Grocers Struggle to Compete With Mega-Retailers Amid Inflation

As food inflation continues indefinitely, grocery shoppers continue to seek savings, abandoning previous favorite brands and retailers in favor of the best deals. Amid these shifts, traditional grocers are struggling to hold onto their share in the face of increasing competition from mega-retailers and discounters.

The Wall Street Journal reported Friday (July 21) that discount and big-box retailers, in addition to eCommerce players such as Amazon, have been gaining share from these legacy chains. Indeed, PYMNTS research shows that grocery shoppers will increasingly go wherever they can get a bargain.

In fact, findings from PYMNTS’ Consumer Inflation Sentiment series, “Consumer Inflation Sentiment Report: Consumers Cut Back by Trading Down,” for which we surveyed more than 2,000 U.S. consumers in April, show that 47% of grocery shoppers have switched to sellers that offer better prices.

Moreover, data from the March edition of PYMNTS’ Consumer Inflation Sentiment report, “Consumer Inflation Sentiment: The False Appeal of Deal-Chasing Consumers,” which drew from a survey of more than 2,100 United States consumers, indicated that 44% of grocery shoppers are deal chasers, willing to go wherever they will get the best price.

Amazon, for its part, has been touting its gains in grocery, with a breadth of selection that far exceeds what brick-and-mortar retailers are able to provide in addition to a scale that allows the company to outprice competitors.

“Amazon has built a somewhat unusual, but significant grocery business over nearly 20 years,” Amazon President and CEO Andy Jassy wrote in a letter to shareholders this spring. “Similar to how other mass merchants entered the grocery space in the 1980s, we began by adding products typically found in supermarket aisles that don’t require temperature control such as paper products, canned and boxed food, candy and snacks, pet care, health and personal care, and beauty.”

The numbers confirm that consumers overwhelmingly shop at Big Box retailers over the major pure-play grocery chains, as shown in research from PYMNTS’ study last year, “Decoding Customer Affinity: The Customer Loyalty to Merchants Survey 2022,” which drew from a census-balanced survey of more than 2,000 U.S. consumers.

The results indicate that consumers prefer to get their groceries at mega-retailers. A plurality of consumers — 28% — had purchased groceries from Walmart in the previous month, more than three times the 9% share that had done so from Kroger, the next runner-up.

Indeed, legacy supermarket chains are especially hard-pressed to hold their own against retailers that can offer lower prices now, as inflation squeezes out the middle tier of grocery, even as the upper tier holds strong.

“I wouldn’t want to be in the middle today. I’d want to be out there on the low or the high. I think the middle is getting squeezed in CPG in general,” Eric Skae, CEO of Carbone Fine Food, the consumer packaged goods (CPG) offshoot of famed New York City Italian restaurant Carbone, told PYMNTS in an interview. “When times are tight, you’re either going low, or if you don’t have those restrictions, you’re going high. You just don’t have that consumer that’s going into the middle.”