It’s a nervous time for companies that rely on selling essentials.
A recent analysis from Bain & Company showed consumers have been consistently pulling back on grocery spending for a year now, down on average about 2%. Procter & Gamble reported weaker-than-expected sales in its quarterly earnings report Wednesday morning, while Sprouts Farmers Market will announce its earnings results after market close.
It’s no secret that a trip to the grocery store is more expensive now than it was a handful of years ago, said Kurt Grichel, who heads Bain & Company’s Americas retail practice.
“That $300 big, stock-up grocery trip in 2019 is now costing you $400,” he said.
That’s one reason why consumers are pulling back on grocery spending, but it’s not the only one. Gas prices are also up, and SNAP enrollment has fallen since the federal government changed benefit rules.
“Put that all together — it just ends up with consumers that are feeling very stretched,” Grichel said.
To save money, shoppers are focusing on essentials and switching to store brands. Meanwhile, retailers are highlighting value by pushing loyalty programs or rotating sales. But Bobby Gibbs, a partner on Oliver Wyman’s retail and consumer goods team, said there’s a limit to the discounts companies can offer.
“Grocery is a high fixed-cost business,” he said. “They have to have the stores, they have to have the people in the stores, they have to have the logistics network.”
So stores have looked for other ways to earn, including collecting and selling customer data to brands or selling ad space.
“Those advertisements can be on site, you know, either in the store or much more common on the website,” Gibbs said.
While margins on grocery items are around 2%, he said the margins on grocery ads are something like 50%.
