The Supply Side: Online grocery poised for 20% annual growth by 2023

by Kim Souza ([email protected]) 463 views 

Online grocery is slowly growing its share in the U.S., but in the next five years, analysts expect e-commerce food sales will be a $59.5 billion market, a compound annual growth rate of 20%, according to analysts with international grocery research firm IGD.

In a recent report, IGD analyst Stewart Samuel said the U.S. online grocery market is estimated at $23.9 billion, but by 2023 the market is expected to be at $35.6 billion, and the channel market share will increase from 1.6% today to 3.5%.

Samuel said three factors will shape online grocery growth in the U.S., following much older trends in the United Kingdom and Asia. He said unlike in the United Kingdom, optimizing store assets for pickup is a key move.

Samuel said store pickup has been behind the growth of online grocery across more of the U.S., with aggressive expansion from retailers like Walmart and Kroger.

Walmart offers online grocery pickup in more than 2,000 stores and plans to add roughly 1,000 more in the next year. Walmart grocery accounts for more than 30% of the retailer’s online sales, according to research from Slice Intelligence. The report also found Walmart online grocery accounted for 26% of U.S. e-commerce sales in 2017, up from 8% in 2016.

“As retailers increasingly focus on channel profitability, we expect to see other retailers expand their pickup points, including exploiting opportunities away from their stores,” Samuel noted in the IGD report. “Kroger recently launched a partnership with Walgreens, which enables customers to collect their online orders from the drugstore operator’s stores.”

Samuel said retailers are also readily expanding grocery delivery for online orders. Walmart is offering the service in more than 50 metro areas with plans to double that by mid-2019. The service will soon be available to nearly half of U.S. households, according to Walmart.

IGD sees a more intense focus on home delivery in the next year as Amazon’s acquisition of Whole Foods and subsequent launch of Prime Now delivery is resonating with early adopters.

The report said the move by several retailers into offering same-day delivery has been enabled by the presence of on-demand, crowdsourced fulfillment companies. Walmart is using several third-party delivery services and is also testing its own in-house delivery system known as Spark in a couple of Florida metros.

“On-demand delivery platforms such as Instacart and Shipt have a major role in the channel, enabling several retailers to scale up quickly,” Samuel said. “Home delivery has become a growing focus as retailers aim to provide consumers with more convenient options. “Several retailers have also been investing in their online digital marketing capabilities, developing platforms to enable their trading partners to better target their marketing dollars.”

As part of the focus on developing a compelling and cost-optimal solution at scale, retailers have focused on picking efficiencies and last-mile logistics. Recently, the emphasis has switched to finding an efficient picking operation, with robotics becoming part of the solution for several retailers, according to IGD.

“Walmart has recently partnered with Alert Innovation, while Ahold Delhaize and Albertsons are partnering with Takeoff Technologies for hyperlocal fulfillment,” Samuel said. “Kroger and Ocado recently announced the location of their first customer fulfillment center, which will utilize Ocado’s robotic solutions. Beyond these factors, we expect to see retailers expand their online offers and develop innovative ways to order.”

In a separate report, IGD recently surveyed 223 retail executives in 42 markets around the globe for insights on the future of online grocery. The report outlined a few features the online store of the future will likely include.

A personal microstore was at the top of the list. Using Artificial Intelligence (AI), retailers will begin to unlock personalization with each shopping experience. For instance, the report states the online shopping experience will be intuitive, with the store layout being able to predict the shopper mission. If the consumer wants a meal for the night, the homepage will display only the relevant solutions.

Consumers can also look forward to customizing products by creating their own ideal shampoo or cereal, products that are only available online. The survey found 69% of respondents think some retailers will be using personalized pricing and promotions in their online stores.

“The online store of the future will adapt to you, learning from experience,” the report stated. “For instance, if it’s an older shopper the page may adapt its font size and tailor its health-based suggestions.”

The survey found 77% of respondents think almost all digital communication to consumers by retailers will be personal in the future. They expect to offer more loyalty promotions and gamification perks to keep shoppers coming back.

“All content will be device-responsive,” the report stated. “Shoppers in Europe and North America will follow Asia and increasingly shop online through a mobile device. Another popular way to shop will be by voice control. In and out of the home, you will be able to reorder products this way and ask for product information.”

As voice control becomes more mainstream, the respondents expect shoppers to converse more with a personal assistant through their smartphones and smart home devices.

The survey also found 60% of respondents think automatically reordering products will be an established way of shopping for many people in the future.

IGD said the online store will offer more than just groceries. It will also help around the house.

With populations becoming more urban and tending to live in smaller properties, businesses will offer services such as home cleaning and laundry, preventing the need for space-hungry appliances.

“The online store will use sophisticated digital assistants, like chatbots, to help shoppers,” the report stated. “These will answer basic questions, such as product availability, through on-screen messages or voice.”

The respondents expect to see increased efficiencies with their online grocery service levels over time, according to the report. For shoppers, the online store of the future will be more convenient. It will be quicker and easier to find and buy products. Login and payment will use facial, voice or touch recognition technology.

Shoppers will enjoy a better fulfillment service with more deliveries on time and in full, and products delivered at the right quality and freshness. However, 53% of retailers surveyed said they haven’t started to fully integrate their offline and online teams.

Another 53% said they are prioritizing the development of omnichannel marketing solutions throughout the shopper journey. IGD also noted 54% of consumer packaged goods companies surveyed are only starting to prepare for the future of online grocery.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.