It’s not an understatement to say COVID-19 has been transformative for the online grocery shopping industry.
Such sudden growth is down to two reasons, says Bill Bishop, Chief Architect and Co-Founder of Bricks Meet Clicks.
“You have the fear of the contagion and you had the stay-at-home orders that spread rapidly in the month of March,” Bishop tells GlobeSt.com. “Those two things combined are why there is such a jump in online grocery shopping. People just do not want the hassle of going to a store and waiting in line and possibly getting sick.”
Online grocery shopping was already on the rise at the start of 2020, according to FMI’s U.S. Grocery Shopper Trends Report, with 14.5% of grocery shopping done online. Even so, the pandemic doubled online spending to 27.9% of total grocery sales during March and April.
Such sudden growth put most retailers operations under a level of pressure they’d never experienced before. We analyze how well they fared, what could have been better and what the future holds for online grocery shopping.
How Well Did Online Shopping Work?
From the consumer’s viewpoint, online grocery shopping seemed to work pretty well for the most part. A May survey of 952 online shoppers by Digital Commerce 360 and Bizrate Insights found almost two-thirds (65%) of buyers scored their online shopping experience an eight or higher out of ten. Just 16% rated the experience six or lower.
Consumers found plenty of positives in buying groceries online, in addition to health-related ones. In a nationwide survey of 2,598 consumers by a San Francisco area grocery delivery service Good Eggs, the top benefits, aside from reducing the chance of infection, were saving time (70%), making fewer impulse purchases (51%) and being able to reorder the same items easily (42%).
Technology was able to rise to the occasion, too. In particular, grocery delivery and pick-up startup Instacart was one of the shining lights of the online grocery shopping surge. The company became a lifeline to millions of Americans across the country during the pandemic and, unsurprisingly, experienced record demand. Instacart responded by more than doubling the number of shoppers it hires and increasing the accessibility of its platform, explains Progressive Grocer’s Gina Acosta.
“Instacart is now accessible to more than 85% of households in the United States and more than 70% of households in Canada,” she writes. “The company has accelerated its launch cadence with retailers since the start of the year, and now partners with more than 400 national, regional and local retailers across North America to deliver from more than 30,000 stores across 5,500-plus cities in the United States — encompassing all 50 states — and Canada.”
The platform was also able to evolve on the fly, writes Jessica Dumont at Grocery Dive. For instance, the machine learning team changed how item availability worked, adding out-of-stock badges to items and hiding low and out-of-stock items in customer search results. They also added a “Leave at my Door” service to allow customers and Instacart shoppers maintain social distancing.
Fulfillment Was a Big Problem
Online grocery shopping hasn’t been a completely seamless experience for everyone, however. Logistics proved to be a massive hurdle, both in terms of stores getting supplies and then delivering those products to the customer.
The problem, writes The Atlantic’s Ian Bogost, Ph.D., is that grocery stores don’t work like other eCommerce stores. “Online retailers ship from warehouses designed for rapid pick-and-pack,” he says. “But grocery stores are designed around the psychology of shopping—browsing and impulse buying. The mismatch contributes to online grocery ordering’s current bottleneck. Supermarkets’ unwieldy supply-chain dynamics make it worse.”
Unlike eCommerce stores that can meticulously track inventory, grocery stores can’t know whether the products they place on shelves are gone or not. As a result, they have to let consumers opt-in to replacements or empower employees to substitute items in real-time.
The pandemic made things even worse. Supply chains were already stretched to breaking point before a surge in online orders meant it was all but impossible for people to book a delivery slot, let alone get the products they wanted.
“By mid-April, nearly 60% of retailers were putting up website banners advising of delays to deliveries, with around a fifth by mid-May outlining that they were prioritising the vulnerable, further delaying deliveries and removing delivery slots for the general population,” reports Paul Skeldon at Internet Retailing.
Even in the U.K., where online grocery shopping was already well established, stores failed to keep up with demand. The country’s third-biggest supermarket, Sainsbury’s, and online shopping leader Ocado both stopped taking orders from new online customers as early as March, reports Econsultancy’s Nikki Gilliland. Ocado still wasn’t accepting new customers in May.
