How Grocers Can Handle the Online Grocery Surge
Although the full impact of the COVID-19 pandemic remains to be seen over the coming weeks, months and years, the virus has already had overwhelming health care and economic effects, even for businesses like grocers that have had strong sales amid the crisis.
As if the grocery business wasn’t challenging enough before — with fierce competition, razor-thin margins and the rise of ecommerce — grocers have now been thrust into the position of trying to fulfill urgent demand and meet customers’ needs on the fly.
The good news is that grocers can make a few adjustments both now and, in the future, to meet this demand and emerge from this crisis in a stronger position. In particular, grocers that can adapt to meet online grocery demand can shine as community lifelines and be ready for a larger shift toward ecommerce.
The Online Grocery Boom
In many places around the world, grocers are among the few businesses that remain open, providing truly essential services, which has resulted in booming sales.
While it’s true that foot traffic is up, as a Business Insider analysis of Foursquare data found, and you may have seen news footage of consumers lining up outside of warehouse stores at 3 a.m., demand for online grocery is also through the roof.
From March 12 to March 15, the number of U.S. online grocery orders grew by 151% compared with the same period the previous year, while revenue increased by 210%, according to Rakuten Intelligence data reported by Digital Commerce 360. In comparison, during this same period, nongrocery ecommerce revenue increased by 35% — a significant bump, but nowhere near what grocers are experiencing.
This online grocery boom also shows up in delivery app downloads. On March 15, Instacart, Walmart Grocery and Shipt all set their personal bests for the most downloads in a single day, growing by 218%, 160% and 124%, respectively, compared with average daily downloads in February 2020, according to Apptopia.
Online Grocery is Here to Stay
The surge in online grocery penetration isn’t just a fluke due to the pandemic. Sales were already trending more toward online ordering, with Deutsche Bank projecting this channel to expand at a compound annual growth rate (CAGR) of 28.2%, compared with a 2.5% CAGR for total grocery sales.
As cited in our recent grocery report at Fabric, this would have resulted in the online share of grocery sales hitting double digits by 2024, but we now expect that this could happen as soon as this year. And although it’s unclear what the grocery landscape will specifically look like in the following years, it’s going to be hard for consumers to go back to the way things were.
Want proof? Look at the 2003 SARS outbreak. As the South China Morning Post recalled, the outbreak similarly caused people to stay home, and the necessity to stop shopping in stores helped usher in two of today’s largest ecommerce giants, JD.com and Alibaba’s Taobao.
COVID-19 will spark a similar long-term shift toward online grocery, which tends to be a sticky sales channel. As more consumers get a firsthand taste of the convenience of this service, as well as the cost-effectiveness compared with getting restaurant takeout or delivery, they’ll want to continue ordering groceries online even after the pandemic ends.
When this health care nightmare ends, online grocery penetration will likely remain far higher than anyone previously forecasted, but not every retailer will win out. That will be determined in part by what grocers do to earn customer trust and improve the financial sustainability of online orders, both now and in the coming months.
- Improving the immediate economics of online fulfillment: For every grocery delivery fulfilled by manual in-store picking, retailers lose more than $10 on each transaction, according to financial firm Jefferies. Grocers can take immediate steps to change these economics, such as by having employees pick by zone rather than by order to increase efficiency. Grocers may also want to limit the availability of certain counter goods, such as customizable amounts of deli food that would require employees to portion out the exact amount for each order. Instead, grocers could offer pre-portioned amounts in half-pound increments.
- Bringing fulfillment in-house: While it might seem easy to outsource fulfillment to a third party, grocers that can handle their own fulfillment in-house can retain control over relationships with customers and vendors. The sooner grocers can take control of their own fulfillment, the sooner they can focus on building customer loyalty and understanding purchasing trends, which will be critical as online grocery grows.
- Deploying automated solutions: In the coming months, retailers should work to deploy automated solutions that can go live in a matter of months rather than years, such as micro fulfillment centers, that can reduce costs and increase the efficiency of online fulfillment. In light of the pandemic, retailers need to be able to optimize for surging demand, improve on-demand fulfillment efficiency and ease their reliance on physical labor. The right micro fulfillment solution can provide that.
The growth of online grocery doesn’t mean that in-store shopping will disappear, just that the landscape will change, similar to how the larger retail industry has evolved.
Grocers that take these steps to improve online fulfillment can usher in a new era of “Grocery 2.0” that will combine experiential in-store grocery shopping — such as with more food samples and cooking demonstrations — alongside automated ecommerce fulfillment that will meet the growing demand for online grocery that COVID-19 has sparked.