Categories include produce, dairy, meat, bakery and deli/prepared foods
While last year’s winners in fresh market — meat, produce and dairy — continue to benefit from changes in consumer lifestyles and shopping behaviors even post-pandemic, this year’s big story in fresh is the comeback of two categories hardest hit last year: deli and bakery.
Thanks to the resurgence of deli-prepared foods as customers returned to stores and supermarkets reopened service departments, deli has seen a remarkable turnaround in the first six months of 2021. Reaching nearly $20 billion in sales, every area within deli increased sales compared with 2020 and 2019 during the first half of this year, according to IRI data. The largest year-on-year growth was achieved by deli-prepared with a 14.7% increase over the same six-month period last year.
And after a dismal 2020 during which fresh bakery departments struggled, with consumers nervous and service departments being limited or shut down entirely, retailers are now seeing the welcome return of fresh bakery.
While sales for fresh-baked goods are up only 2.6% from a year ago, according to NielsenIQ, any gain is cause to celebrate after last year. And bakery numbers continue to improve as the year goes on. The all-important cake category is up 6.7% year over year, a bellwether of the return to normalcy and social gatherings.
“There’s a lot of optimism among the in-store bakery department as we return to normal,” said Eric Richard, industry relations coordinator for the International Dairy Deli Bakery Association (IDDBA). “People are going to be celebrating this year, and many will be making up for lost time and have really big celebrations.”
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That good news comes on top of the already strong sales retailers have been seeing throughout the rest of the store perimeter. The meat category had its best year ever in 2020, with sales skyrocketing 19.2% over 2019 for a total of $82.5 billon — and this year, sales are still on the rise (albeit at a more sustainable 5.6% for the 52 weeks ending May 29, according to NielsenIQ.)
Produce and dairy also continue to build upon the increases the categories saw last year, with sales of produce up overall by 6.5% and dairy performance showing no signs of decline.
“While one would expect that 15 months into the COVID-19 pandemic we would have arrived at a new status quo, the dynamics in food and beverage sales continue to change,” said Jeremy Johnson, vice president of education for IDDBA. “The home-centric meal picture of 2020 favored dairy sales, but was tough on deli-prepared and fresh bakery. But the continued normalization of everyday and holiday shopping and consumption patterns, including larger and more frequent get-togethers, has prompted a roaring comeback for both in recent months. Meanwhile, dairy continues to benefit from strong demand when compared to the pre-pandemic 2019 baseline.”
After a dismal 2020 during which COVID-19 brought confusion and fear into the supermarket — fresh bakery departments were struggling, with consumers nervous and service departments being limited or shut down entirely — retailers are now seeing the welcome return of fresh bakery.
But with vaccinations in full swing and Americans returning to more normal lifestyles —including the social gatherings and celebrations that were canceled last year — most supermarkets are opening up their fresh bakery departments fully again, and that means plenty of cakes, doughnuts, breads and other fresh-baked goods available for consumers.
Back to normal?
Chris Mentzer, director of operations at Rastelli Market Fresh, based in New Jersey with locations in Marlton and Deptford, said that early in the pandemic the stores made numerous changes within the fresh bakery department to assure safety for customers and, more importantly, a sense of trust with products that they were purchasing.
“As restrictions slowly lift, we are starting to see some of the self-service areas return,” he said. “Once we get to some level of normalcy, we can start loosening the requirements on the areas that have been hurt the most. For example, flexibility in buying assorted rolls and bagels; and mix-and-matching cookies and baked goods from the cookie bar. These were two of our top categories and now they don’t even rank in the top 20.”
Adding to that optimism is Jonna Parker, team lead, fresh at IRI, who noted that the number of grocery shoppers “extremely concerned” about COVID dropped to 22% in June, the lowest level since IRI began tracking shopper concerns in March 2020.
As restaurants have reopened, meat retailers breathed a sigh of relief that many of the food behaviors that emerged during COVID are staying with us — cooking at home and family dinners, in particular — while the supermarket remains the primary destination for fresh meat, vaccines have opened up the country and summer barbecues with friends and family are back.
Add to that a stabilization of the meat supply chain after last year’s various disruptions (meatpacking plants closing due to COVID outbreaks, labor shortages in processing and delivery, shopper hoarding), and 2021 looks to be a very good year, on the heels of a record-setting 2020 when pandemic-spurred meat sales increased by a whopping 19.2% over 2019 for a total of $82.5 billon, according to the annual Power of Meat study released in April.
For the 52 weeks ending May 29, all meat sales were up 5.6% year over year, with most of those gains in beef (up 8.5%) and chicken (up 4%). Those numbers are more than respectable given the high bar set in 2020, and negated much of the worry that retailers were feeling about the possible impact of restaurant openings and home cooking fatigue on the meat category.
