Which Pandemic Shopping Behaviours Will Stick?22 August 2021
I spent a couple days at the Kroger Wellness Festival at the Johnson&Johnson booth showing off Perch by Raydiant to excited executives at retailers and brands. What a great event filled with senior executives who talked about macro and micro trends in retail both on stage and behind the scenes. There were many fascinating discussions on the long-term spending shifts of consumers and in turn, the future of retail.
Stricter Health And Wellness Adherence Leads To Long-Term Healthy Habit Formation As Retail And Medicine Merge
One of the most fascinating conversations I had was with teams from Dynamic Ventures, J&J and Kroger about how shopping behaviors around health have shifted and why they may not shift back any time soon. For example, during Covid, allergy sufferers were terrified about showing allergy symptoms for fear of confusion with Covid. As a result, many increased compliance with their allergy regimens, leading to boons in sales of Benadryl, Zyrtec and other remedies. When the pandemic fades, will this persist?
Studies show that these consumers are feeling better because they finally complied, and are likely to stick to new regimens, so yes, this is a fundamental shift in long-term, habitual behavior. Take a look at J&J earnings and you will see the boon in health has more than made up to drops in categories like beauty (and beauty is coming back). A McKinsey Survey indicates that 23% of shoppers will spend more on health products next year and 37% plan on spending more on health services.
Health and wellness is a $4.2 trillion industry that has grown 31% since 2019. turns out to be doing better than ever, as consumers take more vitamin supplements especially around immune health. In toothpaste, the Colgate teams were telling me how shoppers are now migrating to the more expensive but comprehensive products for whitening, gum disease and gingivitis. If you are going to spend money, do it on the premium products that offer the best benefits. What’s fascinating is that they are seeing these premium product trends ESPECIALLY in the discount market like Dollar Stores.
One area that is exploding is retail health clinics, which have grown to 3,000 locations and an increase in consumers using them of 120% in the last 7 years. Integrating services with products is a very successful tactic that is being invested in by drug stores like CVS and Walgreens, but also big box retailers like Walmart and Target and grocery stores like Kroger. With 81% of people unhappy with their current healthcare, 66% of those under 45% willing to change their primary care physicina and 79% that say retail clinics provide the same or better service, expect this trend to continue (check out our webinar on health and wellness retail marketing for more great stats).
McKinsey looked at 6 key areas of spending in health, appearance, fitness, nutrition, mindfulness and sleep and broke down spending by country. The US leads in mindfulness and is second in nutrition. Just look at all the health supplements and enhanced foods coming out. So retailers and brands are finding creative ways to ride the health wave. Case in point, Walgreen’s just launched a credit card with wellness rewards.
Outdoor Activity Surges With Population Moves And Fewer Activity Options
Richard Kestenbaum posted a nice article on Forbes about increases in outdoor activities and shopping behavior. Take these stunning facts:
Product Sales: Backpacking tent sales up by almost 50%, sleeping bags up by 28% YoY, portable power kits up 246%
National Park Visits: Visits to Acadia National Park in Utah were up 74% from April/May 2019 to April/May 2021. Visits to Canyonlands National Park in Utah were up 30% in the same period.
Outdoor sentiment: 48% of consumers said they intend to do more hiking or walking
Will outdoor activity behavior stick? Probably. Increased people moving to suburbs and recreational activity areas. Habit formation as other activities are limited. Sunk costs in equipment create desired usage.
And of course there is sports. The Global Sporting Goods & Equipment Market size was estimated at $49.35 Billion in 2020 and is expected to grow 9.23% CAGR to $53.74 Billion in 2021. People are flocking to sports as an activity to keep them healthy. Despite the Covid risks, even indoor sports activities are poised to see growth of 7% vs pre-pandemic. Biggest winners are outdoor individual sports and indoor individual exercise.
Home Cooking Will Not Supplant Restaurant Share, But Delivery Erodes Restaurant Margins, As Grocery Shoppers Return To Stores
The pandemic drove many people to cook more at home, but that is a trend that doesn’t seem to be sticking. The power of both the convenience of restaurants and the fact that they cook better tasting food than many home cooks, even with the rise of home meal kits, some of which are glorified TV dinners. Not everyone can cook homemade fettuccine with crab and charred corn with spring onion blossom. My cooking may have saved my marriage. Thanks, Masterclass for some inspiration.
