Article

Inflation’s Impact on the Nation’s Largest Grocers

By
Tim Denman
September 30, 2022

At A Glance

  • Nowhere has inflation’s impact been more prevalent than at the grocery store
  • This resulted in consumers making major changes to their shopping approaches and the goods they choose to purchase
  • Grocers have seen an increased interest in their private label brands, coupons, personalized offers, and more as their consumers look for ways to get the most from their food spending
  • In response, nimble grocers have altered their operational and strategic approaches to meet these changing behaviors
  • This article looks at steps the nation’s leading grocers have taken to help lessen the impact of today’s inflationary environment

Inflation is putting a strain on the typical consumer’s budget, forcing shoppers to adjust their spending habits to stretch a dollar to its limits.

Nowhere has inflation’s impact been more prevalent than at the grocery store. Consumers have witnessed the cost of goods skyrocket over the past couple of years and have made major changes to their shopping approaches and the goods they choose to purchase.

Grocers have seen an increased interest in their private label brands, coupons, personalized offers, and more as their consumers look for ways to get the most from their food spending. In response, nimble grocers have altered their operational and strategic approaches to meet these changing behaviors head-on and greater connect with today’s cost-conscious consumer.

Below is a quick look at some of the changes in consumer behavior and the steps the nation’s leading grocers have taken to help lessen the impact of today’s inflationary environment.

Ahold

Ahold CEO Frans Muller concisely sums up the current economic situation stating that “commodity prices are high. Inflation has reached record levels. Interest rates are rising, and the undeniable effects of climate change are constant in our daily lives. Rapid cost of living increases are putting customer households and budgets under pressure.”

Ahold is dedicated to helping omnichannel consumers keep budgets in line while continuing to provide families with the products and services they desire. Ahold points to three key strategic initiatives that make this lofty goal a reality:

1. Increasing the number of affordable food options, with a focus on freshness and healthy.

2. Expanding its high-end, healthy, house brand assortment.

3. Developing and offering differentiated personalized loyalty programs.

“We are able to fund these and other activities through our ongoing save for our customers' programs,” said Muller. “These annual programs help our great local brands absorb cost increases to invest in better customer propositions and to keep shelf prices as low as possible. Our efforts in this respect are clearly paying off.”

Albertsons

Like all grocers on this list, Albertsons is focused on expanding its private label business and elevating its fresh offerings to greater connect with value-conscious shoppers and home cooks. One way it is facilitating this goal and encouraging customers to spend more on what is important to them is through its digital offerings.

One example of this digital innovation is on display in the brand’s mobile app. In a newly launched feature, customers can peruse available meal recipes, and once a selection is made the app can populate the items necessary to prepare the meal in the customer’s cart. The capability adds a level of experimentation and convenience for the shopper, and ideally increases cart size for the retailer.

“We are very deliberate about saying when we get a customer, we want to engage them and keep them, get them to spend more with us,” said CEO Vivek Sankaran. “What's helping us do that is the digital engagement that they have and the e-commerce business that continues to grow.”

Costco

There were rumors that Costco was going to bend to inflationary pressure and finally increase the price of its iconic hot dog and soda combo beyond its classic $1.50 price. But CFO Richard Galanti put those whispers to rest recently stating that the retailer will “hold the price on the hot dog and the soda a little longer, forever.”

Costco has seen house brand sales increase but unlike much of its competition, Costco views this change in behavior as “trading up” versus “trading down.” Costco’s Kirkland Signature penetration is up 1% compared to a year ago, reaching 28% total penetration. While the retailer has seen a steady increase in its private label business as consumers look to stretch a dollar to its limits, the retailer is often in the enviable position of keeping prices below market thanks to its massive buying power.

“We’re in as good a position, if not better than anybody, given that our buying power per item is off-the-charts high,” said Galanti. “We’re in the best position when you think about [it], we’ve got lots of $50, $100, and $200 million and even higher items. And even a handful of billion-dollar SKUs.”

Walmart

The world’s largest retailer is known for its value proposition and is relying on its reputation as consumers, both up and down the market, are looking for ways to save money on groceries and general merchandise.

“We have seen mid- to higher-income customers come to Walmart looking for value,” CEO Doug McMillon said. “As you would expect, food and consumables, in particular, are places where they're looking to save some money.”

While Walmart’s core customer is value-oriented and its every-day low prices are a key piece of its success, the mega-retailer is not immune to the increasing cost of goods. It is however highly aware of the impact increases at the shelf can have on its customer base and is hyper-focused on minimizing the impact of rising prices on its consumers.

“We're really focused on everyday low prices,” said CFO John David Rainey. “Value is always top of mind when it comes to us and deciding how we want to serve customers. We'll always lean on the value for the customers above other things…and what we want to do and what we try to do throughout this entire period is go up as late as possible.”

Kroger

Just like Walmart, Kroger is hyper-focused on its value proposition and is keeping a keen eye on cost increases on in-demand products.

“We're doing everything we can to minimize those increases and do it in a way that helps the customer,” said CEO Rodney McMullen. “And when you look at the total value proposition, we feel very good…I feel very good about the ability to balance all the pieces and minimize the impact on the customer as much as we can.”

One way the nation’s biggest grocer is helping customers get the most bang for their buck is through its highly leveraged digital coupon program. Through its segment-leading analytics capabilities, Kroger is able to personalize offers and promotions for individual shoppers and households, which has helped lead to more than 750 million digital coupon downloads in Q2 alone.