Pandemic Retail Trends Part II: The Essential Goods Boom


Date October 14, 2020

Key Takeaways

  • The retail sector has bounced back since the start of the COVID-19 pandemic posting year-over-year growth of 6.6 percent in June and 7.4 percent in July, but recovery has been uneven.
  • Essential goods providers and discount providers have been well positioned to endure the crisis and have experienced a boom during the pandemic.
  • A shift toward cooking and eating at home helped drive demand for groceries and other essential products throughout the pandemic, although it’s unclear whether the home-cooking trend will last.
  • As seen in the global financial crisis, lower discretionary income typically helps value-focused retailers, dollar stores and other discounters and these stores are performing well as a result of consumers discount hunting.
  • Overall, Gordon Brothers expects value and caution will continue to drive consumer decisions during the ongoing COVID-19 crisis and essential-goods suppliers and discounters are likely to continue benefiting from this.


The retail sector bounced back during the summer of 2020 from early spring lows, posting year-over-year growth of 6.6 percent in June and 7.4 percent in July. Yet the recovery has been deeply uneven. The pandemic has awarded winners and penalized losers. To compete — or in many cases to survive — companies have been forced to pivot virtually overnight. As a trusted partner to our retail clients, Gordon Brothers has deep respect for the resilience and innovations these challenges have engendered.

Essential goods providers and discounters have been well positioned to endure the crisis. By quickly adding safety features such as one-way aisles, temperature checks for employees and store occupancy limits, they have put shoppers at ease and maintained orderly distribution of the food, drugs and cleaning supplies households need.

This article examines the trends affecting essential goods providers and discounters during the COVID-19 pandemic.

The article is part II of a series examining the pandemic-era landscape to understand issues important to the retail sector, such as whether trends constitute secular shifts or short-term changes. Part I takes a closer look at the dramatic increase in e-commerce. Part III considers pandemic-related fads, such as pet adoption, home improvement and sporting goods purchases.

Stocking Up on Essentials

Demand for groceries and other essential products has remained robust throughout the pandemic. Sales at grocery stores soared 28.5 percent year-over-year (YoY) in March as consumers stocked up on indispensable items (Figure 1). As lockdown orders loomed, anxious shoppers purchased shelf-stable products such as dried beans (up by 63 percent), rice (58 percent) and chickpeas (47 percent) according to Research and Markets.[1]  Grocery spending eased as food service establishments reopened and lockdown orders ended, yet sales remained elevated by 10-15 percent YoY through July, before ebbing to about 7.6 percent YoY growth in August.

Figure 1

Figure 1 – Grocery Store Sales

When shoppers visit stores to purchase food and other essential items they have been buying more, although that trend has been easing. Compared to the 2019 average, grocery store cart size rose by more than 30 percent in early April, declining to about 13 percent in late June (Figure 2). Cart size for shopping at other essential-goods suppliers remains elevated as well. By contrast, Americans were less inclined to spend as much on discretionary items in the near term, with the exception of groceries, non-food child products, household supplies and entertainment, according to McKinsey.[2]

Figure 2

Figure 2 – Led by Grocery, Essential Service Demand Remained Strong Through June

For their most recent fiscal quarters, large grocers posted hefty same-store sales growth (excluding fuel):

  • Albertsons Companies Inc. increased 26.5 percent (quarter ending June 30)[3]
  • The Kroger Co.’s identical sales grew 14.6 (July 31)[4]
  • Publix Super Markets Inc. 19.9 percent (June 27).[5]

Smaller grocers were typically posting revenues more than 20 percent higher YoY in March-May, compared to 5 percent declines at other small retailers according to JP Morgan.[6]

Home Cooking

In addition to anxiety, a shift toward eating at home also helped grocery sales. In mid-March, fewer than half of U.S. consumers said they cooked at home according to Goldman Sachs survey data. By the end of March, this figure rose to more than 75 percent.[7] For some, having time to cook at home was a pleasure or an opportunity to eat healthier. Famously, sales of baking yeast surged by 647 percent for the week ending March 21, and sourdough loaves began popping up on Instagram.[8] Yet according to an April survey cited by The New York Times, though nearly a third of Americans were eating healthier, a quarter — dominated by young adults aged 18-29 — were consuming more sugary and salty snacks.[9]

Of course, the home cooking surge has not been driven by choice. Food-service closures forced consumers to prepare their own meals. Food-service spending dropped by more than 50 percent in April, and remained depressed through August (Figure 3). The drop in food-service spending from March through August was $116 billion compared to the same period in 2019, far exceeding the $50 billion increase in grocery store spending during that time.

