The good news for grocers is that consumers are doubling down on placing e-commerce orders. The bad news is that fulfilling these orders via delivery or curbside pickup can be a losing proposition for grocers given that they already operate on razor-thin margins.
The COVID-19 pandemic and stay-at-home lifestyle has accelerated the trend toward online grocery sales. Mercator Advisory Group pointed out the rise in online grocery and related dynamics in a past report: U.S. Online Grocery Shopping Takes Off But Remains A Challenging Channel. Grocers will have to compete heavily in this rising category and choose in-house resources or partner with third party delivery firms such as Instacart, Shipt, and Postmates. Consumers will continue to enjoy convenience and immediacy plus discounted offers to order online.
The following excerpt from a Wall St. Journal article reports more on the topic:
With online grocery orders now coming thick and fast, e-commerce is a top priority in supermarket boardrooms. The best model for selling food online may not always be the one that investors appear most excited about.
The proportion of food sold online has shot up since the Covid-19 outbreak. By the end of this year, more than 10% of U.S. grocery sales are expected to be ordered digitally, double 2019 levels. A bigger share of the weekly food shop is also moving online in the U.K. and other European markets.
That is not ideal for supermarket bosses. Sales are shifting away from profitable locations, such as urban convenience stores, to websites where grocers typically lose money. One answer is big, high-tech warehouses such as those that British tech company Ocado is currently building for Kroger. But they aren’t the only answer. Click and collect is proving the easiest model to scale up. Ahold Delhaize, which owns U.S. online grocery business Peapod, expects to double its overall e-commerce capacity this year. As part of that, it will have over 1,000 pickup locations in the U.S. by the end of 2020, up from 700 in 2019. However, it isn’t a long-term solution.
Overview by Raymond Pucci, Director, Merchant Services at Mercator Advisory Group