SFM Sprouts Farmers Market Inc

By Jaewon Kang 

Supermarkets are using pandemic-driven changes in shopping behavior to accelerate the shift to e-commerce they have been seeking but have been slow to realize in recent years.

Grocers are now devoting more of their floor space to fulfill digital orders in response to customers' increased food consumption at home and their growing reliance on online shopping.

Albertsons Cos., the country's second-largest grocer, is testing the use of dozens of 9-by-12 foot temperature-controlled lockers in select stores in Chicago and California for customers to collect what they buy online. It is also introducing contactless payment in all of its more than 2,200 stores.

"The principle of that is to make things easier for the shopper," said Vivek Sankaran, chief executive of the Boise, Idaho-based chain. He also said the pandemic has prompted the company to make a fundamental change by prioritizing digital investments.

While many such technology investments were under way in the industry before the health crisis, food retailers are now making bigger and faster bets in hopes of appealing to consumers who want to avoid shopping in person or at least reduce the number of visits. Online grocery sales in August were up about 74% from a year earlier, according to data provider Nielsen.

The jump in digital sales is also creating new challenges, however.

Industry executives say online purchases are less profitable than those made in-store because of the extra costs associated with fulfilling orders for customers. Grocers have to pay their own staff to pick and package items on shoppers' behalf.

Delivering groceries to consumers is more expensive than having people pick them up because of the labor and transportation required, said Bill Bishop, co-founder of the consulting firm Brick Meets Click. Compared to pickup, delivery typically adds $8 per order to retailers' costs, he said. Lowering costs "is viewed as the only way to move the online business to profitability," he said.

For grocers, expanding pickup can help make that happen.

Midwest chain Hy-Vee Inc., for instance, is redesigning its stores to handle more pickup orders, converting parts of the customer-service area and building lanes of canopies outside its stores. The company is also fast-tracking plans to add self-checkout kiosks because customers are increasingly recognizing their convenience, Chief Executive Randy Edeker said. It has added more than 1,200 kiosks in total to about half of its stores.

Cub Foods, part of United Natural Foods Inc., hadn't previously provided a place for collecting online purchases in parking lots but now have four to eight slots at many locations. The Minnesota chain is also devoting 7% to 10% of its square footage for staging online orders, doubling the previous allocation.

Such investments allow Cub Foods to better satisfy shoppers, CEO Mike Stigers said. "Customers want to come in and out. They know exactly what they want," he said.

Alissa Grosso, who lives in Upper Black Eddy, Pa., has been picking up her online orders at a nearby ShopRite since March. The process has become smoother thanks to more parking space and a new option to text store employees upon arrival.

"We've noticed they have improved since this started," said Ms. Grosso, 44, referring to the coming of the pandemic.

In addition to building up their online services, grocers are making other adjustments throughout the stores. Many are reassessing inventory and expanding sections that have drawn more purchases in recent months, including the frozen and meat sections.

Anthony Hucker, chief executive of Southeastern Grocers Inc., said the retailer plans to increase the amount of square footage for seafood, meat and produce in the new stores slated to open later this year and early next year. The size of the sections will vary depending on the location. He said there is more demand for fresh items as consumers cook more at home.

Phoenix-based Sprouts Farmers Market Inc., which operates more than 340 stores, said last month that it plans to give more space to frozen, baking, cooking and meat products that have been popular in recent months.

Others are allocating more shelf space for nonfood items and larger sizes of groceries in high demand. Associated Food Stores recently directed all of its stores to display personal protective equipment at the end of aisles, said Darin Peirce, vice president of retail operations for the cooperative.

SpartanNash Co. plans to double space for quart-sized yogurt because it has been selling well among shoppers seeking larger packages, said Thomas Swanson, executive vice president at the company. The owner of Family Fares and Martin's chains is also offering more space for larger-sized spirits.

"We're repurposing all the space we can," Mr. Swanson said.

Write to Jaewon Kang at jaewon.kang@wsj.com

(END) Dow Jones Newswires

November 04, 2020 15:08 ET (20:08 GMT)

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