The return of centre store

Before March 2020, centre store wasn’t a huge focus for McEwan Fine Foods, a high-end grocery retailer with three stores in Toronto. Customers would regularly pop in to McEwan for its renowned chef-prepared items, ready-made meals, hot counter and salad bar. While they were there, shoppers would often pick up some staples and packaged items from the
curated grocery aisles—but that wasn’t, generally, the main draw.

Everything changed, however, once COVID-19 hit. As people hunkered down in their homes, shopping significantly less frequently (with larger baskets) and cooking at home more often, grocers across the country were overwhelmed with the demand for packaged, shelf-stable goods. “It’s affected us tremendously; we really had to evolve ourselves,” says George Bachoumis, McEwan’s general manager. “Being a specialty store, we’ve only carried a certain variety of products, but we started bringing in Green Giant canned beans and corn, various Campbell’s soups—things that customers began looking for that we never really had in our store originally.”

McEwan removed many of the chairs and tables in its spacious seating area (not a super useful section, with customers no longer permitted to sit down and eat) and expanded centre store products into that space by adding in pallet displays and the like. “We sort of went back to old school ways, like large towers of cans and paper towels,” says Bachoumis.

While the centre store transformation at McEwan may have been more extreme than at many mainstream grocers, every grocer interviewed for this story said the pandemic has had a strong effect on centre store trends. “Pre-COVID, centre store was shrinking, both in sales and in size,” says Tim Lalach, category development manager, food department at Federated Co-operatives Limited. “We, at Federated Co-ops, were, and still are, focused on expanding fresh departments as our biggest differentiator in the food portion of our business. Pre-COVID, in new and renovated stores, centre store total footage was being reduced to support expanding fresh department halls.” Post-COVID, however, the share of total business for “grocery” (dry goods, dairy and frozen) has “skyrocketed,” according to Lalach.

Indeed, there’s been a lot of talk among industry experts about the “shrinking of centre store” in favour of fresh market concepts in recent years. And like Federated Co-op, countless grocers across Canada have been following that model—devoting more space to fresh and prepared foods, and less to packaged, shelf-stable items—when renovating or building new stores. “There’s no debating the recent gains in fresh food, deli and other perimeter hallmarks,” says Carman Allison, vice-president consumer insights for North America at Nielsen. That said, Allison stresses that the rumours of centre store’s demise were greatly exaggerated—even before COVID-19 hit. Throughout 2019, for instance, centre store food sales “actually grew in line with the perimeter of the store,” he says.

Still, the changing consumer patterns of the pandemic have undeniably given centre store a huge boost, shifting the balance to see centre store growing at a significantly higher rate than the perimeter. “For the 10 weeks ended May 19, centre store food is responsible for 27% growth, versus perimeter at 16%,” says Allison. And among all the current retail growth drivers, overall, he notes, centre store is “contributing to 77% of growth as consumers shift purchase needs to more shelf-stable goods.”

WHAT’S ON THE SHOPPING LIST?
While the early days of the pandemic saw shoppers frantically stocking up on toilet paper, sanitizers and cleaning supplies, now “shelter-in-place lifestyles have pressured supply chains across other categories, some of which are directly correlated with an increase in in-home cooking and baking,” says Allison. And it seems there’s a lot of bread-baking going on; specifically, yeast is now a very hot commodity. “Comparatively, yeast sales were trending downward before the outbreak, posting a decline of 6% for the 52 weeks ended Jan. 4, 2019. With consumers now spending more time in the kitchen, fresh, homemade bread is experiencing a big revival, leading to an unprecedented dollar sales growth of 88% in the category in the 13 weeks ended April 4.”

McEwan’s Bachoumis says “pretty much every type of baking supply” has been surging in sales at his stores, along with “oats, various pastas, pasta sauce, rices and various grains.” Justin Schley, vice-president and CFO of B.C.’s Quality Foods, agrees, adding that canned soups have also been selling very well at his stores. Federated Co-op’s Lalach notes (at the end of May) that “the strongest of centre store categories in the latest four weeks were canning supplies, flour and cake mix, baking products, cones/sundae toppings, and desserts (dry and frozen).” He also suggests we are seeing a shift from “purchasing to save ourselves” to a “start enjoying something” theme, with the increases in pop, chips and indulgent snacks.

Interestingly, as far as brands go, it seems there’s been a return to the “old school” big-name CPGs. “In these challenging times, we have certainly seen consumers going back to trusted, reliable brands,” says Fed Arreola, chief category and brand officer, Kraft Heinz Canada. “In particular, we are seeing an even stronger response in the ‘comfort’ food categories or family favourites. For instance, our Heinz Beans have seen an increase of more than 90% in the past 13 weeks. Similarly, some of Canada’s favourites such as KD and Kraft Peanut Butter have seen an increase of more than 50% and 30%, respectively.” Arreola notes that Kraft Heinz is also now seeing an increase in other categories that may not have seen a spike at the beginning of the pandemic, such as cream cheese (+20%) and coffee (+30%).

Kellogg is also experiencing a boost: “Today, we’re still seeing many of the categories in which Kellogg’s competes (such as ready-to-eat cereal, salty snacks and frozen waffles) maintaining double-digit growth, as well as higher than pre-COVID levels of both sales and at-home consumption,” says Tony Petitti,vice-president of sales, Kellogg Canada Inc. “The cracker category, in particular, has seen a significant uptick.”

