THE PANDEMIC IS SUPERCHARGING THE NEED FOR FOOD INDUSTRY INNOVATION

When the pandemic began in mid-March, many Americans were met with a new sight — empty shelves at their local grocery stores. Five months later, shelves are mostly full again but many other aspects of the food experience are changing.

THE SUPPLY CHAIN IS RESPONDING TO RAPIDLY CHANGING DEMAND

While the demand at grocery stores has skyrocketed, the closure of restaurants, schools, hotels and other industries led to a huge dip in demand across most other parts of the supply chain. This meant farmers, ranchers and other food producers had goods but nowhere to sell them. As a result, some were forced to dump milk, exterminate livestock and plow vegetables. The interruption to demand is also leading to higher prices. Consumers paid 2.6% more for groceries in April, the largest one-month increase since February 1974, which hasn’t done much yet to tamper demand.

The supply chain has endured, so far. The disruption in meat supply, even as major packaging facilities shut down due to Coronavirus outbreaks, has been minor. However, farmers and ranchers are under a lot of pressure as they grapple with rapidly fluctuating demand and many lose money as customers in industries outside of grocery shrink. Even with many COVID-19 vaccines in the works, medical experts warn that our situation will not change overnight, leaving food producers to wonder how they can sustain this new volatile climate.

ONLINE GROCERY IS FINALLY MEETING EXPECTATIONS

While marketers have been predicting the rise of online grocery, seemingly since the advent of the Internet, pickup and delivery only amounted to about 6.3% of all grocery purchases in the U.S. in 2019. In the past, the convenience of online grocery wasn’t enough for consumers to let other people pick out their perishables like meats and vegetables for them — and the fees associated with these services did not help. Of course, the pandemic has changed that equation. With people looking for ways to reduce contact with others and many large retailers waiving fees associated with these services, pickup and delivery have become go-to options for consumers. 

In August 2019, only 16.1 million households bought their groceries online, leading to just $1.2 billion in sales. When the pandemic began in March 2020, online grocery revenue rose to $4 billion. Online ordering continues to grow steadily each month, reaching 45.6 million households and $7.2 billion in sales in June 2020. Industry experts wonder if online grocery is here to stay, but the fact that it continues to grow month-over-month, even as the economy reopens and more people return to work, suggests real staying power.

A GLOBAL HEALTH PANDEMIC, MAKING PEOPLE HEALTHIER?

“Before COVID-19 came along, it was increasingly clear that the diet quality and nutritional status of Americans was terrible,” says Dr. Walter Willett, professor of epidemiology and nutrition at Harvard T.H. Chan School of Public Health. Obesity, heart disease death rates and diseases linked to the foods people eat, like diabetes, are all on the rise. Data is only beginning to become available on how people’s diets are changing during the pandemic, but early results look promising. Americans are eating almost every meal at home, even as restaurants begin to recover.

Researchers believe that more cooking at home, if it persists, could eventually lead to reductions in chronic diet-related illnesses, like cardiovascular disease, diabetes, hypertension and obesity. But that’s only if healthy eating continues and isn’t a blip on the radar that increased while people were ordered to stay at home and cook more meals from the safety of their kitchens. And while some consumers are cooking more fresh food, others are eating more processed foods than ever. Flour, sugar, canned soups and alcohol—not typically cornerstones of a well-balanced diet—have all surged in U.S. sales during the pandemic. 

This poses a unique opportunity across the industry as analysts try to predict what the future could hold. Food manufacturers have been working for years to develop healthier options. Will the pandemic cause health to stay top of mind for consumers and lead to increased demand for healthy food choices or will consumers looking for an escape look for more indulgent, comfort foods?

SO, WHAT’S NEXT AT RETAIL?

Consumers are poised to demand further innovation, which will lead retailers to innovate around two different ends of the experience spectrum. On the more digital end, imagine smaller footprint stores, like the ones Giant Foods is testing in urban neighborhoods. The physical store may become less important while organizations begin to heavily leverage e-commerce, pickup and delivery on and off-premise. Technology will help customers select from a wider range of goods that could be available to them in mere hours. 

On the other end of the spectrum, pent-up desire for normalcy could lead consumers to power down their iPads and head to the aisles of a supermarket. The new, massive, 100,000+ square-foot H-E-B stores offer one example of new-age supermarkets that prioritize the shopping experience as they build banks, coffee shops, restaurants and even movie theaters into their footprints. As consumers’ attitudes toward shopping change it will lead to new behaviors. And, while retailers will continue to create new experiences to try to appeal to these evolving behaviors, only time will tell which experiences will thrive and which will continue to evolve.

Researchers believe that more cooking at home, if it persists, could eventually lead to reductions in chronic diet-related illnesses, like cardiovascular disease, diabetes, hypertension and obesity. But that’s only if healthy eating continues and isn’t a blip on the radar that increased while people were ordered to stay at home and cook more meals from the safety of their kitchens. And while some consumers are cooking more fresh food, others are eating more processed foods than ever. Flour, sugar, canned soups and alcohol—not typically cornerstones of a well-balanced diet—have all surged in U.S. sales during the pandemic. 

This poses a unique opportunity across the industry as analysts try to predict what the future could hold. Food manufacturers have been working for years to develop healthier options. Will the pandemic cause health to stay top of mind for consumers and lead to increased demand for healthy food choices or will consumers looking for an escape look for more indulgent, comfort foods?

By Dan Whitmyer, Strategy Lead