Online to make up 21.5 percent of grocery’s sales in five years

Discussion
Photo: Getty Images/Mary Baratto
Sep 18, 2020
George Anderson

Grocery sales made online are expected to grow more than 60 percent from pre-pandemic levels to $250 billion in 2025, accounting for 21.5 percent of the industry’s total, according to a new study.

More than 60,000 Americans were surveyed for the report from Mercatus and Incisv. Sixty-two percent said they were shopping online because of COVID-19. Forty percent of those said they were likely or very likely to continue doing so after the pandemic has passed.

Most grocery shoppers prefer buying goods from retailers that sell online and have nearby physical locations, as well. Increasing consumer acceptance of buy online, pick up in-store and curbside pickup programs are among the factors. Retailers with systems that integrate digital and physical operations seamlessly are more likely to attract and retain customers now and over the long haul, according to the study.

Thirty percent of shoppers surveyed said that they changed their preferred place to shop after the coronavirus outbreak happened. Sixty percent moved their shopping from one physical store retailer to another and 40 percent found new online shopping destinations. Only eight percent of those surveyed said they moved their grocery shopping from a store-based retailer to a pure-play e-tailer.

“We analyzed more than 48 million data points and found that shoppers are highly satisfied and loyal to their preferred grocery store, but this loyalty does not extend to the online channel,” Amar Mokha, COO and benchmarking lead, Incisiv, said in a statement. “While the adoption rate of online grocery has increased significantly, grocers need to improve pickup and delivery slot availability, promotion and coupon availability, and product substitutions to improve customer loyalty online.”

The percentage of shoppers who have gone online to purchase groceries has climbed to 43 percent in the last six months, up from 24 percent two years ago. The biggest reasons for making the shift were concerns about the virus (62 percent), convenience (62 percent) and time savings (42 percent). Real-time inventory visibility is most important to shoppers who go online to buy their groceries.

Looking at the demographics of current online grocery shoppers shows the biggest changes being made by older consumers. Thirty-five percent of shoppers 45+ ordered groceries online for the first time since the pandemic hit. Forty-six percent of respondents said they have begun using new fulfillment methods (curbside) for the first time, as well.

DISCUSSION QUESTIONS: How long will it be before seamless omnichannel operations, including real-time inventory visibility, will become table stakes for grocery chains looking to compete for market share? Should grocers place more value on those shoppers who make purchases online and in stores than those that prefer one over the other?

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Braintrust
" I think [seamless omnichannel operations] are table stakes now. It’s just that different chains are in very different places in implementing all the new processes. "

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34 Comments on "Online to make up 21.5 percent of grocery’s sales in five years"


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Dr. Stephen Needel
BrainTrust

First, consider that we’ve been forecasting 15 percent of grocery sales done online for a good 20 years – we just keep on moving out the timeline. So I’m skeptical about the 21.5 percent. Remember that forecasting is hard, especially when it involves the future (to paraphrase Neils Bohr). Given lots of people are going to be omnichannel themselves, it’s probably not good to give primacy to any one shopping mode.

Neil Saunders
BrainTrust
There is no doubt that online grocery will grow. However I am extremely skeptical that penetration will reach 21.5 percent in just five years. First, you cannot look at increased online grocery penetration and shopper numbers which resulted from the pandemic and extrapolate it forward. Not all of the changed habits will stick as the virus abates. Indeed, a lot of habits are already unwinding to some extent. Second, while a lot of shoppers do like online grocery shopping for some things, they find it very hard to do all of their food shopping online. As the research itself points out, that means there is still a preference for physical stores. More advanced online grocery markets, like the U.K., show there are limits to growth because of this. That should not be underestimated when coming up with future projections. And finally, even if the demand were there, there is very little chance that grocery retailers could service such a high level of demand in such a short period of time. The build-out of capacity, the… Read more »
Navneet
Guest
2 months 12 days ago

I don’t necessarily agree with the observations.

  1. If one goes through the details of the study they seem to have taken into account the post COVID-19 dip. 6 percent to 10 percent of customers who are shopping online will return to stores. the growth might dip marginally post pandemic but once the retailers have taken care of the points of friction growth will accelerate.
  2. Seniors citizen are super likely to return to stores and shop but the younger age groups are likely to shop more online and even in categories like fresh foods, pharmacy and liquor. Newer categories are being bought online.
  3. Retailer readiness is a function of what consumers demand. See how the transition happened in the light of the pandemic. Only 30 percent of grocers offered curbside pickup at the end of last year and now it is almost everyone. It might take one to three years to align operating models, make the right tech investments and optimize cost.
Neil Saunders
BrainTrust
Thanks for the observations, Navneet! Here are some things I considered when making my comment: First, when you look at the overall growth of grocery (online and stores) noted in the report it suggests sales in 2020 will be $1,039 billion, up from $1,016 billion in the prior year. This is an increase of 2.26%. It is far too low! Census Bureau data has grocery store sales running at 12.2% so far this year and all of the major grocery players have posted growth rates way, way in excess of 2.26%. This makes sense, because there was some stockpiling early on in the pandemic and there is now a transfer from foodservice (eating out) to groceries as people are still dining at home more. So, the overall growth rate is very clearly wrong which has an impact on penetration and the whole basis of the calculations. Second, the report suggests that, this year, 10.2% of all grocery sales will be made online. However, the online sales penetrations for grocery at Walmart, Kroger, Target, Costco and… Read more »
Navneet
Guest
2 months 12 days ago

I think there is a difference between grocery store sales and grocery sales and the sales and overall grocery demand. Agree for top 100 Q2 2020 sales vs Q2 019 are up 8.9%, but the digitally most mature have grown 2X. I am not sure what your source of data for digital contribution of digital sales is. Are you excluding BOPIS and curbside?

