This edition of Compete Magazine is dedicated to AWG Brands and the importance of the store brands program to your overall retail strategy.
While AWG member stores have been blessed with solid and sustained retail growth over the past 26 months, ongoing inflationary pressures and a declining economic outlook will likely change the trajectory in the coming months as recessionary buying behaviors emerge. We must work together to guard against the erosion of your sales momentum by Mass (Walmart/Target), Clubs (Sams/Costco), Hard Discount (Aldi/Lidl), and Dollar (Dollar General/Dollar Tree/Family Dollar).
An economic recession is generally defined as the fall in the Gross Domestic Product (GDP) output for two successive quarters. While this standard has not yet been technically met (as we have only experienced a one-quarter decline), we already see early signs of recessionary buying behavior, expecting it to accelerate.
The last recessionary period lasted approximately 18 months, from 2008 through 2010. Research from that period depicted a significant increase in money-saving shopping behaviors, like using manufacturer coupons, waiting to buy on sale, trading down to store brands and entry price point products, and buying larger sizes. It was estimated that households lowered the average price paid for food by 2 to 4 percent by buying on sale, by 31 to 33 percent by using coupons, by 5 to 11 percent by buying at discount stores, and buying store brands reduced costs by 13 to 25 percent.
While we can learn from the past, some stark differences in 2022 will likely influence how consumers behave. First, there is an ongoing concern over COVID-19. While the cases and severity of the virus cases (and related deaths) have declined, the virus is alive and well, and instances of regional increases are expected. This continues to weigh heavy on the mind of many consumers, especially the elderly and those with underlying conditions.
Second is the all-time-high price of motor fuel. This too impacts consumers’ decisions about shopping around for sale products, cross-shopping at multiple outlets, and seeking jobs that allow them to work from home, at least part-time.
Next is the significant shift to buying food online for pick up in-store, curbside, delivery, or ship-to-home. From 2008 to 2010, online grocery purchases averaged less than 2%. Today the number is averaging 8% of sales, or a 400% increase. The same switch to online options holds true for coupons, which have shifted to digital discounts and coupons.
And lastly, there is the impact of the fundamental change in consumer behavior due to the work-from-home and hybrid office/remote work shift accelerated by COVID. This, too, has a significant effect on what consumers are buying and the mode they use to purchase it.
But what has not changed is the demand for a high-quality and competitively priced store brand program with the right products at the correct prices. That’s our goal with AWG Brands.
While it’s not new, the financial impact of COVID and the past two-plus years has not affected all consumers the same way. Sixty percent of consumers have been financially impacted and will be dealing with personal constraints as incentive monies and governmental subsidies end. For the constrained, purchasing behaviors will be driven by needs and means.
These consumers are primarily searching for value and will gravitate to the store(s) and shopping strategies that they believe will allow them to buy their needs for the lowest overall cost. In the 2008-2010 downturn, Mass, Club, Hard Discount, and Dollar grew double that of conventional supermarkets. In this downturn, Mass and Club are starting ahead with year-to-date sales comps of double digits over 2021, which is outpacing supermarkets and significantly exceeding inflation. Of particular concern is the dual threat of the well-established online platforms Mass and Club stores have developed combined with the perception of lower prices. While AWG will be bringing forward value products and promotions, it’s important to stay sharp on Known Value Item (KVI) everyday retails and have a compelling presentation of all four tiers of the AWG Brand program. Regardless of income levels and demographics, consumers seek high-quality and value priced store-branded products across the spectrum of offerings.
And for the 40% of consumers who have not been financially impacted, their primary constraint is health, safety, and convenience. The non-constrained, as they are beginning to feel safer, are quickly shifting back to prior norms and eating out, going to church, going to movies, bars, ball games, or other places of recreation, traveling, and social gatherings. They are looking for more healthy options in what they buy and are prime candidates for Best Choice and Clearly by Best Choice products. They also place a high value on local and unique products and high-quality perishables and prepared foods. They appreciate the convenience of eCommerce and other technology to make their lives easier, simplify shopping, and help them fulfill the needs of their family. As some access to restaurants has diminished, they will tend to purchase more food to cook at home and migrate to high-quality prepared foods and foodservice in your stores and from restaurants via take-out and delivery. These consumers, too, are at risk as Mass and Clubs appeal to their lifestyles and have effective online sales with curbside takeaway and delivery options.
The switch back to the majority of food dollars being spent away from home took years to build, and it will take many years to rebuild. There are millions of new cooks that have arisen from the pandemic. They’ve learned to cook and cook well, and the majority plan to do more of it. Our job as merchants is to fan those flames and to deliver solutions for them at retail so they can further expand these newfound skills. The time spent together around the dining table is healthy for the family dynamic and the body. This is our time to shine as grocers and build upon the momentum.
Please know that your cooperative is working around the clock to receive our fair share of products, improve your store’s service level, and execute our Convergence strategic initiative to help you compete more favorably. Product acquisition and supply are our top priority until the service level exceeds 97.5%. But we must also spin more than one plate at a time. As supply improves in 2022, we will also strive to deliver more value to you through better pricing on branded products and driving real growth and prosperity with our best-in-class store brand program, the best available fresh offerings, the natural, organic, and better for you products consumers are seeking, and unique and local offerings that help you set your store apart. We are very excited about the work we are doing on these initiatives and look forward to the results these will produce for you.
I hope you enjoy this edition of Compete Magazine and find valuable ideas on the AWG Brands program that will help you with your business. If we can be of assistance to you, please let us know.
My very best,
David Smith
President and CEO
