US results analysis: who won the quarter?

Stewart Samuel
Program Director - Canada
@RetailAnalysis

Date : 24 August 2020

Over the last few weeks, the five major food and grocery retailers in the US have reported their quarterly results. We take a look at what they tell us about the sector more broadly and what suppliers need to do to support their retail customers.

The top five

Walmart, Kroger, Target, Albertsons and Ahold and Delhaize are a diverse group of retailers. Walmart and Target have extensive non-food businesses. Kroger and Albertsons have almost national networks as the two largest supermarket retailers. Ahold Delhaize is a strong regional operator, with global know-how and deep ecommerce expertise. As I delved into the details of the results, and considered the data in lots of different ways, some key lines of thought emerged. Let’s start with the top line results.

Top-line results

Based on growth versus last year, Target is the winner, posting an uplift of 24.8%, with Walmart US delivering the lowest growth of the top five, coming in at 9.5%. However, when you look at incremental dollars over the quarter, Walmart’s scale makes it the clear winner, adding $8.1bn in the quarter, followed by Target at $4.5bn, Kroger at $4.2, Albertsons adding $4bn and Ahold Delhaize at just under $2bn. 

 

Source: IGD Research

In total this group increased their sales by a combined $22.8bn, or 13.5% versus last year. Taking a market growth rate of 3.1%, which has been the compound average growth rate for the US grocery retail market over the last three years, this is $17.5bn more than we would expect. Given the COVID-19 pandemic, there are several factors behind this elevated demand and spend:

  1. Consumers spending more time at home, consuming more of their meals and snacks in the home
  2. Reluctance among some consumers to eat out in restaurants and other foodservice outlets
  3. Spending on the home and tools to support working from home and educating at home
  4. Increased spend across items such as face masks, sanitizers and cleaners

We’ve just recently published new growth projections for the US food retail market. This year we expect the market to come in 8.5% higher than 2019. We therefore do expect an easing of growth in Q3 and Q4.

Channel shift: ecommerce

Beyond the top-line growth numbers, the surge in demand through digital channels is the other notable data from the results. The retailers have been posting some outstanding numbers. These range from Kroger delivering digital sales growth of 92% to Albertsons growing digital sales by almost 300%.

The retailers have working hard to add capacity since March, including for their in-house store pickup and delivery programmes, and through their partnerships with on-demand, third-party delivery companies. This will continue to be a major focus heading into the holiday trading season, when demand for online shopping is expected to be strong. Improving channel profitability is also a priority, although the rapid sales growth has enabled the retailer to leverage their fixed costs.

Target’s quarter

While it is hard to call out a winner among the five, Target’s performance stands out for me for several reasons:

  1. It delivered solid sales and profit growth
  2. It grew comp store sales by almost 10% as digital sales increased by almost 25%
  3. Although like the other operators it saw trips being consolidated into bigger baskets, it also saw strong traffic growth
  4. Despite demand for its store Drive Up service increasing by 700%, it has pushed on with the integration of grocery and consumables into this programme, which should help underpin another solid performance in Q3

It seems a long time ago since 2017 when Target set out a new strategic plan, including turning its stores into distribution hubs and reengineering its supply chain. It was a bold move, but one which has been vindicated by the pandemic.

Three supplier priorities

  • Product supply – it is still tight in many categories, with production flowing straight through to consumption. In addition to some out-of-stocks, it has been challenging for retailers to re-build their inventories. Stay focused in driving volume and maximising efficiencies, in the supply chain and at store level
  • Digital – while the surge in demand will ease off, channel penetration is unlikely to return to its pre-COVID-19 state. However, with most retailers relying on store-based picking to fulfil orders, this has major implications on category layout and ranging strategies. The shelf must support online and in-store demand and getting the right balance of pack formats can be challenging. Work with your retail customers to determine the optimum range and consider how else you can support fulfillment, especially for larger pack sizes
  • Planning - the market continues to be characterised by a high degree of volatility and uncertainty. Any form of future planning is challenging. In this type of environment, communication, agility and flexibility are key. During the initial stages of the crisis, the global brands were well equipped to support their major accounts, supporting an enhanced and more collaborative trading relationship for many. Build on this, be an indispensable partner, bring new ideas, especially for seasons and events, and help your retail customers to navigate the current phase of the pandemic and plan for the next

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