Figure 3

Figure 3 – Food Service and Drinking Places Sales

It’s unclear whether the home-cooking trend will last. Fear of COVID-19 and crisis-driven wallet consciousness is still forcing people to prepare their meals at home. It is likely that at least some consumers who never cooked before will continue doing so, for pleasure, health reasons or to save money. However consumers less financially harmed by the crisis may flock to restaurants once they feel safe.

Discount Hunting

The pandemic has meaningfully impacted American household budgets. Disposable personal income declined month to month in March (by -1.7 percent), May (by -12.9 percent) and June (by -1.3 percent), and rose just 0.2 percent in July.[10] It was up by 14.7 percent in April, largely due to the disbursement of $2.6 trillion in economic impact payments.[11] Although government stimulus outlays were relatively modest by July ($32.8 billion), they were nearly equivalent to most of that month’s disposable personal income increase ($39.9 billion). This suggests the potential for further pressure on discretionary spending due to the congressional impasse on passing another stimulus. The Conference Board’s Consumer Confidence Index — an important indicator of willingness to spend — rose by 15.5 points in September, from 86.3 in August. It is down by about 30 points compared with February.[12] Yet many economists are projecting strong Q3 gross domestic product growth from the lows of Q2, driven by pent-up consumer spending.[13][14]

Regardless, with millions of workers unemployed and household debt near record highs at $14.27 trillion,[15] the pandemic has prompted greater price consciousness among many U.S. consumers. In mid-August, most believed economic recovery was at least four months away, and about 40 percent were looking for ways to save money while shopping according to the McKinsey survey. Nearly 60 percent of the survey’s respondents said the search for value drove them to try a new brand in recent months.[16]

As a sign of price consciousness, the Private Label Manufacturers Association stated store brands posted double-digit U.S. sales growth during the first stages of the pandemic, significantly outpacing pricier national brands. In Q1 of 2020, store-brand sales grew 14.6 percent in dollar volume and 12.8 percent in unit volume, outpacing 11.5 percent and 9.2 percent, respectively, for national brands.[17] The strongest gains occurred in the mass segment, which includes mass merchandisers, club and dollar stores. Fitch Solutions noted in March imports of cheaper food and drink products surpassed imports of more expensive alternatives, indicating growing price sensitivity among U.S. consumers (Figure 4).[18]

Figure 4

Figure 4 – Consumers Gravitated to Cheaper Alternatives as COVID-19 Emerged 

As seen in the global financial crisis, lower discretionary income typically helps value-focused retailers, dollar stores and other discounters. These stores are performing well. Costco same-store sales soared by 14.1 percent YoY in the quarter ending August 30, with strong sales of bulk groceries, cleaning supplies and home furnishings.[19] Dollar Tree Inc. and Dollar General Corp. have had strong sales growth during the pandemic, somewhat mitigated by civil unrest challenges, social distancing and additional pandemic-related costs. Overall, after some challenges in the early months, discount retailers appear to be adjusting well to the new circumstances.

For example, Dollar Tree Inc. reported a similarly robust level of same-store sales growth in Q1 (7.0 percent) and Q2 (7.2 percent). In Q1, ending Dollar Tree reported margin pressure from merchandise mix, tariffs, Easter merchandise markdowns, and higher payroll costs, partially offset by stronger same-store sales.[20] In contrast, Q2 earnings included 180 basis points of margin expansion, driven by improved merchandise costs, stronger same-store sales, reduced markdowns and improved shrink results, partially offset by higher distribution costs, including $11.4 million in COVID related payroll costs, and incremental tariffs of about $10.8 million. The company’s earnings report also cited “store damage, lost inventory, and other costs of $16.8 million related to civil unrest in certain communities.”

Some discounters that had been required to close temporarily during lockdown also saw comparable sales rise once they reopened. For its fiscal second quarter ending August 1, tween-teen discounter Five Below Inc. reported “reopened period comparable sales increased approximately 6 percent” although comparable sales for the full quarter dropped 12.2 percent due to a 19 percent decrease in comparable operating days. While Five Below hasn’t issued a Q3 outlook due to COVID-19 uncertainties, President and CEO Joel Anderson said “The third quarter is off to a strong start.”[21]

Price consciousness would appear to benefit off-price retail companies such as TJX — including the TJ Maxx, Home Goods, Marshalls and Sierra chains. As Gordon Brothers discussed last quarter in What’s in Store for Post-Covid-19 Retail, many department stores have inventory that needs to be offloaded or sold at high discounts due to store closures and low foot traffic in March to May. Off-price chains are capitalizing on this opportunity to buy hot items at an attractive price, yet in Q2 their results were down. At TJX, the industry leader,[22] foot traffic is significantly lower. Remote work has depressed demand for apparel, and fear of the virus is keeping some shoppers out of stores according to company management. On the positive side, thanks to the dual trends of value shopping and (forced) nesting, TJX “saw especially strong sales at our HomeGoods and HomeSense chains and in our home categories within all of our other chains across our geographies.” In aggregate, “open-only” comp-store sales were down 3% for Q2.[23][24]

While discounters are facing extraordinary costs from payroll premiums, tariffs and civil unrest, they have also benefited from price resilience. By summer, promotional activity had decreased given the strong demand for essential items. Only 21 percent of fast-moving consumer goods (FMCG) were sold on promotion in the 30 days ending June 13, versus 30 percent in June 2019.[25] Yet as scarcity wanes for some of the most sought-after products, stores will need to reset and be attuned to price elasticity.


