The Supply Side: Delivery’s the growth engine for online grocery
Online grocery became more popular during the COVID-19 pandemic, but six years later it has stabilized as a core mode of commerce for food, according to a new report from McKinsey. Online grocery is entering a phase where delivery has become dominant, and a hybrid fulfillment model is required.
A report from Brick Meets Click reports that ultra-fast and same-day delivery of fresh groceries has accelerated online demand. Since surging more than 20% year over year in the fourth quarter of 2024, total U.S. e-grocery sales posted six consecutive quarters of growth through March 2026. More shoppers are opting for delivery, eroding the need for quick trips to the physical store.
Walmart has achieved larger share gains, now approaching 40% of the U.S. online grocery sales, and delivery has propelled this growth, specifically orders received within one hour of checkout. Earlier this summer, Walmart announced the expansion of 30-minute or less delivery in 33 U.S. markets. The service covers more than 100,000 eligible items, including fresh groceries, pantry staples, baby essentials, over-the-counter medicines, household supplies, pet foods, electronics and prescriptions.
To cover the expenses of final-mile delivery, Walmart charges $10 for Walmart+ members and about $19 per order for non-members. This gets customers guaranteed delivery within one to two hours. The retail giant said about one-third of express orders in recent months have typically been delivered within 30 minutes.
Walmart said the new option is supported by a store footprint that is close to customers, and software that factors order size, driver availability and distance. During the first quarter of this year, Walmart said it completed millions of deliveries in 30 minutes or less, reaching more than 19,000 ZIP codes across the nation.
Morningstar analysts said consumer desire for fast grocery delivery has become one of the biggest battlegrounds in retail. While online grocery shopping is still not the default for most Americans, it has become a meaningful part of how households buy food. A U.S. Department of Agriculture survey found 19.3% of people who usually shopped for their household in 2022 had bought groceries online at least once in the past 30 days. Over the years, the habit has continued to grow with more shoppers and increased order activity.
Last year, online grocery sales jumped nearly 14% from the prior year, according to Brick Meets Click. Delivery helped to drive the growth, with delivery sales rising 30% year over year. During the first quarter of this year, Brick Meets Click estimated that same-day online grocery orders accounted for nearly 80% of all delivery orders across the grocery segment. Ultra-fast fulfillment within one hour or less comprised 18% of all delivery orders.
McKinsey said consumers are increasingly prioritizing convenience, while grocers are under pressure to make it work financially.
Automation with fulfillment and added fees for speedy deliveries were key in helping Walmart get to profitability, according to David Guggina, CEO of Walmart U.S. Kroger also announced last year that its e-commerce business had become profitable.
Walmart U.S reported first-quarter online sales growth of 26%, and delivery orders grew by 45%, with 36% of stores fulfilling orders delivered in three hours or less. Guggina said customers may start with groceries, but Walmart sees fast delivery reaching into general merchandise, fashion and home goods. He said the retailer has seen larger orders with faster delivery, which is about 13% larger than normal, scheduled or non-fast delivery. Bigger orders that include higher-margin items help boost financial margins, keeping the e-commerce segment in the black.
“Customers who use fast delivery spend two times more than the average digital customer,” he said. “Customers who have utilized fast delivery four or more times spend three times more than our average digital customer, which is absolutely fantastic to see, and we’re going to continue to lean into the space.”
Kroger reported its digital sales increased 19% in the first quarter, and order rates improved by 8%. Kroger CEO Greg Foran said shifting to store-based fulfillment has improved the economics of the online grocery business. Within delivery, orders that Kroger fulfilled in less than an hour helped fuel digital sales, accounting for half of the growth.
McKinsey said delivery is emerging as the preferred option for online shoppers because of the convenience. The report states that 70% of consumers say delivery is their preferred model of online grocery fulfillment. The main reasons include 67% who cited time savings, 52% cited schedule flexibility and 45% also cited the ease with larger orders.
“Taken together, these trends indicate delivery is becoming the default mode for many online grocery occasions,” the report noted.
McKinsey said grocers are testing and scaling new delivery options, focusing on their top three commonly cited priorities: expanded third-party partnerships, subscription-based delivery programs, and rapid, on-demand delivery. Industry leaders such as Walmart and Amazon continue to boost drone capabilities to fulfill immediate-need orders, the report states.
“While these models are still emerging, they signal where the market is heading — toward faster, more flexible fulfillment for immediate-need missions, as well as toward loyalty programs offering unique benefits and free delivery,” McKinsey noted. “While not yet scaled, these innovations are beginning to reset expectations regarding speed and convenience.”
A defining feature of U.S. online grocery is that a large majority of orders are picked inside ordinary supermarkets by staff assembling orders rather than using dedicated automated capacity. This model worked when online penetration was lower, and labor was cheaper. McKinsey said the pressure is building as online grocery sales increase and store footprints have barely grown. The next wave of online grocery growth may not be absorbed by adding more pickers in already congested stores, but it requires a different fulfillment model.
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.