While retail continues to suffer as an industry in the face of the Covid 19 pandemic, grocery (its largest sub-sector) has been a clear winner in this environment. Most obviously, grocery stores have been designated as essential businesses, whereby consumers across the country queue on lines to stock their fridges and pantries as a necessity. Pre-Covid, the average American makes 1.6 trips to the grocery store and while that number may have decreased per shelter down mandates, the average basket size has certainly increased 2-3x, reconciling declining trips. Grocery stores are supplied by distribution centers, increasing opportunities for economies of scale and usually offer products at relatively low prices by using their buying power to buy goods from manufacturers at lower prices than smaller stores can.[i] They also minimize financing costs by paying for goods 30 days post, with some extracting 90 day terms from vendors. Grocery stores make up for their low margins by a higher volume of sales, and higher margin items (private label). Labor costs are experiencing reductions through digital innovations such as self-service checkout.[ii]
Albertsons Companies is an American grocery company with over 2200 stores and over $62 billion in revenues FY 2020. The company is the second-largest supermarket chain in North America after Kroger. Since April 2020, the grocer has evidenced pandemic-driven sales providing a boost to both their top and bottom lines. Digital sales in particular surged 225% in Q3, marking the company’s third consecutive quarter of 200%+ online growth.[iii] This is entirely due to the investments the company has made into their technological infrastructure and capabilities over the years. Grocery is a sticky consumer segment and the likelihood that shopping behaviors spawned by the pandemic will continue to persist post-pandemic. The company has further intended to invest over $300 million in capex and opex in order to accelerate their offerings with capabilities that will drive their scale and profitability.[iv]
In order to capture value, Albertsons Companies needs to increase the frequency of spend of their customers – ideally with their private label products. Incentivizing customers through convenience and an abundance of offerings is a winning strategy that will drive incremental and persistent spend. One method to achieve this goal has been through expanding its curbside pickup service, which saw 800%+ sales growth in the third quarter amid 231 new pickup sites. The company is on a defined path to achieve 1800 sites in 2021, keen to capture demand.[v] To date, the capital expenditures the company has made total over $1 billion, all towards accelerating digital and technology initiatives, as well as store remodels. Albertsons choice to continue to invest in these arenas during the pandemic is indicative of their forward looking approach. They also haven’t wasted any time in launching new capabilities in a test and learn manner. Last week the company announced that it was the first US grocer to allow customers to pick up online grocery orders at a contactless kiosk where one banner of the brand is piloting an automated , temperature-controlled kiosk in partnership with pickup solutions provider Cleveron.[vi] While Albertsons continues to build innovations internally, they have not been afraid to partner strategically with technology companies and in arenas where they may not have expertise. This is indicative of the companies approach to outsourcing innovation. In 2018, the company teamed up with venture capital firm Greycroft to create a $50 million fund that will invest in emerging companies and technologies in the grocery sector.[vii] This strategy from leadership has definitely contributed to their success today and will continue to position them as a market leader. As the pandemic declines, these decisions to invest critically in technology now will continue Albertsons Companies trajectory. In fact, they are positioning themselves to be a tangible conduit to that decline as they operate pharmacies administering Covid-19 vaccines as part of a federal plan.[viii] This will only further cement the loyalty of a customer to the Albertsons brand.