Grocery Trends from Brick Meets Click [June 2022 Insights]

Grocery Trends from Brick Meets Click [June 2022 Insights]

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Welcome to another rendition of Monthly Insights, provided by yours truly. Mark Fairhurst VP Marketing Mercatus and our special guest. As always, David Bishop, Brick Meets Click.

David, how are you? Mark, I'm doing well. How are you? I'm good. I'm looking forward to the weekend, but I'm even more excited about digesting the results from June 2022.

Well, you know, on the way to the office today, I just now peeked out my window after I made a full stop, look both ways. But I looked and saw the motor fuel sign at $5.14 a gallon today. So ever lasting reminder of the inflation that we're all facing today. Now, has it come down, though, in your area? You know, the data would suggest it's probably down 4-5% versus a month ago.

Now, this is me kind of geeking out and going online and looking at those numbers. If you were to ask me, Joe Consumer on the street, I wouldn't sense it's really come down at all. Yeah. You know, looking back at the numbers, I mean, I can understand even in July right now, we're still 50% year over year higher than what we were paying in 2021. I mean, has the government, state or federal, have they talked about or have they reduce their, their tax component on per gallon fuel.

Yeah. I mean they were talking about temporarily halting the federal gas excise tax. But you know, for all intents and purposes, you know, the impact that it has, while we would welcome any relief at the pump. Yeah. Really is nominal and I don't think would really change the the outlook or at least the psyche that much relative to when you go fill up your car and you see that the current price on the on the sign or on the on the pump so. Yes. It's been discussed.

I don't believe it's gone forward at this point. And, you know, again, I'm not sure materially what impact it would have, you know, on behaviors. So let's let's let's get into it then because, you know, you identify for June two dynamics. One, we've already talked about, which is inflation affecting eGrocery online sales. The other being COVID, so can you just provide a high level assessment as to how those two dynamics are working? Yeah, and there is a third we can talk about, which goes back to in infatuation.

As you know, I like alliteration, so let's make it a triangle iteration. So when we talk about inflation, versus infection, so higher prices versus the ongoing pandemic, you know, in one hand, the media understandably is fixated and focused on, you know, inflation and what that means. I mean, we just had the latest numbers come out that continue to break records, you know, well over 12% on food at home.

When you look at fuel, it's over 60%. Even air fare travel is up over 30%. Everything's more expensive. So that means people are going to look for ways to avoid paying more than necessary. So some people may be saying, OK, summer travel plans are changing, we may not be flying, we may be driving.

It may may wash in the end, but that's an example of that. So we would expect to see and we do see a degree of it is you know, some degree of tradeoffs being made, you could say trading down. Right? I think that's kind of pejorative, but we could see it being manifested in where people shop and we see that in the traffic data showing really kind of increases towards the discount players at the expense of the Conventionals. We can see it in trade offs between the mode of shopping that's kind of in a binary world online versus in store.

We have seen a degree of return there and we could also see it in how someone shops online, which is moving from the higher cost of delivery to pickup. So, you know, from a rational standpoint, you would expect to see those. And of course, they're things like brand switching behaviors, multi-pack stocking up, coupon usage, all those things we can track but now we get an infection back in, the mix. And let's keep in mind, we really don't have COVID front and center anymore. In our psyche, our mindset or our discourse today.

Right. We have so many other things going on geopolitically, even on the national stage. That are occupying our mind. But the fact is, if you look at the CDC, COVID tracker, June's seven day moving average for new cases skyrocketed 750% year over year. That's that's astounding. In May it was up over 450.

Well that's that's that's the impact of the new variant right the BA.5 yeah yeah exactly. And it's breaking through and proving more elusive to the vaccines it is creating issues at work.

If we look at BLS of a Bureau of Labor Statistics say each month they go out into the field and take a sample using a one week time frame and look at those people who are employed and say what percentage of those people who are employed did not work this week and let's break it down further and look at it due to their own illness. And in June, that's up 40% year over year. May was up maybe 9%. So you can see the correlation in between new cases and, you know, loss of work productivity. Then you look at the other side of it is, well, they're still actually a sizable group.

It's maybe 20, 15 to 20% of the population that has extreme or high levels of concern for COVID right there in the affected class. They really cannot afford to get sick. And that concern is still holding back their return to some degree of old normalcy right. The new normalcy is, you know, I'm still shopping or behaving in different ways. They haven't returned to in-store shopping or pre-COVID behaviors. So you mix in inflation with infection and you have this desire to not pay more than you want.

And that's almost, you know, universal yeah. And then you have a sizable segment who is now saying, my desire is to remain safe and healthy. And that kind of counter that or complicates the calculus in what choices you make, right? So someone may say, OK, shopping online is expensive, especially delivery, but I'm also more concerned about, you know, staying healthy and I'm willing to pay the premium for that convenience.

