This may feel like a reversion to normalcy, but, on closer inspection, this is really a stabilization. Online sales volumes are still far higher than pre-pandemic levels.
Consumers clearly are now much more comfortable letting others shop for their fresh products – but the pandemic only accelerated a trend that was already in motion. To put this in perspective, in percentage terms, the U.S. is now roughly in line with the U.K., which has historically been one of the leaders in share of online grocery spend.
Digging deeper into the data reveals an even more interesting picture. While total online grocery sales are down from their January 2021 peak, pickup orders are actually up slightly from $3.9B to $4.0B. This is excellent news for grocers. Delivery fulfillment remains the least profitable channel. Consumers buying online and picking up in store (BOPIS) is still challenging, but much more profitable than home delivery. Grocers would do well to continue to push the convenience and value of BOPIS, especially for cost-conscious customers as inflation bites harder.
What does the future hold?
According to Supermarket News, online channels made up 13% of total U.S. grocery spending in 2021. We anticipate a gradual increase in online share and don’t not a large jump in online grocery spend unless lockdowns return.
BOPIS is going to be the winning model for most of the U.S., where store density is high and more favorable economics will drive retailers to push this model. In more urban environments, delivery will remain a winning model due to shorter trips and a more concentrated customer base.
We’re also seeing a growing number of 15-minute delivery businesses in urban areas. While these are proliferating, the model is unlikely to be sustainable for many. We are already seeing several startups shutter. We do believe there is a market for this type of service, but it will be limited to very dense urban cores as online-only fast delivery providers need location density, compact assortment, and scale to succeed.
However, we are starting to see some nervousness among grocers who rely entirely on third parties for delivery. Some are starting to question what this model will mean for them in the long run, especially as it affects key relationships with their customers and their suppliers.
Online sales will clearly continue to be a key component for large grocers, but BOPIS is where the investment will be. Both Walmart and Target now execute BOPIS unbelievably well. They have put an enormous amount of energy into understanding inventory (what is on hand, what is on the way, how much is likely to sell). This is hard work.
But other grocers must continue to seek ways to make this channel profitable. Two key areas of investment will be in building a highly agile BOPIS capability and regaining control of the customer- and supplier-facing aspects of ecommerce while looking for white-label providers to handle the actual deliveries.