The Reason Extraordinary Supermarket Sales May Outlast the Virus

People are going to be nervous about eating out for quite some time once the crisis is perceived to 'end,' and particularly if there are one or more 'second waves' as health experts predict.

This means spending in supermarkets for groceries is likely to remain elevated above normal levels. On the flip side, the outlook for restaurants - and the considerable employment they support - may be depressed for an equally long time. JL


Jinjoo Lee reports in the Wall Street Journal:

Changes in consumer habits can be 'sticky' and persist after an initial shock. Just as households learned about the hazards of excessive mortgage debt in the last crisis, many are getting a reminder now why it is important to have cash saved up for emergencies. That could lend itself to new and durable habits of thrift: it isn’t just people with reduced incomes who are eating at home, but the entire population. Consumers won’t be stockpiling canned beans forever, but they will be spending more time in the kitchen for quite a while.

Large grocers have done very well during the coronavirus pandemic amid newfound enthusiasm for making bread and collecting toilet paper. The benefit is likely to be more than temporary.

Kroger KR 0.97% logged a surge in same-store sales—excluding its fuel business—of roughly 30% in March, a jump from the 2% growth it registeredin the fourth quarter, its chief executive said last week. In the five-week period ended April 5, Costco Wholesale Corp. posted an increase in net sales of 11.7% from the same period last year. Sales at Walmart’s WMT -0.88% U.S. stores rose nearly 20% in March.

That is reflected in share prices as investors flock to what they see as pandemic-proof companies. Kroger, Costco and Walmart shares are up 13.4%, 3.9% and 10.7% this year, respectively.

The double-digit leaps in sales aren’t likely to last beyond the panic-stockpiling period that was March. But analysts do believe sales growth is likely to hover above normal levels. Oppenheimer analysts forecast that Kroger’s annual sales growth will be 5.2% this year, and Evercore ISI pegs that number at 7%, above last year’s 2% and the previous year’s 1.8%.

A look back at Americans’ behavior during and after the recession that followed the financial crisis shows why the bump could last.

Spending on food away from home declined by 18%, or $47 billion, from 2006 to 2010, according to a study from the U.S. Department of Agriculture. Even more strikingly, this spending didn’t fully recover to its 2005 levels until 2016.

That is partly due to the weak and slow recovery from the so-called2007-09 recession. But it also shows that changes in consumer habits can be “sticky” and persist well after an initial shock.

This time around, the recovery could well come sooner, depending on how quickly the virus is brought under control and how effective government programs prove to be in restoring confidence. But other aspects of the current disruption could generate lingering impacts. Just as households learned about the hazards of excessive mortgage debt in the last crisis, many are getting a painful reminder now why it is important to have cash saved up for emergencies. That could lend itself to new and durable habits of thrift.

Additionally, it isn’t just people with reduced incomes who are eating at home, but virtually the entire population. This includes many people who are being forced to learn to cook for the first time. These skills, once learned, will last a lifetime.

In the week ending March 21, almost 80% of kitchen electric categories that research firm NPD Group tracks showed year-over-year growth, with more than two-thirds—including hot plates, coffee makers and waffle irons and sandwich makers—growing by double-digit percentages.

Another key difference is that online grocery shopping and pickup services practically didn’t exist a decade ago. A survey conducted by Evercore ISI showed that in 2018, consumers reported buying 16% of their groceries online. That number grew to 22% in 2019 and this year was expected to climb to 30%—and that forecast is from before the pandemic hit. Once new customers discover the convenience of home delivery and relatively low prices on offer from the likes of Amazon.com AMZN -1.42% and Walmart, they are likely to stick around.

Consumers won’t be stockpiling canned beans forever, but it is a fair bet they will be spending more time in the kitchen for quite a while.