Maintaining sales
More digital engagement with customers as well as value-added options, new meal opportunities and filling the need for comfort foods can help retailers and the meat industry maintain the strong sales they’ve experienced in the category over the past year, noted John Beretta, group vice president, meat & seafood at Albertsons Cos., during The Meat Conference earlier this year.
“Supporting meal planning and solutions is going to be huge for our consumers as they start to go back to work,” he said. “They have less time preparing meals. So value-add and really value-add innovation is going to be very important for us to bring in this post-COVID economy.” He added that premiumization in the meat category will also help keep customers buying different cuts and types of meat going forward.
Beretta also said that as breakfast and lunch occasions moved inside the home last year, there is a great opportunity for retailers and meat producers even as restaurants reopen. “If we've got that consumer that's at home and not going back to work, we've got that captured audience,” he said. “So being very creative with lunch offerings is going to be big for us.”
Meal solutions will continue to be important as consumers emerge from the pandemic. Grocery chains, including Albertsons, are exploring new ways to provide family meals in-store or for pickup or delivery.
“What we've seen a lot of and talked about, social and digital and of course e-commerce consumers are gravitating towards that for their shopping behavior,” Beretta said. “Recipe hunting is big. So they're utilizing that within their pre-shops. It’s important for us as a retailer to bring that to life with our platforms where we can, both online, but even when they're in-store and giving them those ideas and suggestions. There's a lot less frequency of shopping but there's bigger baskets. So that shopping list is even more important than it ever was before.”
He added, “The pandemic also taught the customer that frozen meat and products can be part of a great end-of-week meal or backup meal that's there in the freezer for them. They're all great quality. They're convenient. And they're great to have on hand. So I'd say that that category is ripe for innovation as we go forward.”
While dairy sales remain strong in 2021, the previous year of surging pandemic sales in the category is a tough act to follow.
During the first six months of 2021, dairy generated $29.6 billion in sales, according to IRI and the International Dairy Deli Bakery Association. Any other year, this would be a significant increase, but compared to the massive sales peaks of 2020, this constitutes a 4.8% decline. However, when compared to the 2019 pre-pandemic normal, sales were up 10.9% during the first half of 2021. Dairy sales were steady during the first quarter of 2021 versus a year ago, at -0.2%. But once lapping the big second-quarter gains, dollars dropped 9.2% behind all-time high 2020 levels in March through June.
“During each of the June 2021 weeks, dairy sales exceeded the $1 billion mark,” said Eric Richard, industry relations coordinator with IDDBA. “Importantly, demand is holding strong against the 2019 pre-pandemic normal, with increases ranging from 8.9% to 13.1% across the four June weeks. When compared to the 2020 sales spikes, it is unsurprising to see down results as June 2020 still saw very strong dairy sales as a result of many more at-home breakfast, lunch, dinner, snack and baking occasions. However, dairy sales are getting closer and closer to last year’s performance.”
Natural cheese remained a strong performer in the 52 weeks ending May 16 (sales up 9.5% year over year), as were creams/creamers (up 9.7%) and refrigerated dips (also 9.7%). A big winner in a smaller category was whipped toppings, which saw sales jump 15.5% to $1.5 billion.
New patterns remain
Dairy has always been a consistent staple in the grocery business, but due to the pandemic and the resulting increase in cooking, baking and eating at home, the need for these products increased exponentially. Traditional milk and cream, butter, packaged cheese and yogurt are among the highest-turning items in the store as they provide great value and versatility for feeding families.
Even with vaccines being rolled out and restaurants and businesses reopening, expectations are that people will continue to cook and bake at home in significant numbers for the foreseeable future, with retailers expecting these dairy sales trends to continue.
“The shopping habits that have been created will likely remain, especially as people have grown more accustomed to spending more time and enjoying more meals at home,” said Andrew Wasserman, director of center store at Uncle Guiseppe’s Marketplace, a northeastern chain with eight locations. “While the initial spike in volume from the beginning of the pandemic will not be there this year, the sustained growth that these categories have experienced will remain.”
At Food Lion, the Salisbury, N.C. grocery chain owned by Ahold Delhaize USA that operates more than 1,000 supermarkets in 10 states in the Mid-Atlantic and Southeastern United States, dairy sales reached historic levels at most stores last year.
Even with things beginning to get on the road to normal, Food Lion is continuing to operate as if the increased dairy demand will continue, with Mike Parkinson, Food Lion category analyst, noting things haven’t slowed down yet and may even be changed for the long term.
“Life is different now. For that reason, we believe that dairy will continue to remain strong this year as many of our neighbors’ lifestyles have changed,” he said. “Consumers have experienced our increased dairy assortment and have seen that they can fulfill their dairy needs and get everything they need to nourish their families by shopping here.”
