Seven Trends Reshaping the Grocery Industry in 2022

This article is the first in a series on key trends impacting grocery retailers in 2022.

Retailers are entering a challenging 2022. Supply chain shortages continue to impact shelves, and record inflation appears unlikely to ease in the short term, forcing companies to raise prices and potentially causing customer dissatisfaction. Meanwhile, grocers are struggling to staff stores and warehouses amid a fundamental shift in the labor market that many are concerned about.

Industry experts mentioned these challenges when discussing the top trends of the year, but also pointed to a wealth of opportunities for grocers—many stemming from the fact that significantly more people are still ordering and eating at home compared to pre-pandemic times.

Grocers are expected to enhance meal offerings and introduce new digital purchasing options this year. Although consumers are focused on value amid rising prices, many are still expected to seek out premium products.

Here are seven trends expected to reshape the food retail industry in 2022.

Rapid delivery expansion

Following the ultra-fast delivery boom in New York City in 2021 and the launch of faster services by e-commerce platforms like DoorDash and Instacart, experts say major retailers will widely adopt faster operating models this year, especially in attracting younger shoppers.

Jordan Berke, founder and CEO of Tomorrow Retail Consulting, said that as digital shopping has declined from its 2020 peak, retailers are looking for new ways to boost e-commerce demand. Berke said, "We're seeing instant retail enter the demand generation space, and that's where its urgency lies."

Anne Mezzenga, a Target veteran and co-CEO of retail blog Omni Talk, said 30 minutes will become the new consumer expectation for delivery, and if grocers cannot meet it, they need to build other differentiators. Mezzenga said, "Whether it's dark stores, fulfillment centers, or partnerships and acquisitions, every grocer must find a long-term solution for instant delivery to remain competitive." She expects instant delivery to expand beyond urban cores into suburbs, putting more pressure on regional grocers.

Meanwhile, Vishwa Chandra, a partner at McKinsey & Company, noted that 2022 may bring more clarity on whether instant retail startups are competing more with convenience stores, local shops, or traditional grocers, and the extent of their impact on grocers' margins and product assortments. Chandra said, "No player has reached scale yet, and no player is truly making an impact in absolute volume, so the question is: how big can this get? Second, where will the volume come from?" Mezzenga expects consolidation among cash-burning rapid delivery companies as they fight for a foothold.

Addressing labor shortages with automation

Given the ongoing difficulty in hiring enough staff, Nicole DeHoratius, professor of operations management at the University of Chicago Booth School of Business, said the grocery industry needs to change the perception that retail jobs are not truly career opportunities. But many companies need immediate solutions to handle high traffic in both in-store and digital operations. Gautham Vadakkepatt, director of the Retail Transformation Center at George Mason University, predicts retailers will accelerate the adoption of automation technologies, not only for back-end and warehouse tasks but also in customer-facing areas of stores.

This includes adding self-checkout terminals and shelf-scanning robots on the retail floor. Vadakkepatt said the future may also involve integrating devices where robots automatically pick center-store items while customers shop for fresh produce, meat, and seafood. DeHoratius said such investments in operational efficiency can enable retailers to offer higher wages and better benefits to employees, improving retention and satisfaction.

Neil Stern, CEO of Good Food Holdings, which owns West Coast chains Bristol Farms, New Seasons Market, and Metropolitan Market, said he believes grocers will rely more on self-checkout terminals in the coming months to quickly address labor shortages and serve customers. Stern said that when Good Food introduced self-checkout at its Metropolitan Market store in Gig Harbor, Washington, the terminals quickly accounted for a third of transactions, reflecting increased customer acceptance of self-service equipment in food stores. He said, "We'll continue to try to hire more people, but the reality is we have to move toward automation."

Improving consumer data utilization

As grocery operations increasingly shift online, retailers increasingly need to leverage data collected through digital channels to enhance their ability to serve customers who have become accustomed to personalized shopping experiences. Spencer Price, CEO of technology company Halla, said this trend may intensify in 2022 as supply chain uncertainties highlight grocers' ability to avoid out-of-stocks and offer suitable substitutes when items are unavailable. Price said improving substitutions is especially important because dissatisfaction could drive shoppers to other retailers.

DeHoratius said grocers still have significant room to improve in using consumer data. She said, "Many companies currently run on two separate silos for data and analytics, and they need to let consumer behavior data effectively guide operational decisions." Beyond helping retailers manage inventory, analytics can also give product manufacturers an advantage as they navigate supply chain issues. DeHoratius said, "One thing I hear from suppliers is that they need better visibility into product information flowing through online versus typical customers, which affects their forecasting and delivery capabilities."

