Explosive eCommerce Growth in the Grocery Sector

2017 was an record year for online grocery shopping. Sales are expected to reach $100B by 2025 and the grocery sector is the next big industry to be disrupted - or as we like to say "innovated." According to FMI, 70% of consumers will be buying their groceries online by 2022. The question is, will grocers be prepared to meet that demand? 

While Amazon has led the industry with its acquisition of Whole Foods; making its total online grocery penetration 18%, that still leaves plenty of room. In fact, we expect the halo effect of Amazon to actually help grocery retailers by getting customers more comfortable with online grocery shopping. 

According to USA Today, online grocery shopping is here to stay, "It’s no longer an optional perk but “a must-have for retailers,” said Brittain Ladd, a retail and supply chain consultant. “The days of being a stand-alone grocery retailer like Kroger are coming to an end."

There is a quick moving demographic shift happening with grocery customers. Supermarket News says: Of 1,000 U.S. adults surveyed, 7% of all shoppers said they order groceries weekly online. But that figure climbs to 14% for parents, 12% for Millennials and 15% for Millennials with children, according to the Valassis 2K18 Coupon Intelligence Report. As millennial's spending power continues to grow, we expect to see those numbers increase. According to Statistia, online grocery revenue is expected to increase by 69% by 2021. We believe this shift will be driven by Millennial Families and customers wanting more convenience. 

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The growth in grocery has been focused squarely on eCommerce. Meaning, if grocers don't offer online shopping, they risk losing overall revenue as customers shift their spending to grocers that offer them the convenience they want. This is exciting and presents a dynamic opportunity for both grocers and customers. 

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As online grocery spending grows, we are seeing an interesting shift across all demographics. While Millennials lead with the most recent online purchase, surprisingly, boomers are very close behind. According to FMI, the generation gap isn't as far apart as some might have thought. "Age and affluence are no longer inhibitors to online shopping - 61% of Millennials, 55% of Generation X, 41% of Boomers and 39% of Greatest Generation have recently purchased a CPG product online."

 

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This sort of data will help grocers prepare to meet their customers where they are at, or risk losing them. Online grocery shopping isn't just for Millennials. Demand for convenience is growing across all demographics.  

Will grocers be ready?  There are a lot of digital partners to help grocers to scale at profit while preserving the customer experience. We believe it's just about focusing on the right needs of the business and aligning with the partners who can provide these skills. FMI says: "many food manufacturers and retailers are admittedly not prepared to meet the needs of digitally engaged food shoppers. Based on extensive research and interviews with grocery industry executives, we've found that the classic transformation categories - people, process and technology - provide a roadmap for successful digital transformation. Within these areas, there are six distinct imperatives driving costs that trade partners must overcome if they want to succeed in omni-channel." 

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This way of thinking gives grocers a roadmap to follow when choosing the partner who will help to lay the foundation for their digital growth. While "digital transformation" might be a new endeavor for grocers, the great news is that partners with deep digital and grocery expertise exist and are ready to jump in.

While Instacart has revolutionized the grocery delivery model with a quick stand-up, there remains questions about the scalability and margin grocers can realize with that model. In-store fulfillment takes away from a superior customer experience for existing shoppers and high volume stores might struggle with inventory and fulfillment. Grocers have to hand over the trust they have built over years with their customers to someone else and some may argue that their website isn't as dynamic as the industry stalwarts currently offer.  

The new catchphrase for grocery retailers is "Omni-channel." They can be experts in all channels and preserve their customer relationships while delivering convenience. We are seeing companies be thoughtful about where they want to put their digital investment in order to achieve a powerful online presence. There is a lot of exciting growth on the horizon for the grocery space!

Danielle Petersen