So maybe I switch to pick up. We say infatuation because that's kind of intense, kind of temporarily temporary event that goes to delivery. Deliveries, kind of devifying law of gravity right now. Which is which is interesting because it had been on this slow retrograde. Right, right. So pre-pandemic numbers.

Yeah. So, you know, from our standpoint, we're challenged as you know, to interrogate the insights and ask why. Right. And then try to come up with some explanations that can help explain that that trend and so, you know, while you could argue, well, that's grabbing at straws, look at, you know, activities that are going on in the last month or two, you know, Kroger's rollout of their their boost program, obviously their concentration and continuing to move into new markets with their delivery focus. Yeah.

You could look at the third parties expansion into, we'll say, accelerated delivery, you know, that we know functionally as delivery within as short as 30 minutes moving through various markets and the incentives that are being given. I was just going to say that. Yeah. Yeah there are significant incentives being given that from a customer standpoint.

If you then look at it from the the ability or the desire to avoid paying more and you see this financial incentive that may go $20 off your first purchase of $35 or more, that's pretty enticing. So that may elicit a near-term kind of behavior change, whether it's sticky or not still remains to be seen. And that's kind of the challenge of reading the numbers on a month to month basis is just trying to say where is this going? The time frame is relatively short and how sustainable those, as you said, those incentive programs are because these companies also are feeling the squeeze as a result of inflation and its impact on the markets.

That they operate in the financial markets what's the longevity of their desire to fund these these incentives? So I think your your word choice of infatuation on the consumer part is appropriate because it does not appear to anyone else to be something that's sustainable. Yeah. And, you know, if you want to be cute about it, another analogy or comparison, I guess you could make here is, you know, the traditional grocery stores or conventional retailers who are focused on first party are the tortoise in this race. And, you know, the disruptors, those that don't have established physical presence in the market but who are intermingled eating them selves, they're the hare and they're blowing out of the gate and they're sprinting. Of course, that's what their edict was from their investors. Which was run as fast as you can, grow as fast as you can, and hopefully you can get to the finish line first.

Well, the challenge is they lost a lot of their fuel and energy because that money has dried up. And so now the hare is really struggling to maintain that type of rate. And meanwhile, here comes the slow tortoise, slow and steady, looking pretty good, you know, so I you know, you know, there's a lot of ways you can look at that one would be look beyond the monthly and look at longer term trends to have a better sense and level of confidence with where is the market moving and why is it moving that way. We can see that once you remove the the subsidy of of cheap capital, you know, the rules have been written rewritten quite rapidly for a segment.

Now, the question is for those entrenched incumbents, you know, our brick and mortar retailers that we work with every day, you know, are you getting distracted from these these blips or are you staying focused on your mission and vision for what is, you know, an omni channel strategy look like for you in your business? Yeah. Yeah. Great analogy. I, I think, I think we see a new blog post or an article coming. I don't want to put anyone's faces on the tortoise or the hare, but, you know, I'll let you decide that. What are the next six months? 12 months, 18 months going to look like based on the data that you've been uncovering over the past year, two years now, and how does it inform where should they be looking to grow and steady their business as they go into planning for next fiscal year? Yeah, it's it's a great question. And I was on a phone with a retailer the other day. And I think what one practical challenge for the audience that you and I are probably talking more to who's responsible for e-commerce is one conversation, but there's another conversation that overlays that it may actually have to precede that conversation, and that is for the executive team.

Yeah. You think about culture, commitment and conviction, and now they're creative collaboration and look at organizations that have really demonstrated conviction in their beliefs and have confidence that the vision they see for the future is right and their culture is aligning with that. And that comes down to fundamentally making choices relative to, again, your customer, your competitive position and your capabilities. What we're seeing with a lot of regional grocers is the lack of those conviction, commitment and the culture to support that vision and to buy into that vision. That's kind of handicapping that middle management team that's really charged with, you know, growing or improving the viability and profitability of this business. So I think first and foremost, there needs to be education and more information given to the executive team so that they can clear the path for understanding, you know, how this is accretive to the business, how this creates synergies for their brick and mortar business and then build that.

You know, when we talk about the middle management group, you know, it's increasingly becoming more and more clear. If it wasn't already evident enough before that, you really need to own the customer connection and that is the move towards, you know, first party. And when we say that that's not completely dismissing third party roles or relationships, it's just changing the role and relationships within third party. And we need to do that because we're seeing that those retailers who own the first party ordering platform which is where you build that customer connection, are in a better position to control their operating environment, which lowers cost and improves the customer experience.

And so as you go forward, that's the broad strokes. The specifics really get exciting because there's so many opportunities around primarily pricing and really positioning or marketing that proposition. Right? Whether we talk about markups and fee structures and how do we elicit that type of change behavior that benefits both the customer and the retailer.