Fresher, more convenient meals

In recent years, grocers have been improving their prepared meal options. Tanja Ebner, a partner at consulting firm Oliver Wyman, said to truly compete with restaurants and meal delivery services like HelloFresh, they continue to enhance meal selections while adding digital ordering tools. She citedKroger integrating ghost kitchens into some storesas an example of how grocers are moving beyond prepared foods to kitchen-made meals that can be ordered digitally through apps like DoorDash and UberEats. To boost culinary creativity and quality, grocers are hiring more culinary talent and preparing more meals in-store or in nearby central kitchens.

Ebner said, "We're starting to see them double down on all meal solutions: heat-and-eat, ready-to-eat, ready-to-cook meals, and even restaurant-quality fresh meals available for pickup and delivery." Stern said Good Food Holdings had success partnering with local restaurants for in-store meals during the pandemic and is now strengthening its own meal operations. Its Metropolitan Market store in Gig Harbor recently opened a Sweetgreen-style self-serve salad bar. In March, the Bristol Farms store in Irvine, California, will open a food hall concept featuring house-made restaurant brands such as fried chicken sandwich shop Horton's and Swell, which serves fish tacos and lobster rolls. All restaurants will be available for delivery on DoorDash. Stern said, "We plan to take foodservice to a higher level than we ever have before."

Retail media network expansion

A few months ago, Albertsonslaunched its own retail media network, while Kroger, which launched Kroger Precision Marketing in 2017, announced aprogrammatic marketplace for advertisers. Chandra and Mezzenga both expect grocers and e-commerce platforms to increase retail media network development in 2022 to tap into the substantial advertising budgets of the CPG industry. Chandra said, "I think 2022 will largely be about how they actually create tools to monetize some of that data."

Retailers and e-commerce companies have vast amounts of customer data, and retail media networks are a way to leverage these consumer insights against brand spending. Chandra said that as retail media networks take off, providing performance data to brands will become a key feature. Mezzenga said that for brands, retail media networks are the "best way" to better understand consumers and gain customer data; for retailers, they are an important way to fund technology investments. While large retailers are building their own retail media networks, Mezzenga expects companies to emerge that help grocers—especially smaller ones with fewer resources and capital—manage advertising and media. Jason Goldberg, chief commerce strategy officer at advertising agency Publicis and a retail analyst, said the costs of retailers building e-commerce operations are prompting them to find ways to profit from the online relationships they build with shoppers. Goldberg said, "Grocers are heavily investing in selling their own ads to earn more money to offset the profit loss in digital grocery."

Premium products accelerate

Despite economic challenges during the pandemic, premium foods in categories such as alcohol, specialty coffee, meal kits, frozen meals, and spices have risen in popularity among shoppers,IRI found in 2020. James Richardson, a CPG expert and author of "Ramping Your Brand," said the recent momentum of premium CPG will continue in 2022. Richardson said, "We're seeing premium return as a growth engine in almost every category."

Richardson noted that in recent years, premium products' share at the category level has shifted toward meals—packaged and semi-prepared—and startups like Daily Harvest that offer "fresh frozen" foods, which are pulling sales away from grocery stores, especially in the fresh section, while meeting consumer demand for convenience. He said, "The intersection of fresh and CPG has been an underexplored area for packaged food companies, manufacturers, and investors, but as consumer demand rises, new startups are disrupting this space and attracting investment." Demand is shifting toward higher-priced, higher-quality fresh, fresh-like, or "fresh frozen" foods.

Inflation surged during the pandemic,hitting record levels in recent months，reaching a 30-year high, forcing grocers to pay more attention to price-sensitive consumers. But the impact of inflation on premium product demand and price elasticity remains unclear. On Kroger's earnings call in early December, Chairman and CEO Rodney McMullen acknowledged that over 80% of consumers feel the impact of inflation, but said premiumization remains a strong trend. He said, "In all aspects, you can see people's behavior premiumizing."

Venturing into B2B business

Sales to business customers, school districts, and other non-consumer entities have typically been the domain of foodservice companies like US Foods and Sysco. But the growth of e-commerce has leveled the playing field, enabling grocers to turn their digital strategies toward new commercial customer segments, Berke said. He said, "Previously, B2B sales seemed very opaque and hard to break into, relying entirely on human sales teams and traditional bidding. Now companies are saying, 'I want an online portal where I can see all transparent pricing and not have to call every time I place an order.'"

Nicholas Bertram, president of The Giant Company, said the grocer has a "growing" B2B platform and plans to expand it through investments such as a new automated fulfillment warehouse in Philadelphia. Online wholesale retailer Boxed recently went public, and its B2B division is also rapidly adding staff, according to a recentLinkedIn postby the division's head. However, seizing this opportunity requires operational updates. Berke said commercial customers want larger pack sizes—such as 64-ounce olive oil instead of 16-ounce—as well as dedicated purchasing portals and payment processing that allows monthly invoicing rather than per-order payments. Retailers also need to hire dedicated sales teams to pitch services, negotiate terms, and manage relationships.

Berke said the payoff lies in securing large, reliable, and profitable orders. As retailers seek to generate demand for their growing online investments, expect major chains to expand their commercial ordering services.