Will supermarkets’ grocery market share lead be short-lived?

Bolstered by last year’s pandemic stockpiling and the ensuing food-at-home trend, supermarkets stand to lead nontraditional retail competitors in grocery market share through at least 2025, according to Inmar Intelligence’s 2021 Future of Food Retailing Report.

Winston-Salem, N.C.-based Inmar projects dollar share for the traditional grocery retail channel — conventional supermarkets, fresh formats, limited-assortment stores, “super warehouse” chains and corner grocery stores — to rise 0.6% to 45% by 2025 from 44.4% in 2020.

Meanwhile, nontraditional retailers — supercenters, mass merchants, wholesale clubs, dollar/extreme value stores, drugstores and military commissaries — will see their grocery dollar share grow 1.7% to 42.1% in 2025 from 40.4% in 2020. Convenience store grocery dollar share is forecast to shrink 2.3% to 12.9% from 15.2% over that time frame.

“There will be an overall return to pre-pandemic channel trends, with notable exceptions in the fresh format [supermarket], mass merchandiser and wholesale club formats, for which the past year indicates a pivotal shift,” the Future of Food Retailing Report said. “The traditional grocery channel’s significant sales growth in 2020 will help the channel maintain dollar share through 2025, slightly increasing to 45%. However, this bump will only be a delay and not a reversal of nontraditional grocery’s decades-long increase in dollar share, expected to reach 42.1% in 2025. In addition, the growth of traditional and nontraditional grocery will come at the expense of the convenience format.”

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Among brick-and-mortar segments, Inmar expects the most growth from limited assortment grocers (e.g. Aldi, Lidl, Trader Joe’s, Save A Lot), estimating a five-year compound annual growth rate (CAGR) of 6% through 2025. That’s followed by five-year CAGRs of 5.1% for wholesale clubs (e.g. Costco, BJ’s, Sam’s Club), 4% for fresh grocery formats (e.g. Whole Foods, Wegmans, The Fresh Market, Mariano’s), 3.6% for dollar/extreme value stores (e.g. Dollar General, Dollar Tree, Family Dollar), 2.4% for mass merchants (e.g. traditional Walmart, Target, Kmart stores), 2.2% for supercenters (e.g. Walmart Supercenter, SuperTarget, Meijer, Kroger Marketplace), 1.7% for traditional supermarkets and 1.6% for corner grocers.

“Though one of the biggest winners from pandemic sales, traditional supermarkets are not projected to maintain significant growth over the next five years. The gradual tapering of pandemic sales will protect this format from seeing a significant decline in dollar share. However, the expected CAGR of 1.7% from 2021 to 2025 will fall slightly below the rate of inflation (2%),” Inmar noted in its study. “Almost all retailers in this format reported strong sales growth in 2020 and offered some expansion of digital capabilities, in quantity if not quality. However, few traditional supermarkets were able to capitalize on this in a way that will extend the pandemic-driven expansion of consumer needs into long-term increases of shopper engagement or loyalty.”

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Through 2025, Inmar predicts compound annual decreases of 9.6% for super warehouse grocery stores (e.g. Smart & Final, Food 4 Less, Cub Foods), 4.9% for drugstores and 3.2% for military commissaries. Fuel will be a factor for convenience stores, as those not selling gas have a CAGR of 1.2% over the next five years versus a compound annual decrease of 1.1% for those with gas stations.

Brick-and-mortar expansion will be a key growth driver, Inmar’s analysis shows. Traditional grocery store count is slated to climb 4.2% from 40,616 in 2020 to 42,322 in 2025, led by limited assortment stores ( 38.3%) and fresh formats ( 11%), whose dollar share stands to advance 1% and 0.3%, respectively. The retail footprint for conventional supermarkets is expected to expand just 1.5%, from 25,034 stores in 2020 to 25,412 in 2025, with dollar share dipping 0.1%.

“Within traditional grocery, limited assortment and fresh formats are expected to return to elevated versions of their pre-pandemic growth trends,” Inmar explained in the report. “As a result, both will gain share slightly but remain at below 5% of 2025 total dollar share. Growth in both formats will depend on their ability to retain pandemic shoppers based on their promised benefits of low price (limited assortment) and quality products (fresh formats).”