As Jason Goldberg writes on his always fabulous LinkedIn posts: “restaurants lost nearly $51B/mo of sales to grocery stores. In July the gap has closed to $4B in sales. Almost a full recovery, what has changed is how much restaurant sales are now off-premise consumption often with less alcohol and a delivery commission eroding margins.” For full trade data, go to Census.gov.
Despite the recovery in restaurants, grocery is still showing tremendous growth rather than ceding top line dollars. They have achieved this in part through investing in key trip driving categories like baby, pet and beauty, capturing share from competitors as shoppers look for more convenience.
But while people continue to use delivery for restaurants because it eats into restaurant margins, they are increasingly refusing to take the hit to their own wallets. Grocery delivery is waning despite all the industry hype. Instacart is reverting back to its pre-pandemic trajectory and Shipt, which was acquired by Target, appears to be below its pre-pandemic trajectory, even as Target reports record sales fueled by same-store sales increases and in-store foot traffic.
Brick-And-Mortar Recaptures Share From eCommerce Which Is Set To Have A Flatish Year
Yesterday I read a post by a retail thought leader I deeply respect with the the old claim of eCommerce accelerating 10 years in 10 weeks. It’s been a common meme and it shows the same stale graph that magically ends in May 2020. It’s a beauty. But there is a reason it stops in May, because the graph drops like a rock after May. Now make no mistake, eCommerce had a fabulous year growing 30% instead of the regular 14-15%, so yes it was 2 years in 1, or a 1 year acceleration. Not quite the compelling headline anymore, right? Especially a lot of that “eCommerce” growth was driven by store pickup and delivery.
Well here is the kicker. Right now, brick-and-mortar is growing faster than eCommerce, certainly on a dollar basis, which I predicted in my 2021 Retail And Retail Technology Predictions. Walmart earnings shows just 6% YoY eCommerce lift. Amazon warning about slower growth. Earnings from Petco and Target and many others highlight the growth coming from brick-and-mortar. Department stores showing eCommerce share vs. brick-and-mortar decreasing YoY. And the above data on Intacart in grocery, which was seen as a growth category. The counter view to the populist perpetual eCommerce growth is that many categories are already saturated for eCommerce, and the remaining categories are much more sticky. And with 82% of millennials and Gen Z preferring shopping in-store, brick-and-mortar will be the next great growth category.
Home Improvement Showing Early Signs Of Slowing Down, But Should Continue To Show Strength For The Medium Term
The housing market has been red hot, but is starting to show signs of cooling off. “In June 2021, home prices across the U.S. surged 24.8% year-over-year — to a median sale price of $386,888 — according to Redfin. During the same time period, the number of homes sold increased 20.6% and the number of homes for sale tumbled 39.6%.” Job shifts, migrations between geographies or from urban to suburban have led to record activity.
But rising mortgage rates last week have led to a 5% decline in new mortgage financing. Lowe’s has showed signs of slowing do-it-yourself projects. That said, buying home leads to years of home improvement projects, buying home goods and continual improvement, especially since the work from home shift, which will have permanent effects, increase the value of both your home environment and weekend and vacation houses.
Pet Spending Shifts Will Maintain Gains For A Decade Or More
I was one of many Americans who got a pandemic puppy. Her name is Roxy and she had brought such joy into my life. And as the pet category surged, expect spending to continue. My wife jokes that I buy more for Roxy than I do for myself. Looking at my credit card history would substantiate that claim.
And here’s the thing - I expect Roxy to be with us for over a decade. I joke that she’s 10-20 year annuity stream for the pet industry and it’s true. That’s why we see continued record revenues and earnings. Petco this week reported 31% increase in revenues since 2019 and 7x increase in earnings YoY. Expect spending to continue. For Roxy and all the other pandemic furbabies.
Look how excited Rozy is for the future of retail? Shouldn’t you be?