Supply chain disruptions fueled by the COVID-19 pandemic are hitting the pocketbooks of grocery shoppers and retailers alike.
In 2021, U.S. grocery retailers saw billions of dollars in lost sales due to ongoing out-of-stocks across product segments, according to new research from NielsenIQ. Meanwhile, amid product shortages and high food-at-home demand, customers have grappled with elevated grocery prices — including inflated costs for fresh foods — and adjusted their shopping habits to rein in spending, studies by Symphony RetailAI and investment firm Jefferies show.
Out-of-stocks cost retailers of fast-moving consumer goods (FMCG) $82 billion in missed sales last year, market research NielsenIQ said in its “2021 COVID-19 Impact on Out-of-Shelf” report. That dollar figure represents 7.4% of sales not realized because of out-of-stock/out-of-shelf items.
Still, the U.S. FMCG sector tallied sales of $970 billion in 2021, up 2.1% after an 11.9% gain to $950 billion in 2020.
Out-of-shelf cost to retailers
Empty shelves cost retailers $1.4 billion in FMCG sales every week in the United States during 2021, reaching a weekly high of $1.9 billion during a COVID surge last fall. Amid the fourth wave of the virus, from June 27 to Oct. 16, out-of-stocks were $1.7 billion per week, up 22% from $1.4 billion in the 2021 first half.
NielsenIQ noted that out-of-stocks cause 46% of FMCG retailers to lose the sale. That includes 20% of consumers postponing their purchase, 10% buying elsewhere and 16% going online to get what they want.
The on-shelf availability rate came in at 92.6% for 2021, NielsenIQ estimated. Unsurprisingly, the percentages tended to trend lower during COVID waves, with a nadir of 91.9% during the July-October virus surge and a high of 93.4% over the March-June period when COVID cases were down.
By category, fruit experienced the most missed sales during the fourth COVID wave (July-October) at over $9.84 billion, with an on-shelf availability rate (OSA) of 87.3%, NielsenIQ’s report said. That was followed by beverages at missed sales of $2.88 billion (91% OSA), vegetables at $1.91 billion (88.7% OSA), paper and plastic goods at $879.8 million (93.9% OSA), salty snacks at $819.5 million (92.9% OSA), prepared foods at $790.2 million (93.5% OSA), pet food at $612 million (94.1 OSA), candy/gum/mints at $496.1 million (94.7% OSA), processed meat at $374.4 million (93% OSA) and beer/flavored malt beverages/cider at $317.1 (95.3% OSA).
In response to product availability shortfalls, many retailers instituted SKU rationalization, and the FMCG sector saw a 10% decrease in items sold in stores, NielsenIQ reported. Another strategy that retailers took amid supply constraints — scaling back promotions — proved prescient as NielsenIQ found that the out-of-shelf rate doubles when products are on promotion.
Chicago-based NielsenIQ released its study this week in announcing its new on-shelf availability barometer, which enables retailers to measure and benchmark out-of-stocks to thwart supply chain disruptions and uphold on-shelf availability.
“The ability for retailers to identify risks due to out-of-stocks will help retailers not only maintain sales, but increase consumer satisfaction and loyalty,” Jean-Baptiste Delabre, vice president of retail analytics at NielsenIQ, said in a statement. “By identifying out-of-shelf products at the most granular level, retailers now have the ability to identify and quantify lost sales, prioritize opportunities and execute on the root causes of out-of-stock products across the supply chain.”
Bigger inflation bite on fresh foods
For consumers, product shortages and high demand have meant higher pricing, and more money out of their wallets.
The U.S. Bureau of Labor Statistics reported Thursday that the food-at-home Consumer Price Index for January rose 7.4% year over year (seasonally unadjusted) and was up 1% (adjusted) from December, continuing annual and sequential gains throughout 2021. All the six major grocery-store food group indices — cereals and bakery, dairy and related products, fruit and vegetables, meat/poultry/fish/eggs, non-alcoholic beverages and other food-at-home — were up year over year in January, and five (except for non-alcoholic beverages) increased since December.
Across grocery departments, fresh food categories have seen the most price inflation, according an analysis released yesterday by Symphony RetailAI. The Dallas-based CPG and retail solutions specialist noted that with inflation much higher in fresh versus frozen and ambient (shelf-stable) categories, price-sensitive shoppers are buying less in meat, poultry and dairy, though still prioritizing purchases of fresh produce.
