Inflation has hit the grocery segment particularly hard, with some estimates finding a year-over-year (YoY) increase of 13.1% in grocery prices in July 2022. Supply-chain issues, labor shortages, and growing competition have been further testing the sector’s resilience. At the same time, many leading grocers have found ways to thrive and continue driving visit growth despite the challenges.
Many leading grocers have found ways to thrive and continue driving visit growth despite the challenges.
This white paper takes a closer look at the grocery category’s recent performance to understand how top brands are coping with the increased competition and tighter consumer budgets. We dove into the foot traffic data to find out how the rise in discount grocery channels is impacting grocery visits and see how the current inflation is affecting consumers' grocery habits. We also looked at some highly successful chains to understand what is setting them apart from the competition.
As another eventful year draws to a close, read on to find out where the brick-and-mortar grocery sector stands heading into 2023.
The grocery sector has seen a dramatic few years – from early pandemic visit surges to the more recent price hikes, supply-chain issues, and labor shortages. But despite these challenges, grocery stores are weathering the storm. In 2022, foot traffic to supermarkets consistently outpaced 2019 levels for seven out of the past nine months, which suggests that the industry has succeeded in holding on to its pandemic gains. And though year-over-year (YoY) foot traffic slowed toward the end of Q3, these declines are in comparison to impressively elevated visits in 2021.
It is also critical to note that, although visit growth has slowed down in recent months, median visit duration has increased – which may mean that the decline in visit numbers does not necessarily mean a drop in purchasing.
Although visit growth has slowed down in recent months, median visit duration has increased.
Diving into the data reveals that the median visit duration across leading grocers nationwide began in June 2022 – the same month that YoY visits dropped into the negatives. The correlation between the increase in visit length and the decrease in visits suggests that some shoppers are visiting grocery stores less frequently because they are spending more time in-store on each trip buying in bulk and filling larger baskets.
But even as the grocery category continues to prove its resilience in the face of retail challenges, plenty of competitors – most notably dollar & discount stores – are still looking to take a slice of the grocery pie.
Discount & dollar stores have gained prominence over the past few years, with leading players such as Dollar General and Five Below undergoing massive expansions. And many major discount & dollar store chains have now begun carrying fresh produce, leading to concerns that dollar stores might cannibalize visits from the grocery sector.
But analyzing visit data tells a different story and indicates that there is enough grocery demand to support both categories. Despite the recent increase in discount & dollar store locations, the visit distribution between supermarkets, superstores and discount & dollar stores has remained relatively stable over the past five quarters.
Visit data indicates that there is enough grocery demand to support both traditional grocers and discount & dollar stores.
In Q3 2019 visits to grocery stores accounted for 44.6% of all visits to the grocery, superstores, and discount & dollar store categories, while visits to discount & dollar stores made up 10.4% of all visits. Q3 2022 saw visit share numbers closely tracking with Q3 2019 – grocery stores made up 43.9% of all visits, while the discount & dollar segment took 10.7% of visits. This indicates that the increase in grocery-carrying discount & dollar stores is not coming at the expense of grocery foot traffic – at least for now.
There’s a reason why grocery store visits have maintained their stability – even though more and more dollar & discount stores now sell fresh foods, stocking perishable fresh meat and produce is still a major logistical challenge. To simplify the transition, many dollar stores are focusing on stocking frozen meats and offering a smaller variety of fruits and vegetables than grocery stores. Shoppers looking to pick up refrigerated meats or less common fruits and vegetables often still need to make the trek to a designated grocery store.
These stable visit shares also highlight the growth potential for both sectors. Dollar stores’ store fleet expansions mean that more people now reside within several miles of a low-cost shopping option. As a result, new customers (many of whom fall into a higher income bracket as inflation increases) are visiting the newly opened dollar stores in their areas, which is driving YoY and year-over-three-year (Yo3Y) foot traffic gains across the category. But the fact that YoY grocery visits have remained steady, while Yo3Y grocery foot traffic has increased – as shown in the previous section – indicates that the discount & dollar store visits are not replacing grocery visits. Instead, the overall pie is getting bigger, and many consumers now shop in both categories.
Cross-shopping data looks at which additional stores or brands customers of a given store or brand visit in a given time frame. Diving into cross-shopping patterns for two value-priced grocery brands confirms that many consumers are still visiting grocery stores even as their discount & dollar store visits increase.
Many consumers are still visiting grocery stores even as their discount & dollar store visits increase.
Food Lion, a regional grocery store operating in Mid-Atlantic and Southeastern states, has seen both YoY and Yo3Y visit growth every month of 2022 so far, with September 2022 up 3.8% and 25.8% YoY and Yo3Y, respectively. At the same time, cross-shopping with Dollar General – the share of Food Lion visitors who also visited a Dollar General store in a given month – also increased, from 18.1% in February 2022 to 25.0% in June 2022.
