Will online food and beverage sales be even bigger than imagined?

Discussion
Laura McCullough, EVP Client Success, Nielsen, at FMI Midwinter - Photo: James Tenser
Jan 28, 2020
James Tenser

Few would deny that online grocery sales are gaining momentum, even as the debate still rages with regard to how far and how fast they will grow. A soon-to-be-released study from FMI and Nielsen previewed at the FMI Midwinter conference in Phoenix ups the forecast in a major way.

By 2025, said Laura McCullough, EVP client success for Nielsen, online food and beverage sales will top $143 billion in the U.S. That’s an increase of $40 billion over the widely-cited prediction of $103 billion in the “Digitally Engaged Food Shopper” study released two years ago with FMI. 

“Click and collect and delivery are now almost table stakes,” said Ms. McCullough, who elaborated in her presentation that the previous report did not fully anticipate the rate of investment by both food retailers and restaurant delivery services. That, along with evidence of adoption by consumers in both sub-channels, led to a widened definition in the present study.

No doubt the forecast jump may be partly attributable to this change in methodology.

Considering how dynamic the omni-shopping trend has become, however, there appear to be other significant forces driving the surge in digital food and beverage sales.

In 2019, 54 million households purchased food and beverages online in the U.S., a 14 percent increase versus two years earlier. Those households account for some $400 million in spending power. The percentage of households that bought food and beverages online grew from 39 percent in 2017 to 44 percent in 2019.

Consumers who shop in-store and online spend an average of $1,000 more than store-only shoppers, Ms. McCullough said. This offers a new definition of “most valuable shoppers” with the potential to influence loyalty and promotion strategies in the years ahead.

Another unexpected finding is that sector growth is being driven mostly by boomers, seniors and high-income families — not so much by Millennials — despite popular belief. The ability to afford and willingness to pay for convenience emerge as strong factors here.

At present, the online share of food and beverage sales is still averaging in the single digits, but that varies greatly by locale, from a high of 12 percent in New York City to five percent in San Francisco and two percent in Des Moines.

Regardless of which consumer segments or geographies lead the charge, Ms. McCullough anticipates that omni-shopper households will be “dominant” by 2025, wielding $630 billion in spending influence.

DISCUSSION QUESTIONS: How should retailers and brands interpret the latest predictions from FMI and Nielsen about the growth of digital food and beverage shopping? What counter-trends or factors might block that expansion? What could boost it even further?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The trend of convenience with delivery and pick-up isn’t going anywhere… it will just evolve as leaving the car becomes a chore like walking to the TV to change the channel."
"The question for me is, can any retailer do it profitably given the physics of shipping and delivery?"
"From all of our studies with grocers, NO ONE wants to shop the center of the store. It’s considered a “chore” to do so. "

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22 Comments on "Will online food and beverage sales be even bigger than imagined?"


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Joel Goldstein
BrainTrust

This shift in consumer behavior will hit impulse items and independent goods the hardest. Those categories are patronized by shoppers that discover a local product in the aisle or pick up a snack impulsively in the checkout lane. The trend of convenience with delivery and pick-up isn’t going anywhere… it’s just going to evolve as getting out of the car becomes a chore like walking to the TV to change the channel.

Gene Detroyer
BrainTrust

Great quote … “it’s just going to evolve as getting out of the car becomes a chore like walking to the TV to change the channel.”

Richard Hernandez
BrainTrust

Convenience for convenience’s sake will drive the sales for this sector as well as affordability and assortment.

Gene Detroyer
BrainTrust

Ah, convenience. There is a Walgreens across the street from where I live. There is a supermarket half a block from where I live. Still this morning, we realized we needed paper towels. So I went to Amazon. I will have the paper towels tomorrow.

It gets worse (or better) — I ordered them sitting at Starbucks. To go to the Starbucks, I walk past the supermarket. Convenience, convenience, convenience.

Suresh Chaganti
BrainTrust
Suresh Chaganti
Co-Founder and Executive Partner, VectorScient
8 months 5 hours ago

It is the value you are seeking that trumps the convenience, I guess. I rarely set my foot inside any gas station convenience store and drive five minutes away to Walmart. I go only to Costco for items I need in bulk. Convenience without perceived value is not going to work. It feels like a ripoff for the consumer.

Michael La Kier
BrainTrust

When consumer expectations for greater convenience are raised we never go back; as online grocery adoption increases, sales will continue to increase at a rapid clip. Making it easy to trial online grocery will accelerate the shift and be welcomed by time-starved shoppers.

