Buying groceries online? In this economy? The answer’s a resounding yes, at least for most of us in the US, as we deal with a pandemic that endangers anyone venturing outside. Sales have increased fivefold this year.
What does this mean for grocery stores across the nation? Is this the sign of a market rebalancing that will last far beyond the pandemic?
Five times the online groceries
There’s no question that the pandemic has spurred on a greater adoption of online grocery orders. Industry analyst Brick Meets Click found online grocery sales shot up in summer 2020 to around $5.7 billion. That’s almost five times higher than the previous year’s online sales of $1.2 billion.
Source: Brick Meets Click
This growth is both due to a larger base of shoppers ordering food online, paired with a big uptick in pre-existing online shoppers opting for larger and more frequent orders. The average per-order value for online grocery pickup and delivery has risen to $95 – a record high, that’s 32% up from last year.
Sales peaked in June, a good few weeks ahead of the second wave’s peak in July, so the numbers don’t completely track with the pandemic’s ebb and flow. This supports the theory that when the pandemic’s eventually over, online sales habits will stick around.
It’s not all Amazon
As with Zoom’s unexpected dominance in the video calling space, online grocery shopping has had its own emergent victor: Instacart.
Instacart has benefited more than any other grocery provider, with an uplift to $700 million in weekly sales, to take a hefty 60% of the total online grocery delivery market, according to a conjoint survey of over 1,000 US households, cited by eGrocery service Takeoff Technologies.
Other takeaways from the survey? The bigger stores (aka, Amazon) aren’t necessarily at an advantage over the small ones, and the benefits of physical proximity aren’t quite as important anymore.
“We found that Amazon’s expansive selection does not translate into an advantage in grocery,” the Takeoff whitepaper notes, before explaining more about what leads to success: “Collectively, our research to date has demonstrated that grocery shopping habits are hard to change but consumers ultimately flock to the competitor offering a superior value proposition of cost and convenience.”
In other words, figuring out the right cost is the biggest factor that can tip the balance between success and failure in the online grocery market.
Cost matters
As well as looking for the best deals on products, customers balk at an explicit service fee, the survey found, even if it’s just five dollars. The whitepaper reports that an “explicit charge of a transactional service fee (has) the greatest impact on consumers’ assessment of an offering.”
Other factors – speed, service, and variety – didn’t even come close to the important of the cost factor. This puts grocery store owners in a bind if they want to expand into the digital world- they can’t charge a service fee or boost their prices for online sales, without seeing pushback.
One profit-margin-saving solution is to offer curbside pickups or driveups, instead of at-home delivery, a shift which doesn’t deter customers nearly as much as service fees. It works in France at least, where 5,000 driveup locations account for 80% of online orders in the country.
What’s the future for groceries?
Online sales will certainly dip down somewhat after the pandemic, but the overall shift towards online grocery shopping is real. Experts predict between 35% and 45% of the surge in sales will outlast the pandemic.
The cost problem is real, too. Only when paired with free driveup grocery deliveries can online ordering allow customers to save time and stay safe, while giving store managers a sustainable revenue.
One unexpected winner here might be Shopify, which offers the best ecommerce integrations out of all the top Point Of Sale services. Stores will be keen to consolidate their physical and virtual businesses with the provider. We’ve covered Shopify and its top POS competition in the past.
In the long run, though, Amazon isn’t at quite the disadvantage that it seems to be. The company has the luxury of being able to lose money or break even for a long time, and it may well intentionally push fast delivery while eating the logistics cost, simply to beat the competition. It’s no stranger to the tactic, having single-handedly invented two-day shipping, and the online grocery shopping world could be mostly Amazon a decade into the future, if Instacart and others don’t hold them off.
