The Supply Side: Online grocery share declines in 2023; sales slide 2%

More consumers are returning to grocery stores to make food purchases, with total U.S. e-commerce grocery sales down 2% in 2023 from the prior year. Order frequency and total ticket values also fell from the prior year, according to annual results from Brick Meets Click/Mercatus survey data.

Mercatus reports that online grocery sales totaled $95.8 billion in 2023, down 2% from the previous year and down 1.8% on a two-year stack. Food prices increased throughout the year ending 2023, up 2.7% between December 2022 and December 2023, according to a recent consumer price index (CPI) report from the U.S. Bureau of Labor Statistics.

Mercatus also cited a slowdown in order frequency by online grocery shoppers as the main reason for the sales decline. Order frequency among monthly active users contracted for the second consecutive year in 2023. The average number of monthly online grocery orders completed — including all receiving methods — fell 6% versus 2022, following a 4% decline in the previous year. Contributing to the year-over-year contraction, 34% of active users said they only made one online grocery order per month.

The average order value, which was not adjusted for price inflation, rose 3% in 2023 compared with the prior year. Each shopping segment posted year-over-year increases, with delivery average order values growing by 3%, pickup increased by 2.6%, and ship-to-home rose 1.7% over 2022. Mercatus attributes the higher average ticket growth to inflationary food prices.

Mercatus found the pickup segment finished the year relatively steady against 2022, growing its share of online sales fractionally to 46% in 2023.

Despite expanded availability due to increased competition among third-party marketplace providers, delivery experienced a sales dip of 0.9% in 2023 versus the prior year. However, the delivery segment picked up a bit more share of sales, ending the year at 37%. The ship-to-home segment continued its annual contraction as sales slipped 4.9% year-over-year, leading to a 17% drop in sales share.

“These annual results show that 2023 was very challenging for grocery retailing as higher prices chipped away at household purchasing power even though inflation has slowed considerably since its peak in 2022,” said David Bishop, partner at Brick Meets Click. “Despite the challenges, pickup continues to prove its appeal to shoppers, even without the benefits of expanded availability and aggressive promotions that aided delivery in 2023.”

Across the U.S. online grocery market, price-value formats such as mass and hard discount experienced a substantial expansion in their respective monthly active user bases during 2023. In contrast, the supermarket format experienced a contraction. Mass retailers like Walmart saw a 15% uptick in monthly average users, and hard discounters like Aldi reported 12% more active users each month than the prior year. Supermarkets reported a 4% decline in the number of active users each month.

Mercatus also reports that consumers seeking the best values did more cross-format shopping in 2023, and mass retailers were the biggest winners of shopping trips.

“As Walmart grabs market share through its price leadership and omnichannel strategies, regional grocers find themselves in a precarious position,” said Mark Fairhurst, global chief growth officer at Mercatus. “To remain competitive, they must intensify their efforts in improving customer engagement, offering tailored personalization and building loyalty. This strategic shift is not just about weathering the storm of price inflation and intense competition, but it’s about thriving in it. By providing a shopping experience that is both seamless and highly personalized, grocery retailers can retain their existing customer base and gradually attract a wider audience.”

Walmart U.S. CEO John Furner recently said the retail giant continues to appeal to more consumers for food essentials, consumables and other necessities because of the multiple ways they can shop and receive delivery of their purchases. From drone delivery of a baking soda needed to bake cookies to a basket of snacks to feed a crowd watching football on Sunday, Walmart continues improving online shopping, search, delivery and pickup experiences for omnichannel customers, according to Furner.

A separate consumer behavior report from NCR Voyix found that shoppers have embraced returning to stores to make at least some food purchases. While online grocery shopping may be more convenient for those who don’t have time to shop in person, two-thirds of survey respondents prefer to shop for groceries in-store.

The most significant pain points shoppers report around online shopping include items out of stock, as 62% cited this challenge. About half of the respondents cited incorrect deliveries, and 38% cited unfulfilled orders that contributed to poor online ordering experiences. Also, 37% said they abandoned an online order due to high service fees, and 59% of consumers also prefer to hand-select specific items like produce or meat themselves.

With inflation driving higher grocery prices, 74% of consumers surveyed have changed how they shop for groceries. The survey found that 56% of respondents said they are buying less overall, and 49% are making a more deliberate decision to shop where they find the best deals.

NCR Voyix reports that consumers increasingly rely on technology to navigate smarter shopping methods. When asked how technology has changed their shopping experiences, consumers cited the ability to compare prices more frequently, research products before purchasing more frequently and use more digital payment options.

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 Firebend.