8 Major Trends the Grocery Industry Will Embrace in 2023

Editor's note: This is the first article in a series on key trends affecting grocery retailers in 2023.

What will the grocery industry face in the new year?

Over the past three years, the answer to this question has been dominated by broad challenges beyond companies' control. In 2020 and 2021, fears and safety concerns triggered by the global pandemic upended grocery shopping habits. In 2022, the health crisis took a back seat, replaced by high inflation and ongoing supply chain disruptions.

It remains to be seen whether another dominant narrative will emerge for the grocery industry in 2023. In interviews, industry experts pointed to the lingering impact of inflation—although prices are slowly easing, many consumers remain under financial strain after months of paying higher costs for groceries and other goods.

Experts believe other trends are also poised to flourish in the coming year. Retail media continues to heat up, but may not be the goldmine many retailers imagine. E-commerce is expected to resume growth after cooling off in 2022. And the Kroger-Albertsons merger could herald a new wave of industry consolidation.

Below are the trends experts say will have the biggest impact on the grocery industry in the year ahead.

Inflation continues to impact consumers

Although the pace of food inflation has slowed in recent months, industry experts expect the fallout from soaring prices to continue impacting the grocery industry in 2023.

"Financially strained consumers will drive many of the trends that unfold next year," said Tom Furphy, a former Amazon and Wegmans executive who is now CEO of e-commerce technology company Replenium. "Shoppers will seek value."

Even with cautious consumer spending, overall sales are unlikely to decline this year. But food retailers may have to increase their use of promotions and other tools to manage costs and retain inflation-hit shoppers, which will impact profit margins, said Tyler Ricketts, assistant vice president at F&D Reports.

"I do think the profit picture has peaked to some extent in the near term," Ricketts said. "But compared to pre-pandemic, it's still a favorable operating environment for grocers because demand is still providing good tailwinds."

Grocers also have to contend with competition from other retail sectors that view food as a way to attract consumers' limited spending, said Rachel Dalton, head of retail insights at data analytics firm Kantar.

"Shoppers are highly concerned about their overall ability to afford everyday essentials like groceries, so I think you'll see other channels beyond traditional supermarkets pay more attention to groceries," Dalton said.

Grocers focus on personalization and value messaging

The silver lining of sustained price sensitivity is that retailers have the opportunity to demonstrate their commitment to keeping prices low by taking concrete actions to provide value to shoppers, said Erich Kana, director of strategy and insights for North America at Dunnhumby.

"There's an opportunity to show empathy for customers and turn that into long-term loyalty," Kana said.

The heightened focus on price could be especially beneficial for retailers with mature loyalty programs that track shopping preferences and deliver targeted offers to shoppers at optimal times.

"It seems that after all the ups and downs of the pandemic, personalization has become even more important," Kana said, adding that for many consumers, value has now overtaken convenience as a priority. "This can only be achieved through the use of customer data, not just by looking at what the competitor across the street is selling, or how the competitor down the road is pricing."

Ricketts said many shoppers have returned to pre-pandemic comparison shopping habits, which will drive retailers to emphasize low prices and ensure shoppers are aware of their efforts to control costs. "Grocers are very aware of this, and they're trying to get ahead of it with their messaging," Ricketts said.

E-commerce will return to growth mode

After surging in the early days of the pandemic, grocery e-commerce will remain important, but its growth trajectory will be different, sources said.

According to Kantar data cited by Dalton, about 68% of U.S. shoppers in August said they considered themselves online grocery shoppers, ranging from e-commerce loyalists to occasional users.

She said grocers will continue to make e-commerce options like pickup and delivery faster and more efficient, and improve the overall experience.

After a plateau in e-commerce sales over the past few months, Neil Stern, CEO of Good Food Holdings, expects growth to pick up this year: "Going forward, we want customers to choose that channel if that's their preferred way to shop... It won't be driven by pandemic-induced panic, but because 'this is what I want to do.'"

David Ritter, managing director of the consumer retail practice at Alvarez and Marsal, expects large companies to begin achieving e-commerce profitability in the coming year, pointing toKroger's partnership with Ocadoand Walmart's acquisition ofmicro-fulfillment center maker Alert Innovationas two key examples of achieving this.

Grocers add more conveniences for online shopping

Since the start of the pandemic, grocers have built e-commerce options for consumers, and now they will begin creating more seamless omnichannel experiences that better blend in-store and online shopping.