In nontraditional grocery, Inmar pegs overall store count growth at 3.7%, from 64,934 in 2020 to 67,306 in 2025. The leading segments in brick-and-mortar expansion are expected to be wholesale clubs ( 5.1%, for dollar share growth of 2.1%), mass merchandisers ( 6.7%, for dollar share growth of 0.2%) and dollar/extreme value stores ( 9.3%, for dollar share growth of 0.3%). Supercenter store count is forecast to grow just 0.5% through 2025, but that channel’s dollar share will edge up 0.6%, holding its place over clubs as the share leader in nontraditional grocery.

“Among the formats within the nontraditional grocery channel, wholesale club is projected to see the largest positive sales CAGR from 2021 to 2025 at 5.1%, which will increase the format’s dollar share two points to 11.9% in 2025. This is a higher growth rate for the format than would be expected without the pandemic-inspired boosts to club memberships and strong membership retention at wholesale club retailers,” Inmar observed. “With the second-highest projected rate of increase in this channel, the dollar/extreme value format is expected to maintain trending sales growth at a CAGR of 3.6% from 2021 to 2025, as the value proposition of retailers within this segment remains consistent pre-, mid- and post-pandemic.”

The pandemic-triggered online grocery boom in 2020 has changed the game across the food retail arena, namely in traditional and nontraditional grocery channels, noted Jim Hertel, senior vice president at Inmar, a provider of data-driven retailer and manufacturer technology services. Last year, online grocery and consumables sales jumped 48.9% to $119 billion, powered by a 74% gain in food and beverage e-commerce sales.

“Digital acceleration is affecting the long-term growth plans of food retailers and manufacturers,” Hertel explained. “Consumers have convenience at their fingertips with the option to order groceries online, yet in-store sales are climbing back up to pre-pandemic levels. So for retailers across the board, now is the time to build loyalty through digital hybrid experiences. These personalized engagements on digital and tailored and thoughtful in-store experiences will help meet expectations now, which will solidify loyalty in the long run.”

Looking ahead, Inmar estimates an 18% five-year CAGR for the e-commerce grocery channel — including Amazon, third-party providers like Instacart and Shipt, pure-play online grocers and retailer-branded services — through 2025. That would translate into the equivalent of 15% to 20% of 2025 grocery dollar share.

Supercenters and mass merchandise stores gained during last year’s online grocery surge by quickly adopting an omnichannel approach, according to Inmar.

“For the mass merchandiser format, e-commerce engagement in 2020 helped to reverse previous expectations of declining sales over the next five years,” the report said. “By capitalizing on the successful adoption of omnichannel solutions, this format is projected to see an additional sales CAGR of 2.4% from 2021 to 2025, while supercenter is forecasted at a sales CAGR of 2.2%. The continued growth of e-commerce will benefit these two formats by countering the return to less-inflated basket sizes.”

In 2020, traditional grocery sales rose 10.9% year over year to $623.3 billion from $562.3 billion, Inmar reported. That growth came just ahead of the 9.2% gain in nontraditional grocery to $566.4 billion and was well above convenience stores’ 1.5% increase to $212.9 billion.

Leading the sales growth charge in traditional grocery last year were conventional supermarkets ( 12.5%), followed by fresh formats ( 11.5%), limited assortment stores ( 7.6%) and corner grocers ( 2%). Sales fell 11.8% for super warehouse grocery stores. Mass merchants paced the field in nontraditional grocery, with sales growth of 20.1% in 2020. Next were wholesale clubs ( 14%), supercenters ( 9.1%), dollar/extreme value stores ( 2.3%) and military commissaries ( 0.6%). Drugstore sales contracted 0.7% last year.

“Annual sales of grocery and consumable items grew 8.8% over 2019 totals, aggregated across all formats, despite a 0.6% decline in total store count — thanks to increased at-home dining and product consumption amid widespread shutdowns and rising product prices,” Inmar said in its report. “In addition, e-commerce sales of grocery and consumable items grew a staggering 48.9% in 2020, as many consumers engaged with digital grocery shopping for the first time and retailers rushed to make alternative options to in-store purchasing available.”