Retail Recap: Q1 2021 in North America

Pantry-loading trips are stalling, consumer spending is on the rise, and prices are still high

The first quarter of any calendar year feels like a fresh start. We’re given a clean slate for setting new goals and making progress on activities from the year prior. And after a year like 2020, Jan. 1, 2021 was a welcomed date for us all.

Today, and in a few blogs to follow, we’re taking a look at how the retail industry fared in the first three months of 2021. What trends continued their trajectory? Were there any surprising developments in consumer behavior? We did some research to answer questions like these. Here’s a recap of the retail dynamics at play in North America over the first three months of 2021.

Boosted by stimulus money, consumers are spending – and marketers capitalized on it

NRF chief economist Jack Kleinhenz said in his April 2021 economic review that “numbers paint an increasingly encouraging picture” in regard to consumer spending and the health of the U.S. economy. Stimulus checks from Q1 2021 were estimated to have been spent primarily on retail goods and services (35-45%). NRF president and CEO Matthew Shay said that the increase in retail sales in March 2021 - 17.7% more compared to March 2020 - “confirms that a confident consumer is driving the economic rebound.”

Salesforce data also shows that indeed, consumers increased their spending because of the American Rescue Plan Act. Daily online spending in the U.S. peaked for Q1 on March 17, “growing 117% year over year.” What’s really interesting is that retailers were ready for the exact timing of this expected behavior – March 17 and 18 had the “highest monthly discount rates at 19%,” prioritizing marketing activity right when those stimulus checks hit people’s mailboxes and bank accounts.

Shoppers are assessing their future behaviors, and interestingly enough, not spending as much on groceries

EY’s U.S. Future Consumer Index analyzed consumer behavior to better understand how shoppers will modify or keep their learned behaviors from a pandemic year. The conclusion? “At-home consumption is here to stay.” Twenty-six percent of U.S. consumers expect to work from home more often, and 43% say they’ll cook more often at home, too. Forty-three percent indicate they will shop more often online for products previously purchased during in-store visits, and more than half (60%) of consumers say they have been in the habit of visiting brick-and-mortar stores less.

However, consumers in North America are buying less at the grocery store overall. Insights from NielsenIQ show that sales of fast-moving consumer products in the four weeks preceding March 21 were down 16%, suggesting a slow-down in the pantry-loading trips that were common through the peak months of COVID-19. The U.S. Commerce Department also found that grocery sales in Q1 2021 were mostly flat. More specifically, the U.S. Census Bureau, as reported by Supermarket News, says that grocery “eked out a 0.5% month-to-month sales increase in March 2021.”

Grocery prices are still up, but retailers can mitigate consumer pushback with optimization

In the U.S. Bureau of Labor Statistics’ Consumer Price Index released in mid-April, small increases in price were observed, particularly looking at prices for food at home. On average, the Bureau noted an overall 0.1% dip in January before prices increased by 0.3% in February. Here’s a closer look at price movement in the first two months of the year, in each of the six major grocery store groups:

• Fruits and vegetables – +0.7% in February (versus -0.2% in January)
  • Note: This is the subcategory’s highest jump in prices since March 2014. In an interesting comparison, the USDA’s Food Price Outlook 2021 noted increasing prices in all categories in 2020, stating that “only the price of fresh fruits declined in 2020, by 0.8%.”
• Meats, poultry, fish, and eggs – +0.3% (+0.5% in January)
• Cereals and bakery products – +0.5% (-0.8% in January)
• Other food at home – +0.1% (-0.3% in January)
• Nonalcoholic beverages – -0.1% (+0.1% in January)
• Dairy and related products – -0.2% (-0.4% in January)

From another perspective, the USDA’s Economic Research Service, as reported by Food & Wine, believes that “2021 should be significantly better, with grocery prices potentially slipping back below the 20-year average.” The USDA currently estimates that food-at-home prices will increase between 1 and 2 percent, which “would still be the largest annual increase since either 2014 or 2015.”

Because pricing is our bread and butter, we’re always eager to better understand how prices are moving across industries and categories, and how consumers perceive prices as they make shopping decisions. Phil Lempert, founder of SupermarketGuru.com, says he believes that “food prices are going to continue to increase for probably a good year, year and a half.” Even more reason for retailers to make sure they optimize prices!

Pricing more strategically will depend on retailers’ understanding of industry trends

As much as we anticipated with great hope the start of a new year, it’s already flying by! With one third of Q2 almost in the books, it’s just a matter of weeks before we have new data to analyze and new trends to pick apart. As vaccinations ramp up, pandemic restrictions ease, and the summer months approach, we’ll see consumer behavior adjust even more, and understanding those dynamics will be critical to pricing success.

As mentioned, we’ll soon have our Q1 recaps ready for the EMEA, LATAM and APAC retail markets. Keep an eye out for those! And in the meantime, take a look at four essential pricing strategy questions retailers must ask themselves to move forward in the “next normal”.