Target'sStarbucks curbside pickup serviceand Sephora'sfree samples with online ordersare some examples Anne Mezzenga mentioned of retailers adding perks to online orders. Mezzenga is a former Target employee and co-CEO of retail blog Omni Talk.

Mezzenga expects retailers to add items to pickup apps, making it easier for customers to make impulse purchases, just as customers often add candy and gum to their baskets at in-store checkout lanes: "I think this will be a huge area of experimentation."

Offering samples with e-commerce orders is another area Mezzenga thinks grocers might try.

She also said grocers may look for more options to improve pickup efficiency, such as lockers or autonomous robots in parking lots. For example, Walmartbegan piloting last yearparking lot snack robots operated by remote drivers.

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— Tortoise (@TortoiseHQ) July 28, 2022

"There will be more experimentation to make the curbside pickup process more efficient for both retailers and customers," Mezzenga said.

In-store experience back in the spotlight

In-store shopping made a strong comeback in 2022, prompting grocers to refocus on refreshing fresh departments and center store aisles, sources said.

Companies are expected to update in-store dining options and introduce new technologies such as ordering kiosks, smart carts, and app-friendly features. Grocers can further advance their fresh departments with a farm-to-table focus, which appeals to customers who not only want to support local brands and businesses but also crave cleaner, more nutritious meal options, Dalton said.

Some small and regional grocers will increase fresh food offerings in the coming years to stand out among larger competitors, said Kevin Kelley, principal and co-founder of Shook Kelley, a design firm for the food and grocery industries.

"Right now, many grocery stores, depending on who you ask, have about 60%, 70%, 80% shelf-stable products and 20% perishable products. I think you'll see that paradigm completely shift," Kelley said.

One small grocer that has already taken this approach isDom's Kitchen & Market, which opened its first store in Chicago's Old Town neighborhood in 2021, with meal stations in the center of the retail floor and packaged goods along the side.

Retail media will grow—and so will challenges

In 2022, grocers' retail media efforts focused on collecting customer and CPG data, expanding networks, and building revenue streams. But if that expansion is to continue into 2023, grocers need to focus on improving collaboration with brands, sources said.

While consumer data is the driving force behind retailers' media networks, brands and grocers are having trouble cleaning and analyzing data quickly to respond in real time, Mezzenga said.

Brands are also struggling to navigate the multitude of media platforms across all the different retailers, said Emily Frankel, senior vice president and head of e-commerce marketing at PepsiCo, at the Groceryshop conference in Las Vegas last fall.

Replenium's Furphy said: "If I'm a brand, I have to manage all these different networks that have different rules... Do I use a traditional agency to help me, or do I create my own in-house agency to do it?"

As they go deeper into retail advertising, grocers may struggle to keep up with the rapid pace of innovation. Jordan Burke, founder and CEO of Tomorrow Retail Consulting, said the difference between the "haves" and "have-nots" in retail media will become apparent in 2023.

"You're going to see retail media evolve faster than anything the retail world has ever seen," he said. "Those who can keep up with that pace will take the advertising world."

Private label will grow, but not due to trading down

Private label reached its peak in 2022, largely attributed to inflationary pressures, which are expected to continue looming over grocers in 2023.

But even as inflation subsides, Ritter believes private label penetration in groceries will continue to rise.

"For years, grocers have invested in private label products because they're more profitable on a per-unit basis," Ritter said. "And it's perfect timing: [grocers] have done the work, and now consumers are starting to struggle."

The growth of private label should not be credited to shoppers trading down from national brands, despite the 2022 inflationary backdrop. Instead, expect trading down to continue to happen on ingredients, as consumers shift away from natural and organic products, said Bobby Gibbs, head of the retail and consumer goods practice at consulting firm Oliver Wyman.

M&A accelerates after Kroger-Albertsons deal

If the proposed mega-merger between Kroger and Albertsons is approved by federal regulators, both grocers could divest hundreds of stores, providing opportunities for other chains to acquire those locations.

But that's not the only force driving increased M&A activity in 2023 and beyond.

"I also think we'll see larger chains that can withstand a more difficult cost environment look to acquire some of the weaker competitors," Ritter said.

The grocery industry could also see increased M&A activity this year due to pressures such as digital innovation and supply chain disruptions, Gibbs said.

Over the past two years, there have been some notable collaborations among regional grocers, includingRaley's acquisition of Bashas'andPrice Chopper's merger with Tops Markets, and more such combinations may be on the horizon.

"Through consolidation, there's an opportunity to simplify supplier relationships, reduce costs across the system, and then pass those savings on to the end consumer," Gibbs said.