Overall, we expect value and caution will continue to drive consumer decisions during the crisis. Essential-goods suppliers and discounters are likely to continue benefiting from this, in the form of greater demand, larger cart sizes and elevated same-store sales. On balance their earnings are poised to remain relatively strong, even while their margins face some pressure from payroll premiums and extraordinary costs.

Related Articles:

Pandemic Retail Trends, Part 1: E-Commerce to the RescueRick Edwards and Liz Sarhaddi-Blue

COVID-19: The Ails of Retail – Q&A with Liz Sarhaddi-Blue, Managing Director, Retail, and Tim Shilling, Managing Director, Retail.

What’s in Store for Post-COVID-19 Retail? – By Becky Goldfarb, Managing Director, Retail Valuations; Alex Sutton, Managing Director, Head of Research; Nick Taylor, Senior Managing Director, Retail.


[1] BusinessWire, Dried Grains and Rice Market Growing by 386% as Demand for Shelf-Stable Goods Rises Amid COVID-19 -, April 24, 2020  return

[2] McKinsey & Company, Survey: US consumer sentiment during the coronavirus crisis survey based on data collected in the U.S., August 28, 2020 Sample size 2,024, sampled and weighted to match the U.S. general population age 18+.  return

[3] Albertsons Companies, Inc. Reports First Quarter Results, July 27, 2020,  return

[4] Kroger Reports Second Quarter 2020 Results, 9/11/2020,  return

[5] Publix reports second quarter 2020 results and stock price, Aug. 3, 2020  return

[6] JP Morgan Research, Small Business Financial Outcomes during the COVID-19 Pandemic, July 2020  return

[7] Remarks from Katherine Fogertey, Restaurants Research Analyst, Goldman Sachs Global Investment Research on a Launch with GS podcast data April 8, 2020.  return

[8] Wall Street Journal, We’re All Baking Bread Now (And Many of Us Are Failing at It), April 2, 2020  return

[9] NY Times, Has Pandemic Snacking Lured Us Back to Big Food and Bad Habits? June 16, 2020  return

[10] Bureau of Economic Analysis, Personal Income and Outlays, July 2020, Released August 28, 2020.  return

[11] Bureau of Economic Analysis, Effects of Selected Federal Pandemic Response Programs on Personal Income, July 2020, Released August 28, 2020,  return

[12] The Conference Board Consumer Confidence Index Decreased in August, 25 Aug. 2020  return

[13] Wall Street Journal Economic Forecasting Survey, As of Sept. 24, 2020,  return

[14] CNBC Goldman now sees a 35% jump in Q3 GDP, much higher than the rest of Wall Street, Sep 17 2020,  return

[15] NYFed, Center for Microeconomic Data, Household Debt and Credit Report, Accessed Sept. 24 2020  return

[16] McKinsey, Survey: US consumer sentiment during the coronavirus crisis, Aug. 28, 2020  return

[17] Private Label Manufacturers Association press release, as of May 11, 2020. See:  return

[18] Fitch Solutions, Retail & Consumer, Global, June 9, 2020. “Short And Longer Term Impact Of Covid-19 On The Consumer: Premiumisation Trend Assessment.”  return

[19] Costco Wholesale Corporation Reports Fourth Quarter and Fiscal Year 2020 Operating Results, Sept. 24, 2020.  return

[20] Dollar Tree, Inc. Reports Results for the First Quarter Fiscal 2020, May 28, 2020  return

[21] Five Below, Inc. Announces Second Quarter Fiscal 2020 Financial Results, Sep 2, 2020  return

[22] Selected U.S. off-price retailers by revenue from 2016 to 2019, Sep 28, 2020,  return

[23] The TJX Companies, Inc. Reports Q2 FY21 Results, Aug. 19, 2020  return

[24] The TJX Companies, Inc. (TJX) CEO Ernie Herrman on Q2 2021 Results - Earnings Call Transcript, Aug. 19, 2020,  return

[25] Nielsen, “Predicting the COVID-19 Behavioral Reset”, CPG, FMCG & Retail. August 6, 2020. See Data for period ending Jun 14, 2020.  return