As Americans prepared more meals at home during the pandemic, fresh produce sales boomed in 2020. One year later, consumers are still focusing on fresh as sales of vegetables are up 6.8% in the 52 weeks ending May 29, with fresh fruit sales up 5.8%, according to NielsenIQ.
A big part of that growth can be attributed to an increase in organic produce sales.
“Organic purchases have skyrocketed as shoppers choose high-quality organic to feed and nourish their families,” said Laura Batcha, CEO and executive director of the Washington, D.C.-based Organic Trade Association. “The pandemic caused abrupt changes in all of our lives. We’ve been eating at home with our families, and often cooking three meals a day. Good, healthy food has never been more important, and consumers have increasingly sought out the [USDA] Organic label.”
Last year in the United States, nearly 6% of all food sold was certified organic, OTA noted. Fresh produce led the way, with organic fruit and vegetable sales up 11% to $18.2 billion in 2020, according to a survey produced for OTA by Nutrition Business Journal, a sister brand of Supermarket News.
“We’ve seen a great many changes during the pandemic, and some of them are here to stay,” Batcha noted. “What’s come out of COVID is a renewed awareness of the importance of maintaining our health and the important role of nutritious food. For more and more consumers, that means organic. We’ll be eating in restaurants again, but many of us will also be eating and cooking more at home. We’ll see more organic everywhere, in the stores and on our plates.”
Local sourcing a priority
In addition, as consumer concerns about food sourcing and sustainability increased due to the pandemic and issues related to imports, retailers have ramped up their initiatives in those areas, including new emphasis on vertical and indoor farming.
Ricardo Dimarzio, produce sales manager for the mid-Atlantic division of Albertsons Cos., notes the company partnered with vertical farm company Bowery Farming to offer innovative and sustainable produce to help meet customer demand for high-quality local indoor-grown greens and herbs.
“Whether our customers shop with us in-store or through our websites and apps, they expect to find fresh and sustainable produce for delicious meals at home,” he said.
Other grocery retailers, including Kroger and Publix Super Markets, have also partnered with vertical farms in the past year.
Meanwhile, natural retailer Sprouts Farmers Market embarked on a local produce sourcing campaign that includes adding a new distribution center in Aurora, Colo., earlier this year, according to CEO Jack Sinclair.
“Sprouts is working to position all stores within 250 miles of a distribution center, which will reduce food waste, lower its transportation-related carbon footprint, increase access to local farmers and provide fresher produce to customers, strengthening the fresh, local and organic produce assortment Sprouts is known for,” he said.
At Tops Friendly Markets in Williamsville, N.Y., produce director Jeff Cady noted that social responsibility and sustainability have always been at the core of its mission, upholding standards that ensure it reduces environmental waste and energy consumption, while providing customers with sustainably sourced, high-quality products.
“The philosophy is expressed through item selection, supplies used, removing miles from the supply chain, and taking steps to expend shelf life,” he said. “We evaluate current and new items with frequency; but unlike in the past, sustainability is now in every discussion. It is in our DNA. It is our goal and responsibility to advocate for the customer and knowing that sustainability is more important today, we do our best to meet that consumer demand.”
One of the hardest-hit fresh categories during the pandemic, the deli department has made a resounding comeback in 2021, thanks to the resurgence of prepared foods as customers returned to stores and supermarkets reopened service departments.
“The first six months of 2021 make it official: deli sales are back on track and then some,” said Jonna Parker, Team Lead, Fresh at IRI. “Reaching nearly $20 billion in sales, every area within deli increased sales compared with 2020 and 2019 during the first half of this year.” The largest year-on-year growth was achieved by deli-prepared with a 14.7% increase. Notably, on a two-year comparison, the $10.1 billion in first half sales also exceeds 2019 levels by 5.4%.
The sales momentum continued into June 2021, according to the International Dairy Deli Bakery Association (IDDBA). “Deli sales are now consistently sitting between 10% and 12% above year-ago levels,” said Angela Bozo, education director with IDDBA. “While the deli prepared and deli entertaining components of total deli sales pulled down the results last year, they are now boosting the department to whole new levels.”
Similar to the recovery seen in restaurants, deli-prepared and deli-entertaining are showing strong numbers this year in the wake of vaccinations and relaxed restrictions.
Creating an online presence
While more shoppers are returning to stores, Eric Richard, industry relations coordinator with IDDBA, noted that the increase in e-commerce sales that retailers experienced during the past year could be a signal that grocers need to ensure that they can continue to drive prepared foods with those orders. Many retailers, including Gelson’s Markets in Southern California, have made that pivot.
