This year, online grocery sales are expected to expand faster than you can click “Buy it now,” leading many grocers to completely reevaluate the way they’re doing business.
Big players such as Walmart, Kroger and Amazon are already well on their way with online sales, and a recent Food Marketing Institute report predicts the online grocery sales segment will generate an annual $100 billion by 2025. That number represents about 19 percent of the approximately $525 billion Americans will spend on food that year, says author Malcolm Gladwell.
In total, FMI believes 70 percent of American households will be buying a portion of their groceries online by 2025, up from about 25 percent in 2015.
“More than driverless vehicles or delivery drones, the digitally engaged food shopper will fundamentally change how food is bought and sold,” predicts FMI. “Only the retailers that first develop an understanding of their digitally engaged shoppers, build a strategy around that understanding and cost-effectively integrate digital food retail into their channel will be market leaders.”
Unsurprisingly, millennials will support online grocery sales more than other consumer groups, says FMI, with Generation Z close behind. “Specialty offerings are considered particularly important to capturing a younger generation of consumers, and as a critical differentiator between the online and in-store experience,” Jeff Daniels writes on CNBC.
Impact of Online Grocery Sales to Bricks & Mortar
- Gurus anticipate brick and mortar locations will increasingly adapt through hybrid options, including arrangements in which customers order online for later store pick-up and scenarios in which in-store shoppers check out through their smartphones instead of human cashiers. In a 2015 Nielsen study, more than half of all global shoppers said they were willing to do the former.
- Brick and mortars may consider a move of standard canned goods and packaged items to backrooms instead of showcasing them in prime floor space, Nielsen’s Thom Blischok recently told CNBC. Robots can then retrieve them for digital orders being picked up by customers.
- Stores may also focus on making the shopping trip more pleasant. Nielsen found 51 percent of global customers see in-store grocery shopping as an “enjoyable and engaging experience,” while 57 percent view it as a fun family outing.
- “Many modern retail models take a full-service approach, attempting to serve all trip types and categories,” note study authors. “(But) settling for a smaller piece of the pie may be more profitable,” according to Nielsen.
- According to Nielsen research, brick and mortars may leverage the advantage of increased demand for convenience and proximity, especially smaller markets, to drive down the competition of online grocery sales.
Many online grocers may continue to struggle with delivery costs, particularly for heavier groceries. “The last mile of e-commerce presents sizeable logistics and cost concerns that have not yet been solved,” remarks Patrick Dodd of Nielsen. “Retailers need to experiment with clever delivery options that circumvent these issues.”
While online grocery sales are expected to grow, especially for commodity items like salt, paper towels, canned goods and condiments, there is still an interest in shopping for traditional “perimeter” items such as fresh produce, eggs, and meats in-store. Products that customers want to inspect before buying. With this in mind, stores focusing on the quality and selection of their perimeter offerings to attract their customers is a winning strategy. Reusable plastic containers provide superior product protection and help deliver higher quality and less damaged products through the supply chain.
“The issue of how you build your operating model as a retailer is probably one of the most significant challenges retailers have today,” Blischok concludes. “We’re going to find a tremendous amount of innovation in fulfillment going forward.”