Similar trends were seen in an analysis of Walmart Neighborhood Market, which functions less as a superstore and more as a neighborhood grocer. Between February and June 2022, the percentage of Walmart Neighborhood Market visitors that also visited a Dollar General increased sharply from 10.9% to 16.4%. During that same period, Walmart Neighborhood Market also saw its monthly visits increase both YoY and Yo3Y almost every month. So although more Walmart Neighborhood Market shoppers visited Dollar General, this increase in cross-shopping did not come at the expense of Walmart Neighborhood Market visits, which continued to grow.
This data seems to indicate that grocery consumers are indeed visiting discount & dollar stores more often – but they’re also continuing to drive foot traffic increases at their local grocery store.
The fact that grocers are holding onto their foot traffic and visitors at a time when shoppers’ value orientation is high indicates that there is sufficient demand to support robust growth in both categories.
Discount & dollar stores are not the only ones fuelling competition in the grocery sector. As the grocery visit pie grows, grocers are working to attract a larger share of the increasing visit numbers – and one chain in particular has been spectacularly successful in consistently drawing in customers. Trader Joe's, a beloved food shopping destination, launched in California in 1967. The chain, with its strong focus on customer service and a constantly changing array of private-label products, is a consistent customer favorite. There are even food influencers who focus solely on reviewing its value-priced branded products.
And the foot traffic reflects that strength, with YoY visits to Trader Joe’s remaining positive and outperforming the wider grocery sector almost every month of 2022 so far. In September, for example, Trader Joe’s visits were up 1.5% YoY while nationwide grocery visits were down 3.7% relative to 2021.
Trader Joe's also offers its shoppers a different grocery experience that is a far cry from a traditional, wide-aisled supermarket. On average, Trader Joe's locations are much smaller than a typical grocery store – but the brand still succeeds in attracting crowds to its stores. By operating smaller venues, Trader Joe’s can offer shoppers a more local, intimate shopping experience while lowering overhead costs and transferring those savings into lower prices – a surefire way of attracting more shoppers.
On average, Trader Joe's locations are much smaller than a typical grocery store – but the brand still succeeds in attracting crowds to its stores.
A comparison of top-performing Trader Joe's in three different cities with neighboring grocery store locations shows that the brand’s visits per square foot numbers typically reach into the double digits, while neighboring stores see far fewer. By maximizing all the available store space, Trader Joe’s is attracting more shoppers to each store despite its smaller store size.
A Staten Island, NY, Trader Joe's had 23.2 visits per square foot in Q3 2022, while nearby grocery chains Stop & Shop and Costco had 4.0 and 7.4 visits per square foot, respectively, in the same period.
These trends also persisted in other cities during Q3 2022. The Trader Joe's location in Ann Arbor, MI, saw a whopping 39.3 visits per square foot in its store, while a neighboring Whole Foods and Kroger had 3.9 and 2.4 visits per square foot, respectively.
And the same pattern repeated in California. A San Diego location saw 23.6 visits per square foot in Q3 2022, while the neighboring Sprouts Farmers Market and VONS had 4.4 and 6.4 visits per square foot, respectively.
Trader Joe's has succeeded in turning its stores into not just a place to grocery shop, but into an attractive destination in its own right. And with the country grappling with supply chain shortages, labor shortages, and inflation, a smaller space can be a huge advantage. By offering fewer products than a typical grocery store, Trader Joe’s customers can avoid decision fatigue in the aisles, and the company can hire fewer workers and reduce supply chain concerns.
Providing a unique shopping experience like Trader Joe’s isn’t the only way grocery stores can boost their visits in financially trying times. Our most recent grocery white paper dove into the increased popularity of low-price grocers in the face of rising inflation. And recent YoY foot traffic trends suggest that rising food prices are still creating an opportunity for value-priced grocers to grow even further.
While the wider grocery category saw a moderate visit drop in Q3 2022 relative to Q3 2021, visits to lower-cost Aldi and Grocery Outlet grew by 11.6% and 9.7%, respectively, in the same period. Price Rite, WinCo Foods, and Food 4 Less, all of which fall into the low-cost grocery segment, also outperformed the grocery industry. The strength of value-priced grocers along in the face of the small YoY nationwide grocery visit decline suggests that some shoppers are choosing to trade down from their usual supermarkets to value grocers as part of cost-saving efforts.
Some shoppers are choosing to trade down from their usual supermarkets to value grocers as part of cost-saving efforts.
But even as lower-cost grocery chains are seeing more shoppers heading through their doors, some high-end chains are also seeing elevated visits – indicating that the trend towards bifurcated consumer behavior is impacting the grocery category as well.