Neil Saunders
BrainTrust
There is certainly a difference between grocery store sales and overall spend on food and grocery products. However, neither measure will grow by just 2.26% this year — which is the value given in the report. That is completely out of line with every bit of available evidence — from retailers, from CPG firms, from official data, and from all other research I’ve seen. There have been dramatic uplifts in grocery spending because of the trends previously outlined. If, as you note, the major grocers grew by 8.9%, then a group of other retailers must be shrinking enormously in order to pull the overall growth rate down to 2.26%. Who are they? Alternatively, you could be assuming that grocery sales will crater in the remaining months of the year. This is completely unrealistic as it is not what current trends show and it would also assume people eating significantly less than they did last year over the last few months of the year. In terms of the digital number, 2x growth is 100% growth. That… Read more »
Oliver Guy
BrainTrust

Fluid omnichannel operations are table stakes NOW. Real-time inventory visibility is an essential enabler as has been commented on for a number of years. Without the visibility, inventory will likely spiral as new channels and approaches are added. Add to this the promise of Amazon doing same-day grocery delivery in many markets and it is creating the perfect storm. Grocers must operationalize their stores and their data across the business in order to respond.
COVID-19 has become an accelerator of change. The new models and approaches (like curbside pickup) are harming already super slim margins. Action must be taken from a data and operations perspective.

Jeff Sward
BrainTrust

Actually, I think they are table stakes now. It’s just that different chains are in very different places in implementing all the new processes. I learned a big lesson from my daughter and three-year-old grandson. She can load him in the car and deal with him all through the store, or she can shop from the kitchen table and pick up curbside. The pandemic may have made this necessary, but the time saved from having to shop the whole store with a toddler is important. Time saved — it’s a permanent behavioral change regardless of what happens with the virus.

Gene Detroyer
BrainTrust

In observing both my son’s family and my daughter’s family I see similar behavior. Each have two teenage children. My son’s family buys all their groceries online. My daughter’s family buys most of their groceries online, but occasionally goes to a specialty store for certain items. Measuring against the 21.5 percent in five years, I would say my son’s family is at 100 percent and my daughter’s family is probably at 90 percent.

Stephen Rector
Guest

At this point, those grocery chains that are not providing a seamless omnichannel operation are way behind the curve and have to move extremely quickly to catch up. Customers want to have the option of both online and in-store shopping and the chains that don’t provide that are missing the opportunity.

Richard J. George, Ph.D.
BrainTrust

Data like this highlight the table stakes investment in omnichannel. I am reminded that omnichannel is about customers, not channels. The goal of omnichannel marketing is creating a seamless, convenient, customer focus to shopping. The gold standard target market are those customers who purchase online and pick up in-store.

Research indicates that these combo shoppers spend more than online only and in-store only.
The heuristic I think that drives this behavior is the empty shopping cart when they enter the store. Customers use the fullness of the shopping cart as an official calculator of spending. If they purchased their necessary groceries online which are ready to be placed in the car, the shopping calculator resets. This gives the shopper permission to visit the high margin front of store perimeter and augment the shopping trip with fresh flowers or a recently baked bread or even tonight’s dinner.

Ben Ball
BrainTrust

They already are. Shoppers still shop multiple stores even within a channel. This has been reduced somewhat by pandemic shopping habits and retailers with good online and pickup services have benefited. To steal some of those shopping trips back, retailers who don’t match up online yet will have to.

Gene Detroyer
BrainTrust

I don’t know if online will be over 20 percent in five years. But I will make a prediction.

Projecting what we have seen in terms of the acceleration of technological tools over our lifetime, and the greater speed of technology change in the last few years, I will predict that within 10 years 80 percent or more of grocery sales will be online. In 10 years every cost hurdle, technological hurdle, delivery hurdle, will be eliminated. People will be living completely different lifestyles. Even today, at the Samsung Experience, they have a refrigerator that has technology that will order your groceries for you. If you didn’t have to think about what went in the refrigerator or went in your cabinets, why would you even think about going to a grocery store?

Lisa Goller
BrainTrust

Slim margins limit grocers’ tech adoption, so they’ll need a medium- to long-term horizon for omnichannel solutions to become commonplace. Inventory visibility is essential, as consumers’ top complaint in March and April was out-of-stock merchandise, both in stores and online.