Ken Morris
BrainTrust

Online food and beverage sales will continue to grow at a rapid pace, perhaps more rapid than FMI and Nielsen predict. Convenience is king and the food and beverage sector has lagged behind other sectors in omni-channel adoption but that is changing quickly.

Food and beverage products are commodities and don’t require a five sense experience. I don’t need to see, touch or smell my frozen corn, but it does need to stay frozen which is the challenge here. Delivery times must get more exact. People lead busy lives and scheduling is the biggest obstacle blocking expansion.

Richard J. George, Ph.D.
BrainTrust

This data underscores what is happening overall online in grocery. It may turn out that even these new numbers may understate the growth of digital food and beverage sales. The key going forward will be convenience, particularly on the beverage side, where product bulk and weight become a factor both in terms of the manufacturer/retailer and the consumer who needs to haul these goods home. This will bring new paradigms to click and collect. Plus, the data that shows the $1,000 difference for combo shoppers versus store-only shoppers will bring additional challenges/opportunities. How do you make it more convenient and still get customers into the store?

David Zietsma
Guest

I’m not surprised to see the increased forecast. A high proportion of the food we buy – groceries and prepared meals – are “mission” purchases (vs. discovery purchases) where convenience is a dominant factor and can even trump price for many. Adoption of online food and beverage sales has been relatively slow so far for two reasons: habit (which will wear away) and that many consumers think of online vs. in-store as a binary decision. The data shows (and it makes sense) that the right solution is a mix of both – in-store for the occasions where I want to explore and online when I just need to get it done. Retailers can definitely be doing more to help customers figure this out.

Gene Detroyer
BrainTrust

I can’t predict if the forecast is correct. But I know of no factors that will slow down the growth and I don’t even think it has reached the tipping point.

Better technology will boost the trend and we can be sure that in just five years the access and ordering process will be leagues better than today.

Mr. Retailer, don’t fight it. this is no different that in the 1950s when the small neighborhood grocer, with all their benefits and connections to the community, could no longer fight the coming trend of supermarkets.

Mohamed Amer
BrainTrust

It really comes down to how consumers come to value their time in combination with their access and ability to participate in the digital food and beverage trend. This will continue to be distributed unevenly; yet two years from now, we will be surprised once more with a further increase in projected 2025 online food and beverage sales to a heady $200 billion in the U.S. convenience, delivery and supply chain networks, and the adoption of voice assistants will all converge to accelerate these projections beyond current estimates.

Jeff Sward
BrainTrust

It feels to me like grocery shopping will bifurcate into two buckets. Center aisle CPG product — “knowns,” and fresh, perishable product — “unknowns” (sort of).

Replenishment of CPG product is the easy part. Developing a trust level on perishable product is a whole different ballgame. I am also reminded of an anecdote from my 14 months in Hangzhou, China. I asked a workmate about her grocery shopping habits. (It was really a conversation about mall composition.) She replied that she hadn’t been in a grocery store in months. Her routine was to pull out her phone mid-afternoon and order whatever she needed. Her package was on her doorstep by the time she got home in the evening. No problem. Time invested in grocery shopping minimized to minutes. She gave me a look as if to say, “Does anybody actually still visit a grocery store in person?”

Ralph Jacobson
BrainTrust

The “daily consumption” food category (as opposed to “gift food”) has had its fits and starts since around 1989 kicked off by Peapod in Chicago. Lots of history to talk about throughout this time. Today, as with virtually every product category, food is increasing thanks to more convenient processes in place to help the shopper make the purchase decisions. The simpler and more compelling the shopping experience, the more this category will grow. No surprise there.

Cynthia Holcomb
BrainTrust

As one who actually enjoys grocery shopping, seeing online orders being filled in-store is interesting to watch. It’s grab and go, with staff picking multiple orders at once. There will always be people in a hurry, and people not so picky on the condition of the produce “picked” for them. And those who prefer to pick out their own produce. And as with all new trends, there is a race to capitalize, which in turn leads to over-automation of the trend. Which in turn pits speed against quality. Quality usually is the loser. In my opinion retailers and brands need to keep the quality of delivered or in-store pickup perishables quality in check. Although this could lead to boxed and canned food as the new trend.

Lee Peterson
BrainTrust

From all of our studies with grocers, NO ONE wants to shop the center of the store. It’s considered a “chore” to do so. The perimeter, however, is another story. So I think you have to make the distinction between the two when you talk about online grocery shopping. From what we know, the masses will definitely have center store goods shipped to their houses, but perimeter stock will be something few trust to have shipped, for obvious reasons.