And I know we're working on things right now that are intended to provide the information or service evidence to support the rationale to recommend testing, you know, alternative pricing strategies that could ultimately benefit everyone. By everyone, I mean the customer and the retailer. I'm not talking about the third party now. It will change the relationship with those third parties. But again, you know, we're in business to help grow and strengthen grocery, Brick and mortor business. The disruptors they have their own focus and goals.

But that's not the same as what we're trying to work on every day with the traditional brick and mortar. Yeah, I agree with you. 100% for June cost, I continued as the strongest factor driving where mass customers shopped online, while for grocery customers, convenience has overtaken assortment as as the main motivator for online shopping for conventional. That's surprising to me.

It's surprising and it's troubling the assortment is the competitive advantage that conventional grocers should have traditionally. Yes. Yeah Against mass. Yeah. Right. So obviously service is another aspect and we do see through other work that holds true meaning price is without question the most important determining factor or why a customer chooses mass.

Whereas it is not the number one by far. In fact, quality of produce is significantly higher in some of that other research. But in this case, what it really shows is the trade off people are making between cost and convenience, right? Again, the mass customer is different than the grocery customer, the traditional grocery customer. And so they value things differently so if we look at that value equation of price and service quality and whatever other attributes we want to add to that value equation, we're just seeing different calculus being made by different customer segments. That's pretty straightforward. Why that matters is a traditional or conventional regional grocer, whether you want to call them, needs to not only understand that, but embrace that and integrate that into their planning and strategy.

Yeah. because if they do, they'll go and choose a different path for certain things. If they don't, they're going to go off a cliff following mass. And the issue is mass has a parachute that creates a softer landing that grocery doesn't. And so, you know, you can try to follow the market leader.

But when the market leader is that the price leader, it doesn't end well. So I think we need to reinforce that. Now, we know price is a top of mind for everyone. We're not saying disregard price completely, but put it in the right context. In other words, if your customers are coming to you because of quality of the products you sell, the quality of the service that you offer, then highlight that. Yeah.

As opposed to try to say, hey, we have good prices, right? It's about knowing the reasons why customers are coming to you for that. And again, you know, I mean, you can still offer the deals. We are seeing that the high low retail are still offering about the same number of deals. Now, the depth that those discounts may be a little lower this year, but the point is they're still offering ways that a consumer can avoid paying more obviously with their pricing between national brand. But there are things that they can do within the context of that person who shopping with them today.

But in terms of trying to either protect their customer or attract new ones, which is going to be a lot harder, it's simply, you know, focusing on the basics that matter more to your customers, right? So as long as they believe they're getting a fair deal, they're making a choice of convenience versus cost. And let me give you an example, Mark. So I just went by my local convenience store that sells fuel and they're at 514.

If I opened up the Gas Buddy Price app, I'd probably see Costco is going to be 20, $0.25 less. Right, right. That's five miles away.

So I'm going to make a choice. Do I want to drive five miles to say $0.20 or do I want to just simply fill up right there and pay the premium? Well, in that context, the assumption is I know the spread, right? Right. So the price sensitive customer is going to most likely have that app in most likely will look.

Now, whether they move or not depends on how wide that spread is. If it was $0.50, I'd probably do it $0.20 since I'm kind of on the fence. $0.10, no way. Right. So I'm making a conscious trade off or choice between cost and convenience. It's no different than when we fly on airplanes. Everyone wants to sit close to the front of the plane. Why?

Because you get on and off quicker, but it's also more expensive to sit in the front of the plane. So we tend to sit back. We're not in first class, but now we're an economy plus because economy class is better than all the way in the back. And now we make.

So there are endless examples where we're making tradeoffs between cost, convenience. And then just the third would be. Hey, I want to get my 12 pack of beer for the weekend. It's get ready.

I want to go to the grocery store. I'll get it. Or, you know, I'm going to fill up my car and I'm at a convenience store. I can buy the same 12 pack. It costs 30% more though. Well, I'm already there single trip.

It's a small footprint in and out quickly, you know kind of a quick trip with a single item mission after the fuel. I'm going to make that choice in the door. Do I value my time over saving a little bit of money? Right. So everywhere in life we're making tradeoffs, right? Cost in convenience.

So it's not surprising we're having the same discussion relative to, you know, modes of grocery shopping or how we buy what we need in terms of everyday grocery essentials. Awesome, awesome conversation. David, as usual, really appreciate your time. David, how does the audience get in touch with you? Well, they can like me on LinkedIn or connect me on LinkedIn.

I don't think it's like where they can like me too, but I know you worry more about that than me. Or they can send me my ego. My ego. David. Yeah, right. Right. They or they can send me an email at Excellent.

And anyone who wants to reach out to Mercatus, you know how to reach us at

2022-08-01 14:10

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