by Cara Rasch
May 23, 2023
Grocery shopping is progressively shifting towards a digital realm. Consumers are looking for convenience in how they get and prepare their foods, and online grocery shopping options offer the ease of home delivery or curbside pickup, as well as access to specialty foods that fit certain diet plans or allergy limitations. In addition, online platforms may aid in meal planning through recipe suggestions, or assistance with the meal preparation itself through precooked, premeasured, or otherwise semi-prepared meal elements.
According to Packaged Facts’ new report The Future of Grocery: Online Grocery, Meal Kits, & Direct-to-Consumer Food, online grocery sales nearly tripled in 2020 due to pandemic-fueled changes and expectations for contactless transactions. Sales were also strong in 2021 and 2022 as many consumers continued pandemic-era habits and desired convenient ordering.
Meal kit sales were also fueled by the pandemic. Consumers who were tired of regular meal planning and grocery shopping found that meal kits offered them a different and possibly more convenient option. Prepared meal delivery was especially important for those who do not like to cook or got sick of doing so during the pandemic.
While the pandemic is receding as a primary driver of habits (as of 2023) and consumers are resuming pre-pandemic activities, online grocery ordering is sticking around. Remote work is also here to stay. Working from home part-time or full-time will continue for the sizable segment of the population that started or expanded the practice during the pandemic. Consumers who used to make purchases during their daily commutes have established new habits – like online ordering – since leaving the home to shop has become less convenient.
Packaged Facts’ March 2023 National Online Consumer Survey indicates that 52% of adult consumers had used a grocery delivery option in the preceding year, while 27% utilized grocery pickup. About 21% of consumers had used meal kit delivery services in the last year and 17% had used prepared meal delivery services.
Many consumers are worried about rising/inflated prices in several product categories, but fears are highest over food. In Packaged Facts’ October-November 2021 survey, 56% of respondents reported being very concerned about rising food prices. In the November-December 2021 survey, 50% of consumers strongly agreed that they were concerned about rising food prices. By February 2022, this figure had jumped to 60% of consumers, and in May 2022, 63% reported being very concerned about rising food prices. Fears remained very high through December 2022, with 62% of consumers strongly agreeing they were concerned about rising food prices.
Inflation has affected many sectors – including food, beverage, and gasoline – in 2021 and into 2023. Higher gas prices also affect food prices in the form of increased shipping costs.
Food commodity and labor costs have also gone up, leading retailers and restaurants to raise prices. Inflated gasoline prices can be especially harmful to restaurants and third-party delivery services since drivers need to spend significantly more on transportation to deliver food to customers.
Though food inflation is moderating in 2023, consumers are still feeling the pinch of high food prices. This had led them to think more about what they are spending on food and how much food they are wasting. As consumers are following tighter budgets, they are more cognizant of food waste and more mindful of how they plan meals. They tend to cut down on impulse purchases and purchases of extra foods or treats they do not yet have a plan for when concerned about inflation. Some consumers who buy a lot of groceries online may reduce their use of these services or stop purchasing online to save money, or at least cut down on unnecessary online grocery purchases (e.g., reducing spending on snacks and only sticking to groceries for core meals) to keep to their budget.
Cash-strapped consumers often consider reducing spending on pricier convenience items such as dining out. This is important because, as food prices rise, consumers may be more likely to reduce food purchases from restaurants and instead buy more groceries to save money