Snacking has been big, as PepsiCo’s vice-president of customer development, Mike Lust, can attest (with regards to the company’s Frito-Lay business). “It’s just been an ongoing increase in the consumption of those things, as people have been at home ... and looking for items that give them comfort during these times of stress,” he says, noting products like Tostitos are also doing double duty as meal occasions, since nachos for dinner has been a popular option among families looking for fun meals to cook at home. PepsiCo’s Quaker brand has also experienced a boost, he adds, thanks to the increase in home baking as well as “an explosion in breakfast being consumed at home.”

Aurelio Calabretta, vice-president and general manager of Smucker Foods of Canada, says this breakfast explosion has led to strong growth for the company’s peanut butter and fruit spreads, as well as coffee, “as away-from home coffee consumption has shifted to in-home.”

One of the more notable comeback stories among the big CPGs during the first few months of 2020 is that of Campbell’s. The canned soup giant released its quarterly numbers in early June, which showed a 20% increase in net sales of meals and beverages, and a 35% increase in operating profits. “It certainly has been a very good last quarter,” says Trevor Oberlander, vice-president of sales for Campbell Canada. In terms of sales, “soup has certainly been a standout, and then within soup, anything to do with cooking has been fantastic. And what we’re seeing is quick-scratch cooking has increased. It’s been a trend for the last few months that has increased, and we’re certainly capitalizing off that,” he says, referring to the many recipes people are trying that incorporate canned broths and concentrated soups (cream of mushroom soup, for instance, is a common ingredient in many old-school casseroles and stews).

MAKING THE MOST OF CENTRE STORE DEMAND
What about merchandising in centre store right now? “I think that the whole ‘keep it simple, stupid’ philosophy is actually more important than ever, because right now it’s about those brilliant basics, right?” says PepsiCo’s Lust. “Right now, more than anything, consumers want to know that whether they go to the store or order online, they can get what they need. They know where it’s going to be, and can trust that it’s going to be there.” Kraft Heinz’s Arreola adds grocers might want to consider bringing centre store items into the fresh sections to space shoppers out from the crowded aisles: “For example, placing peanut butter in the bread section.”

At Denninger’s, a specialty grocer in Ontario, there’s a big area at the front of the store for seasonal dry goods. “So come Christmas, it’s all Christmas cookies and chocolates, then summer is obviously a barbecue theme, that kind of stuff,” says Patrick Denninger, operations manager. It’s typically specialty items featured here, but when COVID-19 hit, Denninger’s decided to assemble a big display of mid-ranged or lower-priced basic “pandemic staples,” all gathered in one place. “We were planning our big Easter promotions and then we said, ‘Well, let’s just throw that out the window and focus instead on canned soup, broths, jarred products, olive oil—just kind of very simple staple items,’” he says.

Quality Foods took that concept a step further. After noticing there was “sort of a hit list of breakfast items people would come in for ... we took these key breakfast items that were selling in abundance and created it as pre-bundled box, featured in all stores,” says Schley, noting the contents included favourites like granola, coffee, cereals and the like. “You get to reduce the time spent in the store, and it’s something that they could either order online or pick up quickly in-store.”

The breakfast bundles have been such a success that Quality Foods decided to launch a variety of other themed boxes starting in June, including a pizza-making kit, a taco night kit, a barbecue box for Canada Day, a Father’s Day camping box, and a box of “movie night” snacks and supplies. “We’re trying to be mindful of creating fun because it’s not the same experience in the grocery store now,” says Schley. “It’s sort of this somewhat awkward, difficult environment because you don’t want to spend a lot of time in the store. You’re avoiding people. So this is a way to create fun outside of the store, but you kind of still have that store connection.”

Offering customers an array of creative recipe ideas could be another wise move for grocers. With more Canadians cooking at home, says Nielsen’s Allison, “and 47% looking for new recipes more than before the outbreak, providing consumers with ongoing inspiration to use the items they’ve stocked up on is one way to ease one of the many stressors Canadians have on their plates. Coming up with and sharing creative ways to use food items they’ve stored will be essential to maintaining growth and loyalty, even beyond COVID-19 impact.”

WILL CENTRE STORE STAY STRONG?
Can we expect the trend to last post-pandemic? “None of us know what the world will look like. Is it going to go back to what it was? I think the answer would be no,” says PepsiCo’s Lust. “But what that new normal looks like, we don’t know.” Bethany Roberts, a store manager at Colemans in St. John’s, N.L., agrees the answer remains to be seen. “I think the permanence of the shift will depend on how long this pandemic continues—will it go on long enough to change people’s ingrained habits?”

At Toronto’s McEwan, Bachoumis says the stores have slowly started re-introducing their more foodservice-oriented features (like breakfast sandwiches and paninis) a bit at a time, but they still plan to keep most of the value-oriented packaged staples they brought in at the beginning of the pandemic, for now. They may start delisting certain SKUs if they see sales of these dropping off, he says, “but at the moment, we’re going to continue to keep a lot of these high-demand products that people are asking for.”

In general, grocers would be wise to tweak centre store strategies to reflect consumer behaviour as it evolves. “Retailers will need to adjust their assortment planning and demand forecasts as consumers remain at home,” says Allison. “Understanding each phase of these changing times while the industry pivots in the pandemic will be critical as businesses prioritize how they reinvent themselves to meet the developing market circumstances driven by COVID-19.”