Fresh Departments a Mixed Bag for Grocery Retailers
Essentials like meat and dairy are strong, but service departments are challenged.
Since the onset of the coronavirus in the U.S., sales results for supermarket fresh departments have been decidedly mixed.
While meat and dairy have emerged as sales leaders, the limited service/assortment and/or shutting down of bakery and deli counters across many stores have had severely negative impact on sales in areas like deli-prepared food, made-to-order cakes and other fresh food items.
Despite a difficult past four months, deli remained atop all fresh subcategories in terms of dollar sales, with $37.6 billion for the 52 weeks ending May 30, 2020. Other top performers include fresh vegetables ($32.4 billion), fruit ($31.2 billion) and beef ($28.7 billion).
Sales in challenged fresh departments like deli and bakery had started to inch up this summer, but the spread of the pandemic in the southern and western regions of the United States could once again impact consumers’ confidence level in going out to the grocery store.
Taken as a whole, the overall meat category (including beef, poultry and pork) was the biggest winner in fresh, with $75.9 billion in sales, up 10.5% over the same period a year ago.
Meanwhile, fresh staples meat and dairy continue reporting strong sales, though nowhere near the peak the categories experienced during the panic buying and hoarding this spring. Out-of-stocks and higher prices also continue to be a challenge for these high-demand categories.
Fresh produce, on the other hand, has had more of a winding road through the pandemic. During the initial outbreak of the coronavirus, many shoppers turned to center store substitutes for fruit and vegetables for their long-lasting quality as well as avoiding produce that may have been touched by others.
Also, the explosion of online grocery impacted typical in-store purchases such as bakery, deli and produce; essential groceries like milk and meat were not as sensitive to that trend.
Produce is once again back on the rise this summer as consumers become more comfortable with masked and social-distanced shopping trips.
In-store Bakery Seeks a Road to Recovery
Prepackaged fresh-baked and smaller dessert sizes are among the pivots seen in supermarkets.
While the in-store bakery took a big hit during the early stages of the coronavirus, there were some signs of recovery in early summer with holidays such as Memorial Day and Father’s Day boosting sales as well as graduations and other summer celebrations — albeit on a smaller scale.
According to Nielsen Total Food View data, fresh bakery managed to eke out a 1.3% sales gain year over year for the week ending May 30, 2020.
That’s positive news, considering the precipitous dips the category suffered during March and April when many in-store bakeries were closing or limiting service.
However, as of mid-summer as the coronavirus continues its spread in the southern and western United States, the outlook for bakery remains hazy. Still, as retailers learn to adapt and consumers return to in-store grocery shopping, there is room for optimism.
After many weeks of overall down result and positive gains only for bread and croissants, cake sales growth came roaring back Father’s Day week, according to data from IDDBA and IRI. Sales remained above last year’s level the final week of June.
Aside from Father’s Day, June is historically a critical sales month for cakes with graduation celebrations, many of which were canceled as in-person events.
In-store bakeries pivoted to smaller cakes and desserts, recognizing consumers’ desire to celebrate major milestones just within smaller groups, a trend that is expected to continue throughout the year, said IDDBA.
The comfort level of many may have changed since the pandemic hit, so prepackaging is probably going to be more important than it has been. At the end of the day it will come down to convenience and comfort level.
Eric Richard, Educational Coordinator, International Dairy Deli Bakery Association (IDDBA)
Dairy a Sales Powerhouse During Pandemic
Across the Category, Retailers are Seeing Above-average Dairy Sales Gains.
To measure the impact that the pandemic has had on sales in the dairy case, just go back a few months to March 1, when according to IRI data, the category was continuing its long-running trend of flat to underwhelming dollar sales increases year over year: milk (+3%), natural cheese (+4%), yogurt (0%).
Just one month later, spurred on by coronavirus panic buying and shopper hoarding, the year-to-year sales comparisons tell a much different story.
For the month of March, total daily sales were up 35.0% over March 2019, with huge increases in sales for natural cheese (+45.7%) and milk (+29.6%), with butter up a whopping 69.2% and even the long struggling yogurt category up an impressive 15.0%.
Similar sales figures continued for most of the category through April and May before coming to a more consistent and sustainable level in June. Dairy sales gains have been in the mid-teens so far this summer.
Some shoppers continue to experience limited supply in some dairy categories. IRI’s measure reflecting assortment variety shows some declines across subcategories during the week of June 28 versus the same week last year.
Overall, the number of dairy items per store selling was off by 2.6%, up from -1.7% the week prior. This reflects 33 fewer items compared with the same week in 2019.
Compared to areas like frozen foods that are off by more than 100 items, the dairy department is doing well as far as assortment and in-stock position go. In the coming months, category management decisions on line extensions, pack size varieties, the number of brands carried and other SKU-level decisions will likely take on a big role.
