to justify the cost of delivery for the retailer, Moon said he doesn't see a need for the grocer to add an order minimum if it's already going to charge a fee.

"[If] you’re charging the customer a fee for delivery, there’s really no reason to create limitations for that customer on what they can, can’t or have to buy," Moon said. "If your customer wants to get a week’s worth of groceries, great. If they’re really just craving pizza bagels and don’t want to leave their house to get them, that’s also great."

Like grocers across the country, Karns Foods in Pennsylvania is grappling with rising prices and a rotating cast of supply chain shortages. That lack of control has been tough to swallow for Scott Karns, the 10-store company’s chief executive.

“We order 2,000 cases and we might get 1,200,” he said. “It's very frustrating for our customers to explain to them why they can't get exactly the flavors and the sizes they want.”

The company is managing as best it can, Karns said. To combat price increases, Karns’ stores are stocking their aisles with more private label products, which offer lower price points. To deal with supply shortages, managers are buying surplus quantities of items like toilet paper and pasta sauce when they can and offering shoppers a limited assortment in strained categories. 

Karns said the company is also trying to source more products locally, including pork, which used to come from a Midwest supplier and now comes from an in-state one. In May, the grocer will begin sourcing around two-thirds of its beef supply from a handful of local farms that will exclusively supply Karns’ stores.

So far, Karns noted, shoppers have rolled with the changes, but he’s not sure how long that will last. “The basket is going to get more expensive as the year goes on,” he said.

Retailers are nervously watching their shoppers as rising prices and out-of-stocks continue to plague their aisles. According to recent news reports and interviews, the main impact of these prolonged disruptions to date has been shoppers buying lower-priced items and grumbling about empty shelves.

But loyal consumers could reach a tipping point later this year, companies fear, and switch to stores that offer better prices or different products. During its third-quarter earnings call in January, Albertsons executives noted the pressure competitors put on any decisions the grocer makes around pricing, and said that while its shopper loyalty is “strong” right now, the company is remaining watchful.

In an Ipsos survey of 1,000 consumers released in early December, 45% reported buying items from a store other than their primary grocer at least once a month thanks to supply strains or a poor online ordering experience. Eighteen percent of households with kids said they've changed to another primary grocer because of these factors.

"There's enough competition out there that consumers are changing their behaviors if what they need isn't in stock," said Mike Murphy, a vice president with Ipsos.

Krishnakumar Davey, president of client engagement with IRI, said the research firm is monitoring consumer elasticity, which measures shoppers sensitivity to price changes, “extremely closely.” After a period of low elasticity earlier in the pandemic, when stimulus checks, child tax credits and at-home lockdowns fueled higher spending, that metric has started to rise to pre-COVID levels in many categories, he said. As of early January, breakfast meats and coffee were showing price sensitivity in line with those seen before the global health crisis, while hot cereal and candy were showing higher elasticity than pre-COVID, Davey said. 

Across many categories, consumer elasticity is still lower than before the pandemic, Davey said, suggesting retailers have room to pass along price increases from suppliers, which have been hit with higher wages, shipping disruptions and other pressures. But retailers are concerned that the end of federal aid programs, like the expanded child tax credit that expired at the end of 2021, coupled with prices rising at a faster clip, could magnify consumers’ frustrations.

Food-at-home prices rose 6.5% last year, according to the U.S. Bureau of Labor Statistics, and manufacturers are passing along additional increases beginning in January. IRI projects prices will rise an average of 5% in the first half of this year.

“What [retailers] are apprehensive about is that some of the stimulus is drying out, and price increases are going through a lot more this year than last year,” Davey said. “They're saying we know that people like to eat at home, but people can substitute.”

Staying 'agile' amid price increases

Although the root causes of inflation are beyond retailers’ control, there are ways to effectively manage these price increases, experts said. Executives at Albertsons and other grocers have spoken in recent weeks about holding back increases on essential goods and key items while letting them flow through on more discretionary purchases.

