Not surprisingly, 2020 ended in the plus column for most supermarket chains.
With all the consumer stockpiling and hoarding early in the coronavirus pandemic, coupled with cooking more meals at home in the face of dining-out restrictions, retail grocers finished the year quite flush.
In fact, the trade group FMI – The Food Industry Association estimates supermarket sales surged about $100 billion beyond 2019’s results to total some $1 trillion in 2020.
Of course, not all of the added sales fell to the bottom line, as about 70 percent went to cover the cost of selling goods, FMI says. And of the remaining $30 billion that would count toward profit, a good chunk went to COVID-related operating expenses.
FMI put grocers’ pandemic spending at $24 billion in a report released in late March, which it called “the first comprehensive overview” of changes made to keep stores open and operating safely. The report was based on a survey of member companies of varying sizes with operations in all 50 states.
According to FMI, new hires and incentive pay and benefits for workers accounted for more than half of the pandemic bill, with an additional $4 billion spent on in-store safety measures such as plexiglass barriers, masks, gloves and cleaning supplies. Expenses for improvements to technology to meet consumer demand for online ordering for pickup or delivery totaled $1.5 billion, FMI says.
The costs hit operators unevenly, according to the report, with smaller grocery chains spending double what larger ones spent: $50,000 per store at chains with 10 or fewer locations versus $24,000 per store for chains with more than 10 sites.
Pandemic-related expenses are not expected to dissipate until late in the year, FMI says.
Indeed, David Schoeder, in a mid-March webinar hosted by another industry group, The Food Institute, indicated that grocery operators, wondering what the landscape will look like this year, are “attempting to develop a strategy post-COVID to be at least equal to their financial results in 2019.”
Schoeder, who as principal of The Food Partners keeps an eye on merger and acquisition activity in the retail food sector, said 2020 “was a bust” for grocery combinations “because people didn’t have the time – they were too busy running their stores.”
“But I think that’s going to change” in 2021, he added, although he sees no mega-mergers on the horizon.
Instead, smaller independent operators are thinking about selling, he said. Many “are just tired” from pandemic stresses and associated costs.
“The biggest concern right now is a lot of these COVID-related operating expenses that we incurred may be embedded in operating expenses for the foreseeable future,” Schoeder said operators tell him.
That has some independents wondering whether they should sell into the pandemic now, based on 2019 results, instead of waiting to see what their balance sheet might look like in 2022.
Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at [email protected]
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