How Alternative Channels are Experiencing the PandemicMay 22, 2020 - by Taylor Getler
It is well-known at this point that the coronavirus pandemic is fundamentally changing the way that consumers shop for groceries. Prior to the global emergency, discount retailers like Dollar General and Aldi were already eating a growing percentage of grocery sales. Aldi in particular has managed to grow at an aggressively fast pace in a relatively short span of time, as the retailer is poised to quickly become the third largest supermarket chain in America. As early as 2018, Dollar General was making considerable efforts to grow their fresh offerings and add healthier options for shoppers, in order to meet consumer demand and to further diminish what little competitive edge that traditional grocers still held.
When the pandemic first hit U.S. soil, many had speculated about what kind of an impact it would have on the grocery shopping landscape. With big box and club stores the obvious early winners (as shoppers gravitated towards buying in bulk out of both practicality and panic), it was initially unclear where alternative channels would fit in.
As we close out the second straight month of the lockdown, retail analysts are predicting that discount stores and online providers actually stand to convert even more shoppers than before. Many consumers have either already lost their jobs or are concerned that they could soon lose them, and so they are cutting down on discretionary spending and are instead focusing on cheap essentials to get them by.
The low prices and close proximity of dollar and discount stores have also led many shoppers to lean on them for “fill-in” trips, in between treks to their larger local grocers – where they are, in many cases, more likely to experience lines at the door and quick depletion of important products.
Online ordering has skyrocketed for retailers across the board as consumers – particularly in hard-hit areas – strive to minimize contact with workers and other shoppers. However, digital gains have not been evenly spread. Both Target and Walmart have actually topped Amazon’s sales growth percentage, and direct-to-consumer grocers like FreshDirect remained surprisingly flat.
You might expect that the circumstances of the pandemic would drive shoppers to try out more retailers that sell exclusively online. However, while they are quickly embracing a new ordering channel, they still seem reluctant to deviate from tried-and-true names that they feel are trustworthy. Target also made some perfectly-timed moves prior to the pandemic that positioned them for success in online ordering, namely their purchase of the rapid-delivery service Shipt.
Confusingly, the same concern that led shoppers to run to club stores and shop in bulk is also driving them to convenience stores for small purchases. In the early days of the pandemic, consumers were prioritizing the ability to get everything that they needed in one place. Now, as fears of mass shortages have dissipated, shoppers are looking to convenience stores as part of their fill-in trips – similar to the role that dollar and discount stores have adopted. According to Nielsen, convenience stores have a major advantage because they are small, fast, and typically closer to consumers’ homes. This means that when shoppers need bread and milk, they feel that they can turn to their local convenience store to get them in and out without coming into contact with many other people. This is the new priority for shoppers as our understanding of COVID-19 develops.
Nielsen recommends that in order to sustain and nurture these gains, convenience channels should start diversifying their offerings beyond basic essentials and snacks. The firm specifically points to baking staples, eggs, butter, dish soap, cleaning products, disinfectant, and toilet paper as products that have especially high potential for contributing to future c-store growth.
Alternative channels stand to grow and prosper through the pandemic, but traditional retailers still hold a precious resource – strong brand equity. After all, Target and Walmart have shown that there is value in being appreciated for quality and reliability. Online grocers need to invest in developing their brands in order to compete, and convenience, dollar, and discount channels all need to demonstrate a commitment to offering a wider range of products that enable shoppers to put off visiting their traditional grocer. It’s going to be a tight race for shoppers, but consumer needs are becoming clearer as the pandemic continues, and the ultimate winners will come down to the channels that can best deliver.