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In Practice

Why Inflation Represents an Opportunity for Grocers

During the recession in 2001 and the financial meltdown seven years later, the U.S. Department of Agriculture reported how “Food at Home” consumption grew at the expense of “Food Away from Home.” It’s logical: Stressful financial times make people shift from expensive restaurant dining toward more affordable at-home options. 

We’re seeing a similar shift as the cost of living is being pushed up by global supply chain pressures, labor shortages, and climate-impacted food production. This new focus on spending follows two years of disruptions from the COVID-19 pandemic, which also forced people back to their own dining tables — this time for health and safety reasons.

All this eating at home, especially when coupled with how little time people have to prepare meals, provides grocers with substantial opportunities to expand and refine their efforts to provide fresh prepared foods and capitalize on new consumer priorities.

Market indicators are telling the same story today. According to recent numbers from data firm IRI, prepared deli foods are seeing double-digit growth again this year. We expect prepared foods and meal solutions for grocers to continue to represent a strong growth area. Those that invest heavily in them can be expected to see bottom-line benefit, with a broad halo effect anticipated for the rest of the store.

Fast and Healthy

The key to grocer success in prepared foods is to remember what’s important to consumers: Keep it healthy and easy. The Food Industry Association’s U.S. Grocery Shopper Trends 2022 report shows that three-quarters of consumers take less than an hour to prepare meals, and about half of the decisions about what to eat are based on wellness and finding calm.  

How to provide a fresh convenience experience for customers that generates loyalty? Here are four key merchandising plays that make the most of grocers’ unique capabilities:

Step Up Sophistication 

Cracking the shoppable “assembly” of the meal combines the simplicity of quick service restaurants with the abundance of grocery shopping — a killer combination. To do that, grocers have to get into the heads of shoppers, understanding price point priorities and tastes. By building a complete assortment in a layout that suggests different ways customers might assemble meals takes pressure off consumers with options to cook or heat and ways to embellish a menu to make it a little special. Ultimately, grocers suddenly become shortcut meal planners.  

Even though grocers have a leg up on a lot of the competition, there are still some threats — especially from the meal delivery platforms that consumers relied on during the pandemic.

Innovate Like a Restaurant

We often turn to restaurants not only for convenience, but also for inspiration. We consume a variety of foods through the wide range of restaurants available to us, and the best restaurants keep us inspired by rotating and curating their menus to ensure we’re always delighted and interested. Today, most grocers change their offerings seasonally at best. Yet fresh convenience campaigns offer a natural venue to create an innovation pipeline through recipe variation and new sourcing. 

Supercharge Omnichannel

Many retailers avoid making some of their prepared foods available online for fear of disappointing customers if they run out or because of the short shelf life of fresh foods. That means many are potentially ceding share. Instead, grocers need to invest in more visibility online, with leading retailers providing real-time transparency into what’s available in store. The most capable players take this a step further and allow customers to customize their orders as if they are at a restaurant. 

Become a Destination

Many consumers don’t associate all grocery stores as places to go for high-quality prepared foods because of unappealing displays. To compete with restaurants you have to look more like them using the backdrop of bountiful produce, exposed kitchens, authentic rotisseries, and busy staffs to make offerings more compelling.

Changing Landscape

Even though grocers have a leg up on a lot of the competition, there are still some threats — especially from the meal delivery platforms that consumers relied on during the pandemic. They were the biggest winners, with U.S. sales of food and beverages from restaurants ordered via digital services increasing 187% between 2019 and 2021 and their prices gradually getting closer to grocery.

That said, inflation may be the platforms’ worst enemy. Shoppers already feeling pressure on their wallets may cut out takeout as a way of staying in budget. 

Even so, the reliability of the “weekly shop” is increasingly under threat, which means grocers need ways to lure customers back. Fresh convenience and prepared foods seem to offer at least a partial answer.

Marc Rousset

Partner at Oliver Wyman, Retail and Consumer Goods Practice

Marc Rousset is a partner in Oliver Wyman’s retail and consumer goods practice, based in Boston. He has supported many clients undergoing organizational improvements, digital and artificial-intelligence transformations, targeted margin improvement programs, and end-to-end turnarounds. Retail is continually undergoing seismic shifts, and Rousset helps organizations adapt to these changes and remain competitive within their respective markets.

Corey Rochkin

Principal at Oliver Wyman, Retail and Consumer Goods Practice

Corey Rochkin is a principal with Oliver Wyman’s retail and consumer goods practice, based in Chicago. There, Rochkin works with diverse clients, helping them define and implement their corporate strategies and improve their commercial effectiveness, operations and financial governance.

Tanja Ebner

Principal at Oliver Wyman

Tanja Ebner is a principal with Oliver Wyman, based in Los Angeles. She has more than 10 years of experience in the retail and consumer goods industry in Europe and the Americas, with particular expertise in the areas of business transformation, operational effectiveness and customer satisfaction.

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