The average item price (AIP) throughout the store is up 5.7%, with consumers paying nearly 6 cents more for every dollar spent, Symphony found in a closer look at data from its “2021 Shopper Study: The Changing Customer Landscape.” By AIP alone, beverages had the highest increase with an 8.2% higher price tag, followed by fresh food at +6.1%, frozen at +5.8% and ambient at +5.6%.
Most of shoppers’ higher spend across categories stems from product mix — i.e. customers buying more expensive products due to assortment changes or decision to purchase a more premium product, Symphony noted. However, in fresh foods, a much larger share of price increases comes from inflation, not customer choice.
At the store level, 26% of the additional consumer spend reflects increases in the base price from inflation, compared with 74% arising from customer changes in the product mix. For fresh, 45% of average price increase is driven by inflation, roughly double the inflationary impact in frozen (18%), ambient (18%) and beverages (24%).
That pricing differential has a big effect on customers. For every 10 items in a shopper’s basket, four are fresh products, Symphony’s analysis revealed. On average, shoppers have sever times more fresh items in their basket (43%) than frozen items (6%). Shelf-stable products make up 29% of the grocery basket. Fresh foods also have a high monthly purchase frequency (24.8%) and are seeing higher levels of customer growth than other grocery category, with an 8% uptick in shopper households over last year versus 7% for shelf-stable products, 6% for beverages and 5% growth for frozen.
“A limited view of aggregate shopper behavior across the store won’t lead to optimized decisions around price and promotional investments, especially with inflation impacting some categories more than others, as seen with meat, poultry and dairy,” explained Charisse Jacques, senior vice president of global customer-centric retail services at Symphony RetailAI. “Retailers need a shopper-centric, AI-powered approach to differentiate their item and category strategies based on the importance of price or promotions to a given customer segment. If an item is extremely important to price-sensitive customers, the retailer can ensure the item is priced well to reverse any lost perception of value and further promoted to drive traffic and sales.”
In January, online grocery price inflation also remained elevated. The Adobe Digital Price Index had online grocery pricing up 5.82% year over year in January and 1.22% from December. Grocery was among the categories with the highest price hikes across Adobe's index, which overall saw inflation rise 2.7% year over year and 1.1% month-to-month for January.
Food shoppers take action
In its U.S. Food Survey results released last week, New York-based Jefferies found that 80% of 1,000 consumers polled were currently limiting or finding ways to cut back on their grocery spending.
To that end, 42% of respondents said they’re purchasing less expensive food/grocery brands, and 31% are buying more products on sale or promotion. Customers’ strategies also include buying more private-label and store-brand products (29%), purchasing in smaller quantities (21%) and buying fewer items (20%). Another 20% of consumers said they’re not doing anything to limit their spending.
“We surveyed 1,000 respondents who make grocery purchase decisions to gauge how consumers may react to higher grocery bills,” Jefferies analyst Rob Dickerson wrote in a Feb. 2 research note. “While at-home food consumption looks sticky in the near term, inflated grocery prices have consumers increasingly looking for ways to reduce at-home food bills, despite savings from potentially less dine-in frequency.”
Compared with a year ago, 22% of shoppers surveyed said their grocery bill is up 1% to 10%, while 29% cited increases of 10% to 20%. Just 12% said they’ve seen no changes in their grocery bill, whereas others reported heftier increases of 20% to 30% (cited by 19% of consumers), 30% to 40% (cited by 14%) and over 40% (cited by 4%).
“Although 2021 was a supportive pricing environment, given the demand/supply backdrop and as evidenced by heretofore low elasticity and limited sales promotions, our survey suggests that consumers are feeling the impact of increasing costs on their food bills and have already started taking steps to reduce expenses,” Dickerson said. “According to our survey, 67% of respondents stated that they’ve seen an increase in prices on both their groceries and restaurant/ takeout orders, with 49% stating the increase in grocery prices has been greater than the increase seen in restaurants (which we find interesting). On average, respondents stated a 17% increase in their grocery bill year over year.”
Over three-quarters of respondents reported they’d cut down on the number of items in their grocery basket depending on the level of price hikes. Twenty-one percent said a 20% price increase would sway them to reduce their shopping basket, and around 18% said price rises of 10% or 15% would push them to do so. Only 14% said higher prices wouldn’t impact their basket size, while 10% indicated it would take a 30% increase to do so.
“If prices were to climb higher (and they likely are), those percentages simply increase,” Dickerson wrote in his report. “Seventy-six percent of respondents stated that they’re likely to reduce overall basket items given grocery price inflation.”