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Why Smaller Gourmet Grocery Stores May Be Thriving During the Pandemic


Dec 09, 2020 by Maurie Backman
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The coronavirus pandemic has shuttered thousands of small businesses already, and in the absence of additional government aid, more are likely to follow. But some smaller stores may be well-positioned to not only stay afloat but thrive during the pandemic -- namely, gourmet grocery stores.

Why gourmet grocery has an advantage

A lot of people have seen their income take a hit during the pandemic, but for those whose paychecks have held steady throughout this ordeal, they're suddenly banking cash left and right. Many employees have been doing their jobs remotely since March, resulting in a pile of savings on commuting costs. And given that travel hasn't exactly been the safest notion, many households have cut back on vacation plans or even canceled them altogether.

Dining out and leisure spending has declined, too. A Netflix (NASDAQ: NFLX) subscription for a year could, for some people, be comparable in cost to a single night out.

It's for this reason that gourmet grocery purchases have increased. Specifically, sales of premium and super-premium packaged goods grew by 1.7% at retailers year over year for the 26 week-period ended Oct. 4., according to data from market research firm IRI.

Since so many households are cutting back on other spending categories, they've grown more comfortable with the idea of paying a little extra for higher-end grocery items. In fact, many people have taken the opportunity to embrace their inner chef during the pandemic and spring for ingredients that normally wouldn't make their shopping list.

These purchases are not only affordable given the lack of spending elsewhere, but they're easy to justify -- a gourmet block of cheese could be an integral component of a recipe that feeds a family of four for several days. And that's why smaller grocery stores and food markets may not be in danger of struggling the same way other retailers and small businesses are. Even though many consumers today are favoring one-stop shops -- stores like Target (NYSE: TGT) that let them stock up on everything from everyday food items to socks to toilet paper -- big-box superstores aren't exactly known for their high-end grocery sections. Even regular supermarkets can't necessarily compete with speciality stores in that regard, leaving smaller grocers with higher-end product lines in a pretty favorable position right now.

Of course, when smaller gourmet grocery stores thrive, they give commercial landlords peace of mind. Right now, landlords are dealing with delinquent rent payments and widespread vacancies, but those with gourmet grocery tenants may have a more favorable outlook in the near term. It's also possible smaller grocery stores that see success this year could seek to expand despite the pandemic, helping to fill vacancies and generate rental revenue.

Furthermore, gourmet grocery stores that see steady foot traffic could help draw in customers at struggling shopping centers. That, too, is apt to work to the advantage of landlords.

The Millionacres bottom line

Will the trend of buying gourmet goods continue once the pandemic ends? It's too soon to tell. For now, smaller grocers are thankful that boredom and freed-up cash are creating a scenario where they're able to boost their revenue. And the landlords who rent to them should be grateful as well.

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Maurie Backman owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.