Online Grocery Sales Are Down But Still Thriving

The US online grocery market posted $7 billion in sales this May, a drop of nearly 16% percent from $8.3 billion in May 2020, said a new report from S&P Global Market Intelligence.

But at three times its total from August 2019, merchants remain optimistic it is a safe place to expand.

“A lot of the investment that you see is going back and investing in things like automation, robotics and things that can help the scale of the business that we see today run more efficiently,” Tory Gundelach, senior vice president of retail insights at Kantar, told S&P.

The report pointed out demand for online grocery options in the US remains high enough above historical norms for retailers like Amazon.com, Walmart and The Kroger Co. to continue investing in a range of initiatives to improve their capabilities and customer convenience, including more automation at fulfillment centers and additional capacity in pickup and delivery.

As an example of the expected expansion in demand by consumers, Kroger is on pace to creating19 additional Ocado Group PLC automated centers designed to fulfill Kroger online grocery orders facility after opening its first with Ocado in Ohio this spring.

During 2021 Walmart is on tap to spend $14 billion in online grocery areas including supply chain and technology to help it expand the company’s e-commerce assortment, step up automation and enhance grocery pickup and delivery capacity, the S&P report added.

Coming on its tripling of online grocery sales in the second quarter of 2020, Amazon is aggressively expanding its offerings including enhanced two-hour delivery from its grocery brands Amazon Fresh and Whole Foods Market Inc. to more than 5,000 cities and towns in the US.

Amazon’s increased foray into online groceries includes expanding its one-hour grocery pickup service to all US Whole Foods stores, according to the S&P Global Market Intelligence study.

The report warned grocery shoppers who went online during the pandemic (sometimes out of necessity) are going to be more demanding of e-merchants to keep from gravitating back to bricks-and-mortar.

“That can be kind of the make-or-break between, Do I stay in [the] online channel or is it easier for me to get in the car and go to the store,” Gundelach said.

To help meet the increased demand, some online grocers are employing micro-fulfillment centers (MFCs), JLL has noted. 

“MFCs provide flexibility as they are much smaller in size than a typical industrial-grade fulfillment center. They can be put into dark stores, adjacent to existing stores, or located centrally to multiple stores as a hub-and-spoke model,” a recent JLL report explained.

Stop & Shop, Meijer and Target are among those with plans to begin building their own MFCs to increase digital reach.

“The pandemic has accelerated the growth of online grocery shopping, largely out of necessity due to customer safety concerns,” Dan Villalpando, a partner at Cox, Castle & Nicholson, told GlobeSt.com in an earlier interview. “In addition, the acquisition of Whole Foods by Amazon continues to spark change in the grocery sector, and some experts predict that consumers may get even more comfortable ordering groceries online in 2021.”