Online shopping is a quickly and constantly evolving field. One area that has not seen as much growth yet is grocery. However, that is about to change soon. Over the next 10 years eCommerce grocery shopping will explode as convenience, delivery and consumer preferences continue to shift.
Research from all corners of the eCommerce world are showing that grocery is the next eCommerce frontier. And why shouldn’t it be? Grocery shopping is a necessary expenditure. The platforms and brands that can adopt to the changes in consumer preferences and offer a convenient solution to get their products to the customers stand to win big.
We are going to take a look at what the current grocery market looks like. Then we will dive into what the research is showing the grocery market could look like in as short as 5 years. Understanding what is causing the growth is important to realize the eCommerce potential of grocery shopping. Finally, we will identify what the biggest challenges to grocery brands are and how companies like ours are helping these brands adapt to a new eCommerce business model.
What the Online Grocery Market Look Like Today
The size of the online grocery market pales in comparison to overall size of the grocery industry. The total grocery market accounts for over $600-billion in sales annually. In 2019 it’s expected that about $20 billion in sales will come from online. That’s only about 3% of the total market. But the amount it is growing is what is impressive.
Currently, online grocery shoppers are typically younger, affluent and urban dwellers. This demographic is generally the heaviest ecommerce buyers in other categories and the early adopters of new technologies.
A survey by Hubspot indicates that about 31% of consumers have at least purchased groceries online once. Geographically, the United States had the largest percentage of respondents who indicated that they have previously ordered groceries online when compared to Canada and the United Kingdom.
Digital grocery shoppers were also surveyed to see what platforms they used to make their grocery purchases. In 2018, Walmart saw the largest share of online purchases at 33% with Amazon right behind at 31%. Other supermarkets captured about 26% of the total online purchases in 2018 – still a large share of the overall market.
The U.S. was almost split down the middle when it comes to how frequently shoppers purchased groceries online. 51% stated that they had never purchased groceries online. 32% indicated they purchased groceries online at least once a month with half of those respondents saying they purchased once a week. Weekly purchases are even higher in urban areas with about 31% of respondents indicating that purchasing frequency.
eCommerce grocery shopping is still a small market today, but consumer preferences are changing. Younger, more tech savvy generations may continue to shift their grocery shopping preferences to online as convenience and quality of service continues to improve.
How Big Will the Online Grocery Market Get?
2019 expected growth of eCommerce grocery shopping is 18.2%. It is expected that the market will continue to grow at above-average rates over the next decade. In fact, the compound annual growth rate for online sales is 21.1% over the next few years. When you compare that to the 3.1% expected growth of offline sales it is easy to see why grocery brands need to pay attention.
A recent study by the Food Marketing Institute in partnership with Nielsen estimates that the eCommerce grocery market could reach $100-billion in annual spend as early as 2022. The study even states that their original forecast for that market spend was moved up by 3 years because of the growth. By 2022, close to 70% of consumers in the U.S. are expected to be grocery shopping online.
Currently, the largest selling product categories within grocery are non-perishable goods and dry foods. Perishable goods are purchased considerably less – mainly because of many of the challenges that online grocery has. As those challenges begin to be solved and fulfillment becomes more reliable, we expect that perishables will become one of the growth leaders within the grocery category.
What is Driving Growth in eCommerce Grocery Shopping?
There are a few factors that will be vital to the growth of eCommerce grocery shopping. Convenience is one of the leading factors of growth in eCommerce overall – and the story is no different in grocery. Consumers want the convenience of not having to go to the grocery store. This is particularly true in urban areas where the logistics of getting to the store and getting home can be expensive.
Amazon, Target and Walmart have all rolled out delivery programs that are all answering the convenience consumers are looking for. Improvements in fulfillment efficiency are increasing the convenience of grocery shopping online. The availability of same-day delivery is only starting to become a reality for these platforms, but as the fulfillment efficiencies continue to improve customers will be more likely to turn to eCommerce grocery shopping.
Consumer preferences are also shifting as younger generations reach adulthood and need to shop for their own groceries. Growing up in a tech-centric world has led to them becoming eCommerce heavy shoppers. The overall percentage of online grocery shoppers will increase as we move past the Baby Boomer generation, and millennials and Generation Z establish their own households.
The Challenges of eCommerce for Grocery Brands & How to Overcome Them
Significant hurdles stand in the way of many grocery brands entering the eCommerce space. Logistics and supply chain factors are one of the largest challenges. Also, most existing major grocery brands are not built on business models that are catered to eCommerce and B2C order fulfillment. The major eCommerce platforms themselves also function as gatekeepers for smaller grocery brands. However, there are certain ways to set about solving the problems.
Selling groceries, especially perishables, on Walmart, Amazon and Target is currently very difficult to do. Walmart will not allow any third-party sellers to sell fresh food on its platform. Amazon will not allow third-party sellers into its AmazonFresh program – the program for perishable goods. And Target has a very limited third-party marketplace that does not cover grocery products at all. The marketplaces need to open more to additional brands as capabilities to fulfill perishable goods in shorter time frames increases.
The majority of grocery brands do not currently have the capability to fulfill orders direct to customer. Generally, these brands are built on a wholesale business model that sells goods to retail brick-and-mortar locations. Grocery brands will need to adapt to a nimbler business model that doesn’t require paying high fees for shelf space in retail locations. And for many brands the most reliable option will be to bring in outside fulfillment while eCommerce grocery shopping is in its nascent stages.
Getting the groceries to the customers and efficient distribution is the final challenge. Existing warehousing and distribution centers for grocery brands are built for wholesale fulfillment. Third-party cold storage networks can fulfill direct to customer and wholesale directly to retail grocers. We have helped numerous grocery brands make this transition and establish a cold-storage network that can reach the majority of United States within 24 hours. This allows them to sell perishable and fresh food items on Amazon as a third-party seller and through their own website.
The Future of Online Grocery Shopping
Online grocery shopping has a bright future. It is also presenting opportunities for grocery brands to reach consumers in entirely new ways. The brands that can get on the wave now stand to benefit over the coming decade.
Total online grocery sales are still small compared to total grocery purchases. But it’s the rapid growth that is occurring that shows the potential upside. Consumer preferences are beginning to shift today – and it’s apparent that those changes will only intensify as eCommerce grocery shopping gets more convenient.
Future growth will be driven by improved efficiency in fulfilling orders. Reliable shipping is key to provide consumers trust and reliability. Same-day shipping is starting to become more popular, but it will be interesting to see how much furthers platforms and retailers can reduce shipping times. Plenty of challenges still exist for grocery brands and platforms in the eCommerce space. However, making your grocery brand more nimble by embracing digital will help your company immensely in the eCommerce grocery shopping world.[/vc_column_text][/vc_column][/vc_row]