The Supply Side: Research firm says food spending decline tied to end of unemployment stimulus

by Kim Souza ([email protected]) 687 views 

Food retailers and manufacturers are having a banner sales year, with consumers eating fewer meals away from home. But much of the increased spending from mid-March through July was based in part on nearly $250 billion of enhanced unemployment benefits.

An enhanced unemployment benefit of $600 per week expired July 31, and states have yet to implement an increase from President Donald Trump’s Aug. 8 executive order allowing for $400 in additional weekly benefits. The U.S. Department of Labor reports it will be weeks before benefits make their way to recipients. Marketing research firm IRI assessed the impact of these cuts on grocery spending.

IRI reports growth for at-home edible spending has slowed in the past few weeks in grocery and large retail stores, amounting to 5 percentage point declines equivalent to $500 million less in consumable sales per week.

Walmart, the nation’s largest grocery chain, said food sales remain robust, but there is softness since the unemployment stimulus ended. Walmart CEO Doug McMillon said categories around back-to-school remain challenged as COVID-19 continues to rewrite the playbook for retail and consumer behavior.

He also said supply chain issues remain a problem in high-demand food categories, and lack of product could also be part of the reason sales have softened. McMillon said a second stimulus for consumers and extended help for the unemployed could be crucial to future spending.

IRI said consumer packaged goods manufacturers (CPG) and retailers should prepare to act as grocery spending continues to slow.

“As recessionary behaviors take hold, retailers will want to sharpen their price-value messaging, highlight their opening price point products and adapt their end-of-the-month assortment and pricing strategies via promotion of smaller packs to attract shoppers in-store and online,” IRI noted in the study.

IRI also recommends that brands consider tailoring their price-range value proposition to key retailers and perhaps bring back targeted-price promotions.

Among multi-outlets in the study —such as grocery, drug, mass retail, club and dollar channels — the edible dollar demand index, which comprises dollar sales, peaked in late March and rallied again in mid-May before leveling off through the end of July. At the beginning of August, the index fell 5 points for the first two weeks as spending pulled back amid tighter household budgets.

IRI reports the trend was the same when looking at only grocery stores, with sales falling 5 points in August as the unemployed stimulus ended.

Ken Cassar, with CassarCo Strategy & Analytics, reported $103 billion in consumer spending disappeared between March and May. While families did continue to spend on food and alcohol, they bought little else. Cassar said spending rebounded in June as the stimulus made its way into consumers’ bank accounts.

IRI reports edible spending for in-home consumption by category has varied through the COVID-19 crisis. Non-alcoholic beverages spending peaked in late March, dipped in April, and rose from May through July. The category saw a 6% decline in sales in August.

IRI found frozen foods have performed well during the COVID-19 crisis, rising by 40 points on the sales index between February and March. Sales remained higher than usual through July but fell 6 points in August.

General grocery food sales also remained elevated through July but lost 5 points in August, but they were still above pre-COVID-19 levels.

Refrigerated foods also lost 5 index points in August, but sales were 7 points higher than a year ago. The only category that didn’t see a decline in sales in August was alcoholic beverages. This category peaked in May and has remained 9 points above sales index levels pre-COVID-19 and last year.

IRI found prepared meals, meat and cookies showed the most impact from pre-COVID-19 levels to August when unemployment aid ended. The categories lost between 7 and 9 points on the sales index. Families also bought less cold cereal, bottled water, salty snacks and carbonated sodas. Staples like eggs, milk and fresh bread saw little movement in demand from March to August. The only categories that saw more demand and sales from pre-COVID-19 into August after the stimulus ended were beer, wine and alcoholic ciders.

The study also looked at geography and which states saw higher employment and more significant decreases in edible spending. Arkansas ranked among the worst states for decreased spending. Arkansas sales decelerated by 12 points. Louisiana was the closest to Arkansas’ performance, with the sales index falling 11 points. Tennessee and Ohio had index spending drops of 5 points, Utah rose 1 point, and Wyoming had the highest increase in spending index rising 3 points.

Consumers are eating out less in restaurants, and that has not changed much from May into August. IRI reports as restaurants reopened in mid-May for eat-in service, traffic was down 95% at the start, then improved to a 60% decrease by mid-June. Even as the unemployment stimulus ended, restaurant traffic for sit-down meals grew in August to the best reading since COVID-19 hit. Restaurants are still running at about 56% of their year-ago numbers.

IRI said several factors are impacting edible spending as the back-to-school and fall season approaches. The report points to an increase in unemployment and reduced household income as the most significant factor.

As families are busier with the return of school, they may also be more mobile. Increased mobility is positive for restaurants, take-out meals and food delivery, all of which will take a bite out of grocery store sales, the report notes.

On the flip side, IRI said a second stimulus check and renewed unemployment benefits would be positive for grocery retailers and CPG manufacturers. Pandemic persistence and ongoing work- and study-from-home behaviors also favor strong demand for foods eaten at home.

Lastly, IRI said that as the winter months approach and the cold and flu season returns, families will likely hunker down at home, which could help grocers and CPG manufacturers.

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