Dive Brief:

• Natural Grocers CEO Kemper Isely said shoppers are still relying on the company’s stores to complete large-basket trips and are foregoing small-basket shops for meals, snacks and other impulse purchases. 
• “Until the office workers come back in working at the office, I don't think we're going to see that impulse of smaller baskets come back to our stores,” Isely said during the company’s second quarter earnings call last Thursday, citing research the company performed in Q1.
• For the second quarter, which ended on March 31, Natural Grocers reported comparable store sales declined 7% but increased 10% on a two-year stack. Meanwhile, adjusted EBITDA was $14.1 million compared to $21.1 million last year.

Dive Insight:

Shopping behaviors forged during the pandemic are holding fast at Natural Grocers even as vaccinations increase and more customers head to the company’s stores. 

Compared to last year’s Q2, which included the first few weeks of the pandemic that took hold in the U.S. in March, the company saw a slight increase in basket size (8%) while the transaction count plummeted 14% due to customers pulling back from store visits. Isely said the number of customers visiting stores has been slowly increasing, with trip count turning positive in the first few weeks of Q3, but that basket size has barely budged.

“We did a study of our basket composition from the first quarter. And what we found was, where we lost baskets were the small size,” Isely said. “So, people coming in for lunch buying a sandwich, a drink and maybe a snack, that's where we lost our customer counts through last year. And so far this year, we're not seeing a huge uptick in that category. We're still seeing the larger baskets from our customers that got used to shopping less frequently and buying larger baskets."

Sprouts Farmers Market also reported store traffic turned positive in March and April, and said that average basket size has not been impacted — a positive sign for the company, said CEO Jack Sinclair. 

What’s notable about Isely’s comment is his singling out of office workers and the significant impact they have on meals, snacks and other categories. With many employers turning to remote work long-term, Natural Grocers and other food retailers may need to adjust their merchandising strategies to encourage bundling and online purchasing of meals and impulse buys. 

Natural Grocers reported gains across its loyalty program, Npower, with membership up 17% over the year-ago period and 5% over Q1, to 1.4 million members. The company added six new private label grocery products to shelves during Q2, including a bottled kombucha. It also announced the relaunch of its Natural Grocers brand supplements, with more than 150 newly formulated selections set to be in stores by the end of the fiscal third quarter.

“Supplements are an important component of our branded portfolio as they reflect our key principles of nutrition, quality and value and represent a competitive differentiation,” Isely said.

Natural Grocers opened one new store in Q2, in Jefferson City, Missouri, and expanded and remodeled a store in Dallas. It operates 161 stores across 20 states. The company said it expects to open three to four new stores this year — fewer than it previously outlined due to delays in construction and shipments of equipment. Isely said Natural Grocers had to pull back on its search for new store locations in 2020 due to market uncertainty and anticipates opening more stores in 2022 than in 2021.