Dairy doesn’t have the same limitations as perishables like meat and produce and consistently sells as both a frequently shopped item and a stock-up item.
In total, seven categories had double- digit gains and that shows the strength of dairy amid the pandemic.
Abrielle Backhaus, Research Coordinator, IDDBA
Meat and Seafood Benefit from Home Cooking
The pandemic has overturned how Americans shop and eat, with meat and seafood emerging as winners.
Even as coronavirus-spurred panic buying ebbed in April, meat continued to be a huge category in grocery stores through late spring and summer as consumers got an early start on grilling season while restaurants around the country remained closed or offered limited dining options.
According to Nielsen Total Food View, overall meat sales were up 10.5% year over year for the week ending May 30, 2020. Beef was the big winner, up 11.7% over that time period, while poultry sales were up 9.3% and pork 9.4%.
Retail meat sales during the week leading up to Father’s Day were “astounding,” according to Anne-Marie Roerink, president of 210 Analytics LLC. Despite supply improvements, Roerink said prices remained highly elevated and that was the big unknown relative to the success of Father’s Day 2020.
The second unknown, she said, was consumer engagement with foodservice, as restaurants in most parts of the country reopened for outdoor dining with social distancing measures in place. That situation is still in flux as the coronavirus continues to spread in the southern and western regions of the United States, and many restaurants face the prospect of re-closing or limiting dining options.
Even with those two factors, Father’s Day meat sales were much higher than the year prior, with a 31.9% sales gain for the week of June 21. This, Roerink said, marked the 15th week of double-digit gains since the onset of the pandemic.
Volume demand also saw a robust rebound, jumping 13.5% ahead of the same week last year, data showed. Roerink said this was the highest volume gain since the second week of May. Despite this increase, the gap between dollar gains and volume growth set a new record, at 18.4 percentage points.
Higher prices and increased out-of-stocks in the meat category have helped boost the seafood category, as shrimp, crab and lobster sales jumped 12.5% year over year for the week ended May 30, according to Nielsen Total Food View. All fin fish was up 9.5% during the same time period, while value-added prepared seafood sales increased by 6.5%.
While the high price of seafood is often considered a barrier for consumers, the increase in home cooking has led some shoppers to try new things. Indeed, supermarket operators that shrewdly promote lobster and crab while offering the best selections are in position to boost interest and revenues.
For instance, with many restaurants now closed or offering limited dining, supermarkets can offer items that are popular at foodservice locations that shoppers can prepare at home, said Dave Sanz, meat and seafood merchandiser for Seattle-based PCC Community Markets.
To keep prices down, it also is more efficient and attractive for supermarkets to source selections closest to their areas, noted Sanz. “The East Coast should offer more blue crab and stone crab since those species are native to the area, while there is a wider selection of Dungeness crab and wild Alaska king crab on the West Coast,” he said.
Yet, consumer unfamiliarity with how to prepare whole crabs and the perception that it is a seasonal food remain merchandising challenges, said Megan Rider, domestic marketing director for the Juneau-based Alaska Seafood Marketing Institute (ASMI).
Supermarkets, meanwhile, can increase visibility by showcasing products in different areas of the store, such as whole crab in the seafood department and crab cakes and ready-to-eat crab salads and spreads in the deli/fresh prepared foods area, Rider noted.
Shoppers are fascinated by the whole story of their seafood, including the fisherman who caught it, Supermarkets can differentiate their selections by being transparent about their sourcing.
Megan Rider, Domestic Marketing Director, Alaska Seafood Marketing Institute (ASMI)
Fresh Produce Rebounds for Summer
While sales faltered at the outset of coronavirus, shoppers are once again buying fresh fruits and vegetables at supermarkets.
After an initial dip in produce sales during the coronavirus outbreak, the category has rebounded as customers have returned to grocery stores and are more comfortable buying fresh produce for all those meals and snacks they’re preparing at home.
For the 52 weeks ending May 30, 2020, sales of fresh fruit are up 6.2% and vegetables are up 3.5%, according to Nielsen Total Food View. Convenience is a factor — as is the perceived added safety of prepackaged products — with packaged salads up 9.6% and value-add vegetables up 9.7%. A big winner in the category is potatoes, with sales up 12.6%, likely due to their heartiness and longer-lasting freshness during a time when shoppers are looking to stock up.
On the fruit side, berries (up 8.9%) and citrus (up 7.4%) are performing strongly, according to the Nielsen data.
In the early days of the pandemic, produce sales dropped due to consumer fears about items being touched by others and the desire to buy more long-lasting food.
But with stay-at-home orders being lifted in much of the country and people more accustomed to wearing masks and following safe social-distance shopping rules, consumers began buying produce at normal levels.
However, as the coronavirus continues to spike in the southern and western regions of the United States, retailers will be carefully watching the category for another potential sales dip.