Erewhon Market, the celebrity-popular grocery destination, was recently dubbed "America's most expensive grocery store." The chain started as a macrobiotic health store in the 60s in Boston and currently has eight locations in the Los Angeles area. And as the health and wellness segment continues its impressive growth, the chain, with its reputation as a mecca for healthy smoothies, foods, and products, has also exploded in popularity.
The chain saw strong growth in monthly visits, both YoY and Yo3Y – in September 2022, visits to the chain were 58.0% higher than in 2021 and 49.4% higher than 2019. And while some of the increased foot traffic is likely a result of the chain's recent expansion, each existing location also saw higher foot traffic in 2022 compared to both 2021 and 2019. This increase suggests that, while low- and middle-income consumers may be seeking out cheaper grocery alternatives, high-income shoppers are still fueling demand for expensive grocery products. And recognizing the rising interest in high-end grocery, Erewhon hopes to expand further in the area next year.
While some consumers may be seeking out cheaper grocery alternatives, high-income shoppers are still fueling demand for premium grocery products.
Part of Erewhon’s growing popularity might also be linked to its positioning as a sustainable market that focuses on organic and eco-friendly products. While a significant majority of consumers consider sustainability when shopping, the higher price point on eco-friendly products acts as a barrier to entry for many of these would-be shoppers. Erewhon’s high-income customer base may see sustainability as paramount, which could be leading to higher foot traffic, sales, and store fleet growth.
The foot traffic trends point to accelerated growth for the bottom and top ends of the pricing spectrum, with both specialty grocers like Erewhon and value chains like Aldi seeing foot traffic gains in recent months. The recent success of both types of grocery brands suggests that there is room in the grocery space for both high-end and cost-conscious options to thrive.
The high demand for healthful or specialty grocery products is not just reflected in Erewhon’s visit increase. National specialty and high-end grocers, such as Whole Foods, Wegmans, and Trader Joe’s are all seeing larger average trade area sizes when compared to other leading general grocery brands.
Earlier in the year, as the shock of rising gas and food prices hit the country, many shoppers chose to stick with the closest grocery store to reduce driving time and fuel expenditures, as discussed in this white paper. But with gas prices down from their Q2 highs, some shoppers are now driving the extra mile – or 10, or 20 – to find specialty food products. In particular, consumer segments who are willing to spend more on organic or premium products also seem willing to spend more on gas and drive longer distances to grocers who carry these specialty foods.
Consumer segments who are willing to spend more on premium products also seem willing to drive longer distances to grocers who carry these specialty foods.
In Q3 2022, Trader Joe's and Wegmans, both featured on a ranking of the 10 best grocery chains in the country, had the largest trade areas on average at 83.4 square miles for Trader Joe's and 78.8 for Wegmans. Whole Foods, a high-end market that brought organic products to the mainstream and also puts a focus on sustainability, boasted a trade area size of 65.9 square miles.
And value-priced grocers are also benefiting from the drop in fuel costs – grocery brands known for their low-prices such as Aldi and WinCo are also seeing larger-than-average trade areas.
Inflation has undoubtedly created a unique set of challenges for the grocery sector. Yet, many grocery retailers are successfully attracting shoppers and increasing their foot traffic despite the tightening of consumer budgets. Whether by offering a shopping experience unmatched by other grocers or providing a low-cost option to those looking to travel to save on their grocery bill, the sector has plenty of room for growth. As inflation eases and with the holiday season around the corner, we can hope to see visits to the segment increasing once again.
Grocery is still holding on to its pandemic gains. In the early stages of the pandemic, grocery was uniquely positioned for relative success. The sector and many of its top chains, have managed to turn that short term opportunity into longer-term success.
Grocery stores will not be taken over by discount & dollar stores — for now. While some discount & dollar stores are now offering fresh produce, the rise of discount & dollar stores is not coming at the expense of the grocery category. Foot traffic shows that the visit distribution between the categories has remained relatively stable over the past three years, and cross-shopping trends indicate that many consumers who shop at discount & dollar stores still continue visiting grocery stores.
Trader Joe’s locations are smaller than the industry average – but the brand is still seeing its YoY and Yo3Y foot traffic skyrocket while attracting significantly more visits per square foot than its competitors. The smaller venues also allow Trader Joe’s to offer shoppers a more local, intimate shopping experience while lowering overhead costs and transferring those savings into reduced prices.
Foot traffic data point to accelerated growth for the low and premium ends of the grocery pricing spectrum, with both specialty grocers like Erewhon and value chains like Aldi seeing foot traffic gains in recent months. The recent success of both types of grocery brands suggests that there is room in the grocery space for both high-end and cost-conscious options to thrive.