The Supply Side: Walmart, Kroger closing gap on Amazon with online grocery

Amazon is the undisputed digital commerce king in the United States, but its foray into grocery has been challenging, even after it acquired Whole Foods in 2017 for $13.7 billion.

With the help of Instacart, Walmart, Kroger and other traditional grocery retailers have continued to invest in growing their online grocery and consumer packaged goods (CPG) market share.

Recent research from Nielsen and Rakuten Intelligence indicates Amazon’s digital dominance in CPG/grocery is slipping, with Walmart and Kroger each adding new shoppers at a faster pace over the past two years.

“While it’s no secret that traditional brick-and-mortar retailers have ensured e-commerce is part of their overall strategy, data shows that some of the biggest brick-and-mortar players have turned strategy into reality, and have posted incredible growth along the way,” Nielsen reported. “In fact, key retail players like Walmart, Kroger and Target have grown their online customer base — all by at least 90% more than Amazon over the past two years.”

The report noted Amazon’s digital reach in households is still untouched at roughly 10 times more than any other merchant in the survey. That said, there is less room to grow the large base of buyers, which was estimated at 58.7 million U.S. households at the end of 2018.

While Amazon commands a large share of overall online commerce, it appears to be losing its share of CPG and grocery as more consumers take advantage of programs offered by Walmart, Kroger and others like Costco, using Instacart.

“These merchants have succeeded, in part, because they’ve embraced the click-and-carry model where consumers buy an item online and pick it up at a physical store,” the Nielsen study said. “In fact, we estimate that the share of click-and-carry sales grew from 4% to 11% of all CPG e-commerce sales in just two years.”

Industry analysts say consumers are slowly adopting omnichannel grocery platforms because that gives them the confidence to expand their online shopping beyond health and beauty. Nielsen said the grocery and gourmet food category has a compounded annual growth rate of nearly 50% over the past three years, falling just behind pet supplies.

The penetration level of online CPG is growing at a high level, according to Nielsen. Online sales have increased 30% year-over-year, and 60% of shoppers have browsed and ordered CPG online in that time. The report also states 28% of shoppers have purchased CPG online a few times per month in the past year. Nielsen said while consumers are more willing to try the online grocery and CPG purchases, there are still challenges with the most common barriers being consumer concerns over food quality.

“Twenty-nine million people began shopping for CPG products online in the past two years, yet only two-thirds of all e-commerce shoppers buy CPG products through the internet. Among the barriers that deter them, food quality tops the list,” the report noted.

ROOM TO GROW
Despite the growth Walmart and Kroger have seen in their respective online grocery platforms, another report from Offers.com indicates the number of consumers using omnichannel platforms for groceries is still small overall.

That said, the volume of online grocery shopping is growing at a rapid pace and is projected to reach $22 billion in 2019 and nearly $30 billion by 2021, according to Statista. The Offers.com report found 77% of consumers surveyed had not used curbside pickup, and 81% had never tried grocery delivery.

The report indicates online pickup grocery usage is the highest in the Southeast. Arkansas, Oklahoma, Texas, Mississippi and Florida all had the highest adoption rates for grocery pickup in the U.S. between 24% and 36%. Other states with that same percentage include Alaska, Michigan, New Jersey, Wyoming, Nebraska, Virginia and West Virginia. As Walmart continues to roll out another 1,000 pickup locations this year the usage is expected to increase incrementally. Walmart is also adding grocery delivery to more markets this year and is expected to cover 90% of U.S. households.

Respondents in the Offers.com survey said they spend most of their grocery dollars at a local food store, with an average order of $110. Those using curbside pickup services from Walmart had an average spend of $100.55. Consumers who used Target Drive Up spent an average of $108.56, according to the survey. The report found consumers who used Walmart’s online grocery pickup were among the most loyal, ordering several times a week. The majority of respondents overall said they used pickup once a month or less.

DELIVERY VS. PICKUP
The report indicates the top grocery delivery choice among shoppers surveyed was Amazon at 30%. Walmart was a close second at 20%, and 18% said they used Instacart, which delivers for dozens of grocery retailers. Roughly 13% said they had used Safeway delivery, while 10% used FreshDirect and 9% chose Target.

With respect to grocery delivery, Amazon is still on top. But Walmart dominated the online grocery space, according to the report. Analysts said Amazon’s dominance in grocery delivery relates to the proliferation of Prime, which gives members access to free Prime Now (two-hour delivery) for groceries as well as free Prime Pantry shipping on orders of $35.

Walmart’s massive store footprint could give it the edge for online grocery pickup. Walmart’s grocery pickup is free for orders of $30 or more, while other regional stores charge fees around $5. Walmart charges $9.95 for its grocery delivery option and primarily uses third parties to make the deliveries.

“Amazon still sits on the e-commerce throne, but the competitors are circling as all battle for their piece of the omnichannel pie,” the Nielsen report stated.

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.