Inflation is painful for food shoppers, but it’s also been a challenge for grocery industry professionals.
The Supermarket News 2022 Center Store Trends Survey found that high grocery prices are indeed top-of-mind, as respondents expect stronger center-store sales gains, bigger unit volume decreases and a sharper focus on private label versus a year ago. The poll, conducted in the latter half of August, is based on responses from 185 grocery retailers, wholesalers, manufacturers and marketers.
“Inflation has really compromised pricing!” one respondent wrote in a comment portion of the survey questionnaire. “We try our best to be as competitive as possible.”
For 2022, 32% of those surveyed forecast center-store dollar sales to rise 5% to 10%, compared with 24% expecting that size increase a year ago. Twenty percent project a more than 10% gain — the same as last year — and 18% expect a 2% to 4.9% increase, down from 21% for 2021. Ten percent estimate that center-store sales will hold firm, and 12% think they will decrease.
Elevated grocery pricing due to inflation has swayed a larger percentage of survey respondents to predict center-store unit sales decreases. Overall, 39% expect unit volume to fall, compared with 25% expecting a decline last year. Sixteen percent forecast a unit-sales decrease of 2% to 4.9% in the center store versus 11% expecting a flat to 1.9% dip and 10% estimating a 5% to 10% drop. Still, 51% of those polled project center-store unit volume to grow, with the largest percentage expecting a 2% to 4.9% uptick. Ten percent see unit sales as staying the same.
“At this time, and probably for the next 18 months, price is still the most important factor for 80%-plus of consumers. Where they shop could change significantly (traditional supermarket versus Walmart),” one survey respondent wrote. “It’s a combination of things to build lifelong loyalty, but price perception is either going to get customers in the door or repel them,” said another.
Impact of inflation
Though the Consumer Price Index (CPI) inched up just 0.1% (seasonally adjusted) month over month for August and had a smaller annual gain of 8.3% versus July, grocery shoppers haven’t seen much of a benefit.
The food-at-home CPI for August climbed 13.5% (adjusted) year over year, topping the 13.1% rise in July and marking the biggest 12-month increase since the period through March 1979, according to the U.S. Bureau of Labor Statistics (BLS). Despite a month-to-month letup in August, the food-at-home index has risen steadily on an annual basis since the start of the year, up 12.2% for June, 11.9% for May, 10.8% for April, 10% for March, 8.6% for February and 7.4% for January.
On a monthly basis, the food-at-home CPI edged up 0.7% in August, representing the first increase below 1% since April. That compared with upticks of 1.3% in July, 1% in June, 1.4% in May, 0.9% in April, 1.5% in March, 1.4% in February and 1% in January. The latter gain came after just a 0.4% increase in December.
“Right now, everyone is looking for the cheapest items,” one of the respondents in SN’s poll said of grocery customers.
Of SN Center Store Trend Survey participants, 43% said high food price inflation has lifted their center-store sales number 5% to 10%, and 23% reported seeing an increase of less than 5%. Eleven percent have tallied a center-store sales gain of over 10% due to inflation.
When asked to name center-store product categories most impacted by inflation, 55% of survey respondents cited shelf-stable food and groceries. Snacks (30%), health and beauty care (25%), frozen food (24%) and paper goods (22%) were the next most-cited categories.
“Supermarkets are facing challenges due to cost differentials between the dollar stores and the major warehouse stores, Costco and Sam’s,” one survey participant commented. “Raising prices is a difficult challenge, since the consumer is a little sensitive about price increases. Fuel pricing right now is easing somewhat. However, they [consumers] will need to see more decreases to change behavior.”
Private brands gain favor
Customers already are changing brand choices in response to ongoing high grocery prices. Among those polled, 87% said they’re seeing shoppers trade down to private labels and store brands in the center-store aisles amid the inflationary environment. Likewise, 69% report that private brands now make up a larger portion of the shopping basket, while just 26% said customers’ private-label purchases have remained the same.
“Private label offers good/better/best products at a ‘discount’ from national brands,” one survey respondent noted.
To capitalize on the value proposition of own brands in the center store, 46% of those polled plan new product innovations. Twenty-nine percent said they aim to focus on adding natural/organic grocery items to their private-brand roster, and 24% are looking to roll out more specialty offerings, such as gluten-free, locally sourced or imported products. Other store-brand plans include brand consolidation (19%), healthier reformulations (14%), multicultural products (8%) and new product categories (7%).
“Adding private-label options in more categories provides consumers with more choice and better value for their dollar,” explained one participant in SN’s poll.
Fortifying the center store
The strongest center-store categories over the past 12 months generally reflected product segments that got a boost since the start of the pandemic.
Snacks and frozen foods each were named by 24% of survey respondents as categories seeing robust growth, followed by beverages (13%) and pet care (11%). Paper goods (cited by 6%) and household cleaners (4%) also have been sales drivers following the onset of COVID-19. Also named was HBC (4%), which includes health and personal care products as well as beauty care, with the latter segment only recently experiencing revived sales as consumers return to the office and leisure activities.
As with private label, new product innovation is the top strategy to hoist center-store sales, named by 49% of survey participants, up from 44% in last year’s study. Also this year, more respondents (15%) cited recipes and product sampling/demos as a key tool versus the 2021 poll (11%).
Center-store strategies losing traction for 2022 included home delivery/curbside pickup (cited by 29% of respondents this year vs. 48% last year), cross-merchandising in perimeter departments (27% vs. 40%) and reorganizing items based on meal occasion (13% vs. 24%). Six percent cited other strategies, including aisle resets, prepared meals, new promotions, price investment and personalized media.
“Compete with restaurant delivery. Encourage shoppers that cooking isn’t mysterious, show them easy recipes and illustrate how much money they will save by learning how to cook and eat at home,” one respondent told SN in the survey.
Taking on the competition
On the competitive front, survey respondents seem to be more focused on brick-and-mortar rivals this year. Twenty-four percent named Walmart and other mass merchants as the chief alternate channel threat to supermarkets in the center store, up from 11% last year. Online retailers were cited by 45% of those polled in the 2021 survey but just 23% in the 2022 study.
Similarly, 16% named club stores as the top center-store threat to supermarkets this year (5% in 2021), 13% cited dollar stores (10% in 2021) and 11% pointed to limited-assortment discount grocers (5% in 2021). Just 8% called direct-to-consumer channels a competitive threat, dropping from 19% last year, when DTC was No. 2.
“There's no reason to play Walmart’s game,” a survey participant said, explaining that supermarkets shouldn’t waste valuable shelf space with slow-moving items or stock too many items. “There is absolutely no reason to carry 10 different sizes of Heinz ketchup or a year’s worth of salsa. I want a smaller footprint with interesting and diverse products to set me apart from Walmart, Costco and Trader Joe’s, because I can’t beat their prices. Going more specialty and nimble is best for now.”
Despite inflationary pressures, price came in first as the best way to fight center-store competitors, cited by 31% of respondents, followed by private label (23%), specialty products (12%), value-added offerings/programs (12%), exclusive pack sizes and product bundles from national brands (9%), and delivery/pickup (8%). Other suggested center-store strategies included more better-for-you products, everyday low pricing, unique items, product demos and subscription/replenishment programs.
“Try and control pricing structure and offer more aggressive promotional offers to avoid transition purchase to private label,” one respondent recommended as a way to combat shopper trade-downs. Another said supermarkets can fend off center-store rivals “by holding pricing in a reasonable check, to stay competitive with other retail venues.”
Get to know your customers better, another survey respondent suggested: “Understand what shoppers in your store buy elsewhere, then market to them based on that understanding.”