Our look back at grocery stocks’ third-quarter performance showed us that the grocery industry’s current operating environment is tough, and difficult to describe with one or two simple labels.
“Contradictions” isn’t the right word to describe these.
We saw resilient consumers… who were highly selective. We watch grocery inflation moderate… while household budgets came under pressure elsewhere. We know value is critical… but virtually everyone is competing there. Digital sales are skyrocketing… and now hardly anyone can do without them.
This is what the grocery business is likely to look like headed down the stretch of 2026 into 2027. Beneath the earnings reports and stock-market moves, Q3 offered several clues about where the competitive pressure is moving.
Value Is Table Stakes
While it’s been going on for a few years, the third quarter of 2026 really drove home just how much price has become the centerpiece for a lot of consumer messaging. That’s perfectly understandable – and absolutely the right call. Food-at-home inflation was running 2.2% year over year in August; overall inflation was 3.4%. Energy prices – which filter into grocery prices sooner or later – were up 16.3%. Consumers may not be experiencing another 2022-style grocery shock, but plenty of other expenses are still competing with the food budget.
The industry’s response has been appropriately aggressive. Retailers are lowering prices, expanding private label, emphasizing promotions and identifying the staple items shoppers use to judge an entire store’s price position.
But there’s an important consequence, or “side effect,” you might say: When everybody is talking about value, simply being “affordable” becomes less differentiating. At that point it’s not necessarily enough to offer value – you’ve got to do it better than everyone else.
That might mean sharper opening price points or even more private label. It could mean unusually strong perishables, better promotions or a club model that rewards larger baskets. Or it could mean saving the shopper time and “bandwidth.” TIme is money, after all.
Price is still critical, but Q3 showed us it shouldn’t be the complete proposition.
Digital Grocery Has Entered a Different Phase
Traditional comps, while important, weren’t necessarily among Q3’s most interesting numbers.
Kroger’s adjusted e-commerce sales grew 20%. Walmart U.S. e-commerce increased 24%. Ahold Delhaize’s U.S. online sales grew 14.5%. Costco’s digitally enabled comparable sales increased 19.5%. BJ’s digitally enabled comparable sales jumped 30%.
Online grocery has clearly been adopted on a permanent basis; now retailers have to make the economics work for them.
I think that changes how we should size up omnichannel investments. Adding another delivery option isn’t necessarily a competitive advantage when everyone else has one. The edge os in using stores as productive fulfillment assets, increasing basket size, improving labor efficiency and finding ways to make convenience profitable.
In simpler terms: execution.
Loyalty Must Become More Than Just Discounts
The continued strength of the warehouse clubs points toward another issue traditional supermarkets should be watching closely.
BJ’s finished its second quarter with a record 8.5 million members, while membership fee income increased 9.9%. Costco continues to demonstrate the awesome power of a business model in which customers actually pay for access to the value proposition.
Amazon does essentially the same thing with Prime and Walmart continues building Walmart+.
To be sure, traditional supermarkets have untold millions of loyalty-program members, but those relationships aren’t necessarily equivalent. Too many loyalty programs still amount to identifying a customer so the retailer can give that shopper a discount.
So let’s go deeper: What does membership actually get the customer? I think it should look something like better digital experiences, personalized offers, fuel rewards, free delivery thresholds, exclusive products, meal solutions and other benefits can turn a discount program into something much stickier.
The clubs have already demonstrated what happens when customers see membership itself as valuable.
The Consumer Is Trading Across, Not Just Down
The standard explanations – the “usual suspects” – for this environment point to driving pushing consumers to trade down. There’s certainly plenty of evidence for value-seeking behavior.
But shoppers aren’t moving neatly down a ladder from premium to mainstream to discount – they’re zig-zagging, sometimes moving sideways. The same household can buy bulk paper products at Costco or BJ’s, fill in at a conventional supermarket, order dinner through an app, buy private-label pantry staples and then spend more on premium meat, produce or prepared foods.
Consumers are economizing where they don’t perceive much difference and spending remarkably freely where they do. This of course makes the traditional idea of a “value shopper” less useful than it once was because almost everybody is a value shopper now. They just define value differently depending on the occasion and category.
For retailers and CPG companies, that’s a major merchandising opportunity. That makes it absolutely critical to accurately identify where consumers tend to want to save — and where they’re still willing to trade up.
Somebody Has to Pay for the Price War
There is also a less comfortable implication in the Q3 numbers: Retailers are investing heavily in price while their own costs remain elevated.
BJ’s said merchandise gross margin declined about 20 basis points, primarily because of continued pricing investments. Ahold Delhaize also reported pressure from price investment and higher utility and energy-related expenses. Walmart cited price investments as an offset to gross-profit improvement.
As we all know, those pressures don’t just ease up and disappear at the front door.
If retailers believe they cannot pass every supplier increase along to consumers — and more and more they don’t — negotiations with manufacturers are going to get tougher. That puts CPG companies in an awkward position. They have their own increasing transportation, commodity, labor and energy expenses to reckon with, but their retailer-customers are much more sensitive to increases that could undermine their price position.
The argument over who exactly pays what portion of increasing costs is going to occupy the industry well into 2027 and likely beyond.
Fresh and Prepared Foods Become More Important
There’s another consequence of everybody competing on price.
Retailers need places where the conversation isn’t exclusively about price. Fresh departments and prepared foods provide exactly that space.
It’s easy; consumers can compare the price of a national-brand cereal or detergent across several retailers almost instantly. Comparing one supermarket’s prepared entrée, bakery program, produce quality or meat department with another is much harder.
Those categories give retailers room to differentiate, and satisfy another consumer demand: convenience. If shoppers are buying commodities wherever they’re cheapest, supermarkets need reasons for them to make a particular store the destination. Freshness, meal solutions and prepared foods can provide that reason in ways another 20-cent discount on a packaged product cannot.
It Looks Like 2027 Will Be About Execution
The grocery industry isn’t heading into 2027 with a shortage of strategies. Everybody has a digital strategy, a value strategy; personalization, loyalty, private label and convenience are all in play.
It’s going to come down to execution. The operations that can lower prices without slashing margin, who can grow delivery while improving fulfillment economics, and who can create genuine differentiation as opposed to “cheaper” will be in a much stronger position this quarter and into next year.
Likewise, those who can leverage their loyalty programs to create relationships, and use their fresh and prepared foods sections to give folks a reason to come in will probably be in good shape.
Q3 didn’t provide a neat answer about which of these strategies exactly will win. If anything, it showed why that may be the wrong question.