For 2019, signs point to more growth in online grocery sales
For 2019, signs point to more growth in online grocery sales
Source: digitalcommerce360.com James Melton | Dec 17, 2018
In 2019, more people will buy more hamburger, toothpaste and canned peas on the internet. And those purchases, among other online grocery purchases, will help boost the market share of online grocery sales, researchers say.
Online sales of groceries continue to grow much faster than the overall market and that web growth is expected to continue, according to recently released data from the United Kingdom-based Institute of Grocery Distribution (IGD).
IGD projects online food and grocery sales in the United States to reach $59.5 billion in 2023, up from $23.9 billion in 2018. That growth would boost the market share for grocery e-commerce to 3.5%, up from an estimated 1.6% now.
Continued growth, IGD says, will be driven by three main factors: optimizing stores for pickup of online orders by expanding their pickup points, an increased emphasis on home delivery and robotics designed to assemble online orders more efficiently.
Some of that growth in sales and market share for the online channel will come from increased availability. According to e-commerce grocery consultant Brick Meets Click, 69% of the addressable U.S. market had access to at least one home delivery or pickup grocery service in 2017. That grew to 81% in 2018 and is expected to reach 90% during 2019.
“Increasing the number of households who have access to online grocery shopping services with home delivery or pickup could add almost two points to the percentage of U.S. households who buy groceries online,” says David Bishop, partner at Brick Meets Click.
Research also shows consumers are spreading their online grocery shopping among a wider variety of retailers as consumers explore options beyond Amazon.com Inc. (No. 1 in the Internet Retailer 2018 Top 500).
Industry observers widely see Amazon’s 2017 acquisition of Whole Foods Market for $13.7 billion as an essential catalyst that accelerated grocery e-commerce. Partially because of that acquisition, Amazon took an early and sizable lead in the online grocery business, but at least regarding consumer preferences, that lead has shrunk considerably.
According to a survey of 1,304 U.S. adults released in December by RBC Capital Markets, Amazon remains the most frequent online grocery shopping choice, cited by 38% of consumers RBC surveyed. However, in 2017, about twice as many consumers (74%) named Amazon as their top choice. After Amazon, 15% of the respondents chose Walmart/Jet.com as their top online grocery shopping destinations in 2018, up from 5% in 2017.
Since acquiring Whole Foods, Amazon has launched two-hour Prime Now delivery and curbside pickup from Whole Foods. Amazon also has opened a growing number of Amazon Go cashier-less convenience stores. But Walmart (No. 3), America’s largest grocery seller, also has expanded its online grocery operation. The retail giant now offers curbside grocery pickup at nearly 2,100 stores and has been expanding its delivery options as well.
The good news for both retailers is that the pool of customers open to buying groceries online is increasing. The RBC survey found 36% of consumers tried online grocery shopping in 2018, up from 25% in 2017 and 20% in 2016. Also, 19% of consumers who don’t currently shop for groceries online plan to start in the next six months, up from 10% in 2017.
Those who shop for food online also are doing it more frequently. 22% of RBC’s respondents use the online channel for groceries at least once a week—double the rate in 2017—and 79% of people who currently shop online for groceries say they will continue to do so, up from 77% in 2017.
Earlier, research from Nielsen and Rakuten Intelligence found that, while online sales represent less than 5% of the U.S. consumer packaged goods (CPG) market, those sales created 40% of the growth in the sector.
In 2019, retailers will continue investing in e-commerce fulfillment and delivery technology, including robotic vehicles for deliveries, says Sylvain Perrier, president and CEO of Mercatus, which sells an online e-commerce platform for grocery retailers.
In doing so, Perrier also expects grocers to dial back their reliance on app-based delivery services such as Instacart and Deliv, mostly to gain more access to and control of consumer data. Other motivations, he says, could include a desire to offer services—such as in-store navigation and e-coupons via mobile phones— that could be hard to integrate with third-party ordering systems.
As they roll out self-guided vehicles, retailers will likely focus on small, low-speed vehicles with limited range, Perrier says. Examples include the Nuro delivery vehicles Kroger is testing in Arizona and the sidewalk-cruising Serve delivery rovers Postmates Inc., an app-based food delivery company, plans to roll out in 2019.
In 2018, many retailers started testing, or announced plans to implement warehouse and in-store automation designed to fulfill online grocery orders more efficiently. “That will continue to flourish in 2019,” Perrier says, as will merger and acquisition activity.
“Amazon’s acquisition of Whole Foods was only the beginning. As customer adoption of online grocery options continues to grow, grocers are waking up to the fact that, while innovation is key to surviving in retail, your brand can’t do it all,” Perrier says.
He says retail executives increasingly realize they need to bring in the right people via mergers or partnerships with other companies.
What retailers are doing
Grocery retailers spent much of 2018 preparing themselves for a more digital future. In late November, for example, grocery retailers Kroger (No. 86) and Ocado Group Plc selected Monroe, Ohio, for their first U.S.-based customer fulfillment center—the first of 20 planned customer fulfillment centers, or “sheds,” across the United States designed specifically to fulfill online orders. Kroger earlier this year agreed to buy a stake in Ocado and license Ocado’s warehouse automation technology. Ocado is No. 22 in the Internet Retailer 2018 Europe 500.
Just a bit earlier, grocery chain operator Albertsons Cos. Inc. (No. 178 in the Internet Retailer 2018 Top 1000) said it was working with technology company Takeoff Technologies to test an automated e-commerce fulfillment center inside an existing store. Walmart Inc. (No. 3) also is testing a robotic e-commerce fulfillment system at a recently renovated store in Salem, New Hampshire.
Kroger and Walmart also have been adding pickup points for online orders and expanding the availability of grocery delivery, including tests involving driverless vehicles and small pickup-only locations.
BJ’s Wholesale Club, a warehouse club chain that went public again over the summer after being taken private in 2011, sees e-commerce as vital to its future growth, according to its CEO.
“A key element of our transformation is building a true omnichannel offering that lets our members shop how and when they want, whether it is in-club, online or via a mobile app. We’ve taken an agile approach that allows us to quickly develop and launch new features,” BJ’s CEO Christopher Baldwin said during a Nov. 20 conference call with analysts.
