July 28, 2021

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“Location, location, location” – why it matters

“Location, location, location” - why it matters 1

That familiar phrase was coined in 1944 by the founder of Land Securities, one of the UK’s largest property companies at the time. Because of the pandemic, that’s even truer today for brands, and especially grocers, as millions of people are home-bound and/or working out of their homes.

Pre-COVID-19, many consumers stopped for groceries on their way home from work or near their bus, subway, or train station. Now, with many people working remotely from home, many of these grocers are experiencing huge declines in sales while the previously lower-performing ones in residential areas see increases. The location appears to be the differentiation.

To better understand what was happening because of these altered commutes, Nielsen recently studied grocery sales in 15 countries. What Nielsen found was a grocery industry in major flux, especially with regards to location and format. Nielsen said fast-moving consumer goods (FMCG) brands would need to revisit and revamp long-established distribution strategies.

Unlike durable goods with a shelf life of three or more years and nondurable goods with a shelf life of under a year, FMCG comprises the largest share and has a small mark-up and, because of its short shelf life, must be consumed almost immediately. Competition is keen, so high sales volumes are expected to offset the low-profit margins.

For the period between March and August of this year, Nielsen said 22% of stores accounted for 80% of FMCG sales in the U.S., an increase of 21% over the same period in 2019. Add to that the fact that until the pandemic, these grocery stores near downtown and commercial areas were often anchors that helped attract customers for other tenants like home electronics, fast food, crafts, and home improvement stores.

Nielsen compared sales in the highest density workplace zip codes with those of lowest-density ones where workers lived in five major U.S. cities- Chicago, Dallas/Ft. Worth, Los Angeles, Miami, and New York. They found declines of up to 14.2% in the overall change in dollar shares in every one of the highest density zip codes and increases of up to 10.7% in the change of dollar shares in one of the lowest density zip codes where workers lived.

Those stores that mattered the most might no longer be relevant and matter as much. Some may even have to close. This change in shopping habits may cause a rebalancing of market locations and other merchants who depend largely on the visibility and convenience from the traffic going to these markets while trimming their SKUs (stock-keeping units).

Grocers in both high and low-density areas must monitor and keep abreast of consumer trends as the country returns to a new normal. Some reports indicate that many employers will allow their employees to work from home. Retailers near these grocers who depend largely on the traffic they drive to them also need to be aware. Be prepared to adapt to any changes.

The same monitoring also applies to current trends in curbside pickup or delivery of groceries. If this continues after the pandemic is over, new strategies will also have to be discussed, drafted, and implemented.