Retail

Restaurants Vs. Grocery Stores: Who Wins In a Post-Pandemic World?

Will Restaurants Beat The Grocery Store?

The fact that grocery stores are comprehensively winning the race to keep the American consumer fed shouldn’t be too surprising, considering grocery stores are by and large still open for business, and restaurants have been forced by statute in most places to close their doors. In the world of retail sales, it’s hard to find a bigger advantage than being open in the face of everyone else’s closure.

To the credit of the nation’s grocers, the biggest names in the game – Walmart, Amazon, Kroger, Target and Ahold-Delhaize — have all taken the opportunity to raise their digital game in recent weeks, expanding their offerings in response to the swell of consumer need and demand.

But, of course, it’s not quite fair to say that restaurants are entirely closed — many have pivoted to digital services like online ordering, curbside pickup and delivery to fill some of the gap left behind by diners. And some progress has been made: As of the end of April, 15.8 percent of consumers had shifted their restaurant spend to digital from physical, up from about 4.2 percent when PYMNTS started surveying consumers in early March.

But the bigger and more persistent trend is that consumers are ordering less from restaurants on the whole. Before the pandemic began, over 80 percent of consumers reported eating in restaurants regularly; by the end of April, according to PYMNTS data, that figure had fallen by more than 90 percent. Some consumers switched their ordering habits to digital, but most just decided to cook at home more often.

It should be noted, however, that though grocery stores collectively have seen a revenue bump as consumers stock up on essentials to weather stay-at-home orders, they have also, by the numbers, been reducing their spending on essentials, including grocery shopping. According to PYMNTS figures, by early April, a few weeks into the pandemic, 76.5 percent of consumers reported they were shopping for groceries less often than before the pandemic.

Consumers, in response to growing economic anxiety induced by the wave of layoffs, furloughs and cut hours, have mostly cut their spending in general, though grocery stores still hold the edge.

The question now is whether that advantage will remain as clear-cut once the acute social distancing phase winds to a close, and the economy as a whole begins to walk the road to recovery.

It’s a question that is hard to answer, for a variety of reasons. While most experts and analysts are confident there will be an economic recovery in the future, the shape of that recovery, its speed and how fully it will be felt across various afflicted segments remain very much unknown. Given the incredibly depressed retail sales results announced today (May 15), it’s fair to infer that consumer confidence is not soaring at the moment, which means convincing them to spend — at grocery stores, restaurants or anywhere else — might prove to be a challenge as long as the economy remains in a deep freeze.

Also adding uncertainty to the mix is a lack of knowledge of who consumers will be, and what they will prefer once they emerge from quarantine. There is good reason to believe, for example, that even when restaurants are allowed to open their dining rooms, consumers may not actually flock to the experience of having their temperature taken at the door, being seated in a half-filled space and being served by waitstaff wearing masks and gloves.  

But that doesn’t necessarily mean consumers will stay quite so beholden to grocery shopping as they are now. They really miss dining out — when we surveyed them, we found that 53 percent of respondents listed restaurant food as their first, second or third reason for wanting to leave the house, and it was the No. 3 choice overall. Only seeing friends and family and going back to work edged out dining at restaurants as consumers’ top motivation for returning to the world.

Moreover, when the U.S. government’s stimulus checks began to roll out, prepared food captured a fair portion of the spend. Roughly 16 percent of those who received stimulus dollars had expended some of them to purchase food (usually in takeout form) from restaurants within a day or two, as opposed to the 9 percent who moved to immediately spend the funds on groceries. Flush with funds, it seemed many Americans decided to stimulate the economy by having someone else cook their dinner for the first time in a few weeks.

And consumers who try digitally dining “out” by ordering takeout tend to like it, according to PYMNTS data. Almost two-thirds (65 percent) of the consumers who have used order-ahead or have ordered food from aggregators more often in recent weeks will continue to use those methods just as much even after restaurants reopen — a figure that stands out when stacked against the two-thirds who reported they won’t eat in restaurants again unless a vaccine is developed.

But then again, consumers who have switched their grocery shopping to digital have also liked the change. Almost three-quarters (71.7 percent) of the consumers who now order groceries online and pick them up curbside say they will stick with that routine even post-pandemic. And while grocery stores can adapt to a massive digital sea change, where more consumers stop at the curb and then enter the store – at least theoretically — restaurants will have a much harder time, since their core product tends to be in-house dining. A format that, for the time being at least, seems to be facing a long hiatus.

This means, for the time being, the grocery store will likely keep its edge in the race — and could even win it if smart chains can boost the quality and variety of their prepared food offerings.

But restaurants stand at the crossroads of innovating or vacating the market situation, with the future of the entire model up for grabs. The question may not be how yesterday’s restaurants will compete with tomorrow’s grocers, since the odds seem high that the bulk of yesterday’s restaurants won’t survive.

And how will tomorrow’s restaurants compete? That story is being written in real time. 

——————————

LIVE PYMNTS ROUNDTABLE: MODERNIZING & SCALING FOR THE NEW NORMAL

The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

TRENDING RIGHT NOW