Grocery stores’ pandemic boom is over

Last year, people were stockpiling food and essentials at stores and ordering a lot more groceries online. That was great news for America’s biggest grocery chains.

Now companies say the pandemic-time boom is over. Kroger (KR), the largest supermarket chain in this country, said Thursday that it expects comparable sales, or sales at stores open for at least one year, to decline by 3% to 5% this year. Sales increased 14.1% in 2020.

There is now “quite a challenging setup for grocers,” Rupesh Parikh, analyst at Oppenheimer, said in a note to clients Thursday.

Other grocers expect sales slowdowns from a year ago as well. Discount grocer Grocery Outlet (GO) said Tuesday that comparable sales in the first quarter of 2021 are likely to decline into the high-single digits. They rose 12.7% last year.

The Instacart website on a laptop computer arranged in Hastings-on-Hudson, New York, U.S., on Monday, Jan. 4, 2021. A booming market for U.S. initial public offerings shows no sign of slowing in 2021. Grocery-delivery company?Instacart Inc.?is preparing for a listing, according to people familiar with the matter. Photographer: Tiffany Hagler-Geard/Bloomberg via Getty Images

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Sprouts Farmers Market (SFM) grew comparable sales by 6.9% last year, but the chain said sales will decline to low-to-mid-single digits this year. And Walmart (WMT) projects comparable sales to grow by low single-digits this year, after 8.6% growth last year.

The sales downturn dovetails with the widespread arrival of various vaccines, which makes it possible for consumers to shift back to eating more meals at restaurants and outside of their homes.

Overall, grocery sales grew 11% last year but will drop 5% this year, UBS analyst Michael Lasser estimated in a January research report. That would be the first annual decline in 20 years, he noted.

Such a drop will force changes across the industry, analysts predict.

In particular, independent and smaller chains got a boost from Covid-19 shopping changes, but store closures may be on the horizon for them once that trend ends.

“Smaller, less differentiated retailers remain at a disadvantage compared to retailers with scale and greater buying power,” such as Walmart, Costco and Aldi, Lasser said. “They also have fewer resources to invest in their online offerings.”

Many grocers went on a hiring spree in 2020, staffing up to keep up demand. But companies will readjust their staffing levels as sales decline, said Michael Baker, analyst at D.A. Davidson. This may mean fewer hours for some workers and even layoffs at some stores. And companies may speed up their investments in automation to curb labor costs.

Consumers may find more items on sale in stores, however.

“You’ll see aggressive promotions,” said Burt Flickinger, managing director at retail consulting firm Strategic Resource Group.

Promotions on products largely disappeared last year as many consumers were more focused on snapping up goods than finding the lowest price. Flickinger believes the promotions may be most notable among big consumer brands, which are working to fend off cheaper store brands.