Billions in consumer spending is shifting, as the pandemic forces widespread retail disruption, finds a recent Nielsen study. And deep changes to store dynamics will have lasting implications for retailers and manufacturers alike.

Some of the highest revenue-generating grocery stores in the world are facing sweeping changes to their customer bases and their ability to deliver value to brands as people change where they shop – a change that, for some, may be permanent. The shifts come as Covid-19 forces millions of people to spend more time at home and less time commuting – a key driver of the shift. 

The changes are effectively shifting the balance of power in the grocery segment. Some stores that were once the biggest sales contributors are now seeing sales declines while those that may have been previously viewed as ‘under achievers’ are over-performing against all previous benchmarks. This rise and fall of stores around the world will force brands to overhaul their strategies, reimagine the priority stores list for their sales force, and re-assess assortment and pricing.

Prior to the onset of Covid-19, people commonly shopped on the way home from work, stopped in stores near train stations and bus stops and patronised stores in retail parks near office parks. However, as working from home has become the normal for many, those shopping trips have largely faded – a trend to be replaced by increased sales in more residential areas. There are widespread implications.

A Nielsen Intelligence Unit investigation of sales at store level across 15 countries reveals a retail environment in major flux due to these altered travel routines. The shift will force retailers to recalibrate their thinking on the location and format of stores. It will also force FMCG brands to overhaul long-running product distribution strategies.

‘Golden stores’ lose their shine

The concentration, or number of stores, that account for 80 per cent of FMCG sales – often referred to as ‘golden stores’ – has changed, with movement of up to two per cent in either direction across the 15 countries. For example, 22 per cent of the stores in the US delivered 80 per cent of sales between March and August 2020, up from 21 per cent during the same period last year. On the surface, such a change may not seem meaningful, yet in the context of hundreds of billions of dollars spent in the US alone, the shift points to a much bigger impact.

This shift could have a meaningful impact on the share of market that brands have if they fail to recognise and respond. Indeed, this small percentage point change represents a large amount of consumer spend that is now being distributed to ‘other’ stores that had been previously unnoticed or deprioritised by brands.

The composition of golden stores has also changed, which hints that there are bigger shifts below the surface that may not be seen when looking at performance through normal market breakdown measures. Across the 15 markets, the composition of stores that either fell out of the top 80 per cent of stores or climbed into the top 80 per cent ranged from 1 to 10 per cent.

In all markets examined, the ranking for most stores changed with respect to their contribution to sales, and many stores experienced meaningful swings, sometimes moving hundreds of positions. In Spain for example, only one per cent of stores retained their ranking from last year; 40 per cent increased their ranking, and 59 per cent declined. 

“This kind of large-scale movement in what constitutes a valuable store reflects a new kind of dynamic in the marketplace. If big manufacturer brands are wondering why their share of market isn’t growing along with the increased spending right across the FMCG space, this may be at the heart of their problem,” said Scott McKenzie, Nielsen Intelligence Unit leader.

Deep changes to store dynamics

And the reason becomes clear when you look at heat maps that show the changes in sales for 2020 versus 2019. They show clear declines in high-density areas, such as downtown districts filled with offices and commuter hubs.

“Covid-19 has forced us all to shop differently, but this investigation demonstrates just how deep the changes are in our habits and the need for retailers and manufacturers to respond quickly to the massive changes we’re now seeing in store dynamics,” Mr McKenzie said.

Looking beyond the health emergency, store dynamics will remain altered due to permanent adjustments to lifestyle and work circumstances. “Companies around the world are already signalling they will no longer operate the way they did in the past. People will commute less, work from home more, and move further away from city centres. The consequences of this for the locations of stores, the formats of stores, the assortment in those stores, and of course, the pricing of products, are far reaching. If you add in the dynamic of a massive rise in e-commerce for the FMCG space, the need to respond to what we have discovered is one of urgency.”

And the impact will ripple beyond the FMCG sector, according to Nielsen. Stores in many other sectors, such as consumer electronics, fast food and home improvement often rely on grocery stores – particularly those of the large retail chains – to be anchors that drive footfall to their typically adjacent outlets.

Lasting implications for FMCG

Nielsen’s Intelligent Analytics group COO, Richard Cook, believes this may be one of the biggest longer-term implications for the FMCG industry to address. “For decades, many of these golden stores have reliably been delivering a steady stream of revenue to retailers and brands. But that is now clearly being turned on its head. Our analysis very clearly shows that people have shifted their spending to different locations.”

The analysis also reveals a more pronounced channel impact with bigger movements recorded among similar store formats. Sticking with Spain as an example, where the composition change in total stores accounting for 80 per cent of sales was three per cent, the channel composition change has been far greater: a five per cent change in hypermarkets and eight per cent in supermarkets, while the ranking changes in both were more dramatic.

The particularly big reshuffle at a channel level is important when one considers that many categories, product types and SKUs realise the majority of their sales through a particular channel such as chewing gum through convenience stores or family ice cream packs at large format stores. Understanding where the majority of sales and growth is moving, and has already moved, is paramount at both a manufacturer and a brand level. 

Dramatic dollar share shifts

In the US, five cities were analysed and revealed a widening gap in sales when zip codes were viewed through the lens of population density.

The findings suggest that stores aligned to high-density workplaces are no longer within reach to many new remote workers. In fact, dollar share has declined swiftly among stores located in the highest-density postal codes, and has risen among stores in the lowest-density areas.

In Chicago, for example, stores within the bottom 10 per cent of postal codes, ranked by population density, have gained over nine per cent in CPG dollar share over the past year. Conversely, the top 10 per cent of high-density areas have lost share, generating six per cent less of the city’s overall CPG sales since the pandemic began.

“Put simply, the stores that previously mattered most may no longer matter as much; some may even close,” predicted Mr Cook. “I’ve never seen these sorts of swings, and as brands consider their route to market for products, this is a whole new level of input that needs to be taken into account.”

The change in shopping habits may also lead some retailers to experience shifts in market share as the rebalancing plays out and the pandemic potentially forces 

further rounds of lockdowns across the world. “This rebalancing will, in large part, be dependent on their store locations and ability to adjust assortment to changing consumer demands at a time many retailers and manufacturers are trying to reduce the number of SKUs in a bid to find supply efficiencies,” he added in closing.