U.S. organic fresh produce sales jumped 22% in March and 8% overall for the first quarter “in retail conditions unlike any ever experienced in the modern era of grocery retailing,” according to the “2020 Q1 Organic Produce Performance Report,” released by the Organic Produce Network and Category Partners.
Data show organic fruit and vegetables outperformed conventional produce in March as well as in the first quarter, the Organic Produce Network noted.
Deli Inches Back from the Brink
Prepared foods plummeted during early stages of pandemic, but there are signs of improvement.
As the coronavirus began to take hold in mid-March, retail grocery experienced a huge surge in stock-up shopping across the entire store. But despite a bump at the outset of the pandemic, as lockdowns nationwide began to take effect, in-store deli quickly began to struggle.
The most dramatic drops were in the prepared food category, which dropped by as much as 47% in April; as of the week ending July 5, prepared food dollar sales versus a year ago had improved to -19%.
Overall deli was down 7.7% for the week of July 5, up from a low of -26% in mid-April.
In moving from salad and hot bars to prepackaged offerings, the number of deli-prepared items saw a steep reduction during the pandemic. At its lowest point, according to IDDBA, the average number of items per store selling stood at 77 from its normal assortment of about 100 items.
Deli-prepared food sales continued to recover from March and April when sales were down more than 40% versus last year’s levels. During the holiday week ending July 5, sales for deli-prepared items were down 19%, but sales of refrigerated meals continue to improve, now up 12.7% versus the same week last year.
Riding the Center Store Wave
As the pandemic changes shopping behaviors, retailers are experiencing peak sales in center store — both online and
The trend toward home cooking during the COVID-19 pandemic has been rocket fuel for center store sales.
The key for grocery retailers will be maintaining their lofty orbits amid the gravitational pull of restaurants and the reopening of schools and businesses.
Consumers have been loading their pantries and freezers, baking bread and pies, and trying new recipes to replicate the experiences they had traditionally enjoyed while dining out. Retailers and their manufacturer partners will seek to retain those customers — many of whom are new buyers of center store items — as the nation lurches toward recovery.
Many of the underlying trends that had been transforming center store in recent years, such as consumer interest in health and wellness, clean labels and sustainability, will continue to resonate going forward, said Sally Lyons Wyatt, executive VP and practice leader, client insights, IRI.
In fact, some of the trends around health and wellness may be accelerated, as consumers seek treatments to better manage some of the ailments that put them at risk for complications from COVID-19, such as diabetes and heart disease.
Consumers have also become more interested in nutrients such as antioxidants and certain vitamins, and products to support immunity and gut health, she said. She cited increasing demand for CBD as another trend that can be expected to continue.
Another key trend that may be impacted by the pandemic is consumers’ reliance on e-commerce for center store items. Grocers that offered full-basket solutions and curbside pickup were the winners in the battle for e-commerce share, said Keith Anderson, senior VP of strategy at Profitero.
Digital commerce advanced eight years in eight weeks. Digital grocery sales grew at four times the rate of brick-and-mortar sales during March and April.
Keith Anderson, Senior VP of Strategy, Profitero
Beverage Sales Spike Amid Lockdown
Energy and sports drinks also attract health-minded consumers during pandemic.
Consumers are finding plenty of reasons to pour themselves a strong drink during the pandemic, and that translated into double-digit gains sales for supermarkets in alcoholic beverages.
Sales data from IRI showed supermarket dollar sales of spirits/liquor up 13.7% for the 52 weeks through May 17, to $4.1 billion, the largest percentage gain of any beverage category. Sales of beer/ale/alcoholic cider were also strong, with gains of 11.7%, to $12.4 billion.
Among non-alcoholic beverages, energy drinks and sports drinks were two of the top performers in the 52 weeks through May 17, with supermarket dollar sales gains of 12.8% and 10.3%, respectively.
Sales of these drinks may have been driven in part by their functionality, said Colin Stewart, executive VP, Business Intelligence, at Acosta.
With many families sheltering at home during the early stages of the pandemic, sales of carbonated drinks also saw strong increases, Lyons Wyatt said.
Consumers have been shopping the non-alcoholic beverage category differently, however, noted Scott Owen, senior grocery merchandiser at PCC Community Markets. Single-serve refrigerated beverage sales have decreased at that chain, he said, as the stores have seen reduced lunch and dinner traffic. However, sales of multi-serve beverages “have increased significantly.”
“People are staying home more, and still want a normal offering of products,” Owen said. “Now, they just buy a case for home instead of opting for single-serve on the go.”
Stuck at Home, Consumers’ Snacking on the Rise
Innovative flavors, better-for-you items remain important, while non-chocolate candy catches up with the rest of the category.
Consumers have not abandoned their embrace of better-for-you snacks, despite partaking in some more indulgent options while cooped up at home during the pandemic.