In the U.S., a survey by Blue Yonder found 56% of the 1000 respondents suffered delivery delays in May and 54% suffered delays in April, writes Dan Berthiaume, Senior Editor of Technology at Chain Store Age. Almost one in five (18%) suffered delays of three or more days in May, but that was a decrease of 36% compared to April’s figures. Only 7% were unable to secure delivery at all.
How Can Grocers Improve?
Online grocery retailers can overcome the kind of issues described above, but doing so will require serious changes to their operations.
That starts with picking products, says Richard Kestenbaum, Co-Founder and Partner at Triangle Capital LLC. “Supermarkets are not set up to maximize efficiency for multiorder picking, they’re set up for consumers to travel to conveniently, make in-store purchase decisions, pay and get out,” he writes. “Operating the online grocery business with store personnel from inside existing stores is unlikely to ever be efficient enough to make money. Systems built from scratch are more likely to have the efficiencies required.”
There are three ways the industry is approaching this problem. The first, being tested by Walmart in a store in Salem, New Hampshire, is to set aside space (in this case 20,000 square feet) for “an automated in-store picking system.” The second, pioneered by U.K.-based Ocado Group, involves creating huge automated warehouses that, in Ocado’s case, can pick 220,000 orders every week. The third is to use small micro-fulfillment centers that offer quick local delivery to densely populated areas.
The third option, micro-fulfillment, is something more and more grocery retailers are using, writes the team at food technology platform and ecosystem Whisk.
“These small warehouses offer up automated online order fulfillment with the ability to fill orders quicker and take up less square footage than traditional store-based fulfillment,” they explain. Ocado Group has now launched its service in North America, fulfilling orders for Sobeys’ Toronto-based Viola service. In the U.S., Kroger has partnered with Ocado to create 20 fulfillment centers in Ohio in 2021.
Another solution to the fulfillment issue is to allow customers to reserve delivery times before they start the shopping process, writes Raluca Budiu, Ph.D., Director of Research at Nielsen Norman Group. In fact, the reservation should be possible at any point during the shopping process, and valid for a certain amount of time, like 30 minutes, to give customers the opportunity to add items to their cart.
Will Online Grocery Shopping Continue to Grow?
The pandemic has certainly accelerated online grocery shopping just as it accelerated eCommerce in general.
Bain analysts Marc-André Kamel, Joëlle de Montgolfier, Stephen Caine, Jonathon Ringer and Stephanie Puzio estimate there will be roughly 350 million more online grocery orders across the U.S., Germany, France, Italy and the U.K. in 2020 compared to 2019. “Strategically, it’s like someone pressing the fast-forward button on the industry by several years,” they write. “During the pandemic, online grocery penetration in the UK, France and Germany peaked at levels we hadn’t expected until well after 2025. In Italy and the US, the comparable acceleration was as if 2024 and 2023 had come early.”
Many of those consumers will likely continue to buy groceries online in the future. According to research by online grocery platform Mercatus USA Inc., the vast majority (90%) of consumers are expected to continue buying food online after the pandemic. They estimate online grocery sales will account for 21.5% of total U.S. grocery sales by 2025, totaling $250 billion.
Not everyone is this optimistic, however. McKinsey analysts Rich Fox, Maura Goldrick, Carson Green and Aaron Rettaliata say demand for online grocery shopping will weaken as consumers begin to care more about the cost of the service than their health. Online grocery shopping typically comes with higher prices and service or delivery fees, making cost-conscious consumers head back into the store. As a result, they believe online grocery shopping penetration will fall to 5%-6% post-crisis from a high of between 8%-10%.
Ultimately, whether online grocery adoption continues to grow isn’t down to how fun or convenient or futuristic brands can make it, says Hillary Reeves, Senior Manager of Demand at Dealpath and former VP of Marketing at Chicory, a content-to-commerce grocery company. It has to meet basic needs.
“It has to be reliable, quick, affordable and flexible,” she says. “Without these essentials, consumers will never thoroughly adopt online grocery into their shopping habits, and it will remain a backup plan for in-person shopping.”