Research proves omnichannel shoppers spend more, making them more engaged and valuable than single-channel shoppers. According to Harvard Business Review, omnichannel shoppers spend more per visit, shop more frequently, and are more loyal and likely to recommend a retailer.

Grocers that invest in adapting to consumers’ multi-channel needs can boost loyalty and lifetime value per customer.

Ken Cassar
BrainTrust

Online grocery forecasts have always been tricky. I myself dramatically over-forecasted online grocery back in 2000 when Webvan and others had raised tons of money and were building highly automated grocery fulfillment centers. From my own source of credit card transactional data (90 million credit/debit cards) we can see the online percent of groceries growing from 2 percent to 3 percent pre-pandemic, then up to 5 percent through June. 20+ percent of the market in five years is, in my mind, possible, but not the most likely scenario. I suspect that many grocers (not Walmart and Kroger, mind you) will happily shuffle online priorities to the back burner as soon as COVID-19 passes in order to get back to a focus on what they see as their core brick and mortar business. This will be a mistake that will yield share to Amazon and other digital aggressors, but will also inhibit the overall growth of the online grocery market.

Ananda Chakravarty
BrainTrust

Great points Ken. There will be a reversion to an earlier point, with a small incremental jump for online for those just exposed to it. Part of problem is that grocery is an activity, not just a transaction buying process. People are selecting and planning for the coming week and there’s always a mix of staple products with the special meal or dinner. Add in all the special events of the year and other activities, from sports snacks to school lunches, and each family has very unique sets of grocery products they’ll be buying. I can’t imagine people buying exactly the same items week after week throughout a whole year. It just doesn’t work that way. Some favorites, I’m sure, but people want variety.

Bindu Gupta
BrainTrust

Product accessibility and shopping convenience are extremely important for a positive customer experience. Given that seamless omnichannel operations and real-time inventory visibility are already table stakes in this highly competitive market.

Shep Hyken
BrainTrust

How long? We need this now, and some grocers are already there. The pandemic moved up the timeline of the existing technology being adopted by retailers. Those that are sitting on the sidelines are going to end up playing catch-up. With more than 20 percent of business coming from online, it’s a viable channel to exploit. And I predict that number is low.

Brandon Rael
BrainTrust

The COVID-19 pandemic has served as a great acceleration for the rise of e-commerce sales to unprecedented levels. However, as most of the other BrainTrust members have shared, I too am quite skeptical that digital grocery sales will make up 21.5 percent of sales in five years’ time.

More realistically, once things stabilize somewhat with the pandemic, we should expect that consumers will return to the grocery store while others who have shifted to online ordering only will continue to do so. In a margin crunched business, a seamless omnichannel operation requires the infrastructure, technology, human capital, process reengineering, and ongoing training to make it successful. So while the percent of online-only business may not be 21.5 percent, it will fall somewhere in the mid- to late-teens.

Grocers are challenged to pivot their operations to meet the relentlessly changing consumer behaviors. The clear winners in the digital touchless commerce race will be those that deliver an excellent and consistent customer experience the fastest, and at a lower cost to serve.

Jeff Weidauer
BrainTrust

A seamless online/offline experience with the option for shoppers to do either on any given day is the Holy Grail. But real-time inventory visibility is the number one barrier to online shopping growth. Until grocers can provide accurate in-stock information, shoppers will be wary of going all-in.

Lee Peterson
BrainTrust

I think it’s “on” right now. COVID-19 forced the inevitable; multi-fulfillment options not only for grocery, but all of retail. And the technology is there, that’s not the issue. The issue is grocers (and many retailers) are struggling with huge footprints in both number and size as a hangover from the old “bigger is better” mode of the 1980s. Converting all those aging fleets will be expensive and almost UN-doable. So therein lies the conundrum: do and maybe go bankrupt, or don’t do and definitely go bankrupt.

Think of the advantage newer players like Amazon, Lidl and Aldi have: they can design stores from scratch right now that fit the multi-fulfillment operational model of the next generation. That is, until the drones step in – yikes.

Andrew Blatherwick
BrainTrust
It is not surprising that more people were shopping grocery online during the pandemic and also not surprising that many of them may continue to do so. The percentage will continue to increase. However what was very telling from this research is the very low percentage that moved to pure play online retailers. They still want to be able to see and stay loyal to the grocery store they are used to. Also what is so important is that online grocery sort out the really important issues of delivery slots and, critically, substitutions. They need to ensure that short life and fresh product is managed very carefully providing high quality and fresh produce or they will lose out. Once again it comes down to getting the supply chain right. The growth in BOPIS/click and collect and curbside pickup will be a big factor as this adds to the convenience of grocery shopping. It is no surprise though that Amazon has started opening their new Fresh stores to provide that element of grocery shopping that consumers… Read more »
Ralph Jacobson
BrainTrust

Online/”remote” grocery shopping has been around almost as long as online shopping, in general. I believe Peapod started in Chicago around 1989, and I ran one of the first stores to fulfill it. It has had major fits and starts over the decades, however I think consumers still relish the touch and smell of physical food shopping and the online growth will be a drop in the overall bucket for years to come.