So a tip for grocers (which most already know, because this is where the margin is anyway): accentuate the “fresh” (perimeter) goods and ship or BOPIS the rest in order to compete. And P.S.: you’d better hurry, the 900-pound gorilla is getting pretty good at the latter.

Oliver Guy
BrainTrust

Grocers must win back the family dinner. New entrants have entered this arena through complex ecosystems with the likes of Deliveroo, Just Eat, UberEats, Blue Apron and Hello Fresh all being new forms of competition that are digitally native.

Convenience is key as it eliminates a pain point on the customer journey – people are prepared to pay for it. But curation too is something shoppers look for. Grocers need to step up and offer options that make things easier – even if it is at a price premium. This could be by offering meal-kits from Blue Apron or others (as we are seeing in some stores) or by partnering with Deliveroo/Just Eat in order to deliver freshly made food made in-store. Or indeed doing something else – but best the chance of winning would be through combination.

As usual, technology is instrumental in enabling such initiatives – building a retail ecosystem requires among other things careful management of APIs, but the ability to respond internally as well.

Andrew Blatherwick
BrainTrust
To really understand the speed of change and trends in the online food and beverage market you need to dig a little deeper into what they are buying. It is undoubtedly correct that the increase in people shopping online and in-store often referred to as omnichannel customers has increased faster and larger than initial expectations. This is largely due to the fast adoption of BOPIS or click and collect, which is becoming a major change force in food retailing, however how much of this is for fresh and short life product compared to long life items and heavy or bulky items that customers use on a regular basis. Look at what is standard versus discretionary spend and that will give a much better view on how far this trend may go. It is interesting that it is Boomers and older profile customers who are shopping this way. No surprise about the locations (as it is always going to be city dwellers who take advantage of the convenience of online) and no surprise about the wealth… Read more »
Zach Zalowitz
BrainTrust

Prepped food kits, for me, is an area where I see a lot of future growth. If you lump in things like Instacart, I think we’ll continue to see growth in this area. Personally, I don’t look forward to going to a crowded grocery store on a Sunday to shop. If it wasn’t for that fact that Instacart struggles to put the “just right” avocado in my shopping bag each time, I would exclusively only use Instacart and pay the premium. #AvocadoLife

Kenneth Leung
BrainTrust

The question for me is, can any retailer do it profitably given the physics of shipping and delivery? Delivering a meal is one thing, bottled water and pet supplies is where I always scratch my head on how retailers can turn a profit with delivery overheads. I know consumers want it and are being conditioned by Amazon to continue to expect it, but will the economics sustain it?

Patricia Vekich Waldron
Staff

Convenience is relative and is based on an individual’s needs (or wants) at any point in time. Grocers are belatedly coming to game with viable and valuable ecommerce offerings. Where they really need to step up their game to take share from Amazon and Walmart on bulky and reorder categories, i.e. paper products.

Ananda Chakravarty
BrainTrust
Retailers should interpret this with a grain of salt. Yes, there is a possibility for faster growth, but the real trends from the report are that customers continue to buy in the store, at rates more frequently than in previous years, and at higher prices. Doesn’t sound like a mad rush for the online experience. That doesn’t mean it’s not happening, but it does mean that it’s not exponential and the process is very linear. There is a need to accommodate the fringes of the business which is at 10% for frequent online grocery shoppers. This seems high since only a year ago it was in the single digits. Issues with cold chain, fresh, and perimeter products will continue to keep the process slow and retailers will be forced to push curbside pickup. But by far, the most troubling obstacle will be margins in a retail vertical with tiny margin rates of typically 1 – 3%. Regardless, grocers who want to grow will need to make available some level of online services and work out… Read more »
James Tenser
BrainTrust

Thanks to all the BrainTrust members and esteemed guests who weighed in on this topic. Our friends at FMI – The Food Industry Association want RW readers to know they may request a copy of the report when it is released by following this link: https://pages.services/fmi.org/mw20-omnichannel-reports/

wpDiscuz
Braintrust
"The trend of convenience with delivery and pick-up isn’t going anywhere… it will just evolve as leaving the car becomes a chore like walking to the TV to change the channel."
"The question for me is, can any retailer do it profitably given the physics of shipping and delivery?"
"From all of our studies with grocers, NO ONE wants to shop the center of the store. It’s considered a “chore” to do so. "

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