As consumers worked from home, and schools were closed, families kept an ample supply of snacks in the pantry, said Darren Seifer, NPD Group food and beverage industry analyst.
NPD found that in April, 37% of consumers said they wanted to make sure they had sufficient snack foods on hand, and they were especially well-stocked on both salty snacks and frozen sweets, which led to higher rates of consumption.
“We’ve seen consumers turn to indulgent snack foods in other challenging times, and although history isn’t repeating itself during COVID, it is rhyming,” said Seifer.
Although many of the top snack categories did not see the double-digit sales gains of other center store categories, their growth was still impressive, given the relatively large sales volume that these products generate to begin with, said Sally Lyons Wyatt, executive VP and practice leader, client insights, IRI.
“They have been moving big volumes,” she said. “All of the top snack products were doing extremely well.”
Cleaning Products, Wellness Items Fuel Nonfoods
Retailers forced to navigate out-of-stocks as demand soared for bathroom tissue, hand sanitizer.
Perhaps the only thing that concerned consumers more than becoming infected with the coronavirus during the early days of the pandemic was their ability to get toilet paper.
As demand skyrocketed for bathroom tissue, hand sanitizer, paper towels and other cleaning products, retailers around the country imposed purchase limits and looked for alternative sources for these items in order to remain in stock.
“The demand for hand sanitizer was larger than supply at the start,” said Terry DeBlasio, HBC merchandiser at PCC Community Markets in Seattle. In addition to hand sanitizer and soap, consumers were also seeking OTC remedies to bolster their health and immune systems, including elderberry, echinacea and vitamins, she said.
“For three weeks in March, we averaged a 78% lift across the entire Health and Body Care department,” DeBlasio said.
Not all nonfoods items experienced booming demand during the pandemic, however, said Sally Lyons Wyatt, executive VP and practice leader, client insights, IRI, citing cosmetics as an example.
Overall, household cleaning products and vitamins, supplements and OTC medications powered nonfoods sales growth, with double-digit dollar gains reported for toilet tissue, vitamins, paper towels, soap, cold/allergy/sinus tablets, internal analgesics and household cleaners.
Consumers Warm Up to the Freezer Case
Frozen foods and treats provide new meal, snack solutions for housebound families.
Sales of frozen foods had already been growing steadily before the pandemic, but consumers’ desire to stock up drove sales to new levels as shoppers stuffed their freezers to maximum capacity.
Sales of frozen meats and seafood surged when concerns arose about the availability of fresh meats after several processing plants shut down. Meat sales from the freezer case have remained high since then, even as the rate of growth has slowed, said Sally Lyons Wyatt, executive VP and practice leader, client insights, IRI,
IRI reported supermarket dollar sales growth of 12.7% for frozen pizza and 10.4% for breakfast items for the 52 weeks through May 17. The biggest gainers in freezer-case sales were appetizers and snack rolls, with sales up 17.7% in supermarkets, according to IRI.
Sales of frozen foods could have been even higher if inventory had been available to satisfy demand, said Robert Rybick, president and CEO of Geissler’s Supermarkets. “Unfortunately, the supply chain was not ready for it, and there were some long-term outages, especially in the vegetable and fruit categories,” he said.
Research from the American Frozen Food Institute found that 70% of consumers bought more frozen foods after the pandemic began, 68% said they bought different frozen items, and 72% said they selected different brands.
AFFI reported that 85% of consumers who ordered groceries online during the first five weeks of the pandemic included frozen foods in their order. This compared with 73% before the pandemic, according to AFFI’s Power of Frozen 2020 report.
Home Cooks Rediscover Shelf-stable Categories
Baking products, meal builders key to grocery comeback, create opportunities for the future.
To bake or not to bake? The answer to that question has been clear for many households throughout the pandemic, helping drive sales gains in the baking products category and boost shelf-stable grocery sales overall. With many restaurants reopening and the weather warming, the question has become whether or not consumers will continue to spend time baking.
Sales trends showed that the baking products category only slowed slightly in May and June, according to Sally Lyons Wyatt, executive VP and practice leader, client insights, IRI, who thinks the baking trend may have some staying power.
In addition consumers were also stocking up on shelf-stable goods that made meal prep easier, including pasta and pasta sauces and canned soup, vegetables, meats and seafood.
Colin Stewart, executive VP, Business Intelligence at Acosta, said many center store categories and brands have been reinvigorated by the pandemic, as at-home eating occasions increased. “We expect this trend to continue as shoppers stock up and ride out the uncertainty of the next few months,” he said.
Many buyers of shelf-stable meal builders had not typically purchased these items in the past, said Lyons Wyatt. That creates what she described as an “amazing opportunity” for both manufacturers and retailers to retain these new shoppers by reminding them how they can use these items in different ways and for different occasions going forward.