Retailers, Broadline UBS Evidence Lab inside: How COVID-19 Could Change Hardlines & Grocery Retail

We believe there will be a structural shift to food at home, away from the food services industry even after this crisis is over. This could be driven by both recessionary conditions & consumer trepidation to return to crowded restaurants.

29 Apr 2020

Food services consumption in the US ($, bn)

Source: BEA, UBS

This bar graph charts food consumption, in billions of US dollars, for 2017, 2018, and 2019E. It also shows the estimated loss for the 2019 period.

This in-depth report explores changes in consumer behavior

In a post Covid-19 world, changes in how consumers live, work, eat, shop, and spend leisure time could have meaningful impacts on the hardline, broadline, & food retailers. These changes are unpredictable. For now, we can simply opine. However, framing the potential impacts can help to understand who stands to gain & lose. For instance, as of 2017, 27% of US consumers lived in urban settings, 52% lived in suburbs, & 21% lived in rural areas.

The grocery sector could see the most pronounced sales lifts

Between the share shift to food at home and the increased penetration of online grocery, the food retail sector could see long-lasting changes that will have profound impacts. Similarly, consumers have increased the number of essential retailers they shop post-Covid to 5.1 from 4.1. Going back to the pre-Covid level would likely benefit the warehouse clubs as they offer a compelling combo of low price, high quality & large quantity.

How will wallet share shifts impact sectors?

There could be many impacts here. For instance, some of the $800b of annual leisure travel spend could shift to the home category.

Will the cost of doing business increase?

Some innovations that are emerging are likely here to stay, including curbside fulfillment, retail by appointment, & automation. We think this will drive up costs in the short run as curbside fulfillment requires incremental labor and retail by appointment can limit crowd sizes. Longer term, we believe those that invest in automation will be best positioned. General merchandise stores (47 employees / store on average) & Grocers (21 on average) likely have the most flexibility in automating certain jobs, given their higher employee counts.

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