Davey said IRI’s scan data shows grocers are keeping down prices on fresh goods like milk, eggs and meat and increasing prices across center store categories. They’re also pulling back on price promotions due to supply shortages and other challenges. He said that, percentage-wise, the center store price increases appear relatively the same across discount, mass and traditional retailers — which is somewhat surprising, Davey said, as he expected low-price retailers to hold back in an effort to win over comparison shoppers. But that could soon change.

Davey said retailers that are able to push personalized coupons and other promotions to price-sensitive shoppers are doing so.

“Right now, I think the main strategy is to give the discount to the buyers who need it,” he said.

Steve Bishop, managing partner and co-founder of consulting firm Brick Meets Click, said retailers are using technology to spot price gaps and identify high-value items where they should be price competitive. Companies need to be particularly “agile” in 2022, he said, because the combination of high demand on certain items and supply shortages can make inflation appear quickly anywhere in the store.

“In the coming year, it will be even more important to change prices quickly to minimize any price vulnerability from higher prices that negatively impact sales or lower prices that negatively impact profit,” he wrote in an email.

A value-price image can go a long way, sources said, even if prices overall have gone up. Marco Di Marino, director of consulting firm AlixPartners' retail and grocery division, said retailers are making selective price cuts and promoting key items where they’ve kept inflation from trickling in. In January, Winn-Dixie announced it's dropping prices prices by an average of 15% on more than 150 of its "most-shopped" items.

Retailers are also adding more store brands and value-priced items to their shelves, said Di Marino.

Krasdale Foods, which offers distribution and marketing services to independent retailers in New York and New Jersey, is seeing higher private label demand from retailers it serves, said Dennis Hickey, chief merchandising officer with the company. But Krasdale’s private label suppliers are struggling with the same supply-chain shortages national brands face — like shortages of tin and other raw materials — meaning sometimes they don’t have the products in stock.

Many of the retailers Krasdale works with are in the New York City area, where there aren’t many discount players like Walmart. That’s helped stores hold onto customers, he said, though companies are still carefully watching shoppers’ behavior over the coming months.

“We’re keeping a very close eye on trip frequency,” Hickey said.

Learning to do more with less

Retailers learned early in the pandemic how to deal with supply shortages and communicate those to shoppers. The omicron variant, however, has once again accelerated out-of-stocks that are often impossible to predict as suppliers and distributors contend with worker absences and other challenges. 

Executives are hopeful supplies will normalize beginning in February, after omicron has ebbed. Until then, retailers like Go Grocer in Chicago are having to limit their assortment and shuttle goods between stores to fill in product gaps. Gregory Stellatos, co-founder and co-owner of the Chicago-based chain, said all the supply shuffling during the pandemic has made shoppers less brand loyal.

“During this time, I think private label and emerging brands are the two winners,” he said.

Hickey, meanwhile, said independent retailers have had to be very resourceful in order to get the supplies they need. They’re cutting assortments by nearly half in some areas, he said. If Krasdale doesn’t have an item they need, he said, they’ll find another way to get it.

“Instead of carrying 25 flavors of Ocean Spray juice, they may be down to 15 or 16,” he said. “They’re spread out a little more, and maybe they’ve changed their allocations, but our retailers will go anywhere to get product when they need to fill shelves.”

Karns said shoppers at his stores have responded so well to limited assortments that he’s planning to continue the strategy long-term. “How many sizes of Hidden Valley Ranch do we really need?” he said.

The supply chain squeeze over the past two years has prompted Karns to make other long-term changes. After years of contemplating starting its own beef supply line, the grocer finally got started a year ago. It partnered with a local farm-management organization and is now overseeing Angus cattle operations at 15 family farms across six counties.

Karns Pennsylvania Preferred Beef selections will hit stores in May, Karns said, and have their own dedicated section. All told, the operation will account for around 70% of the grocer’s beef needs, and could get close to 80% after adding several more farms. He said the new line will carry prices that are equal to its current beef selections.

“I can go out and visit the herds, which is something I've never been able to do in my 40 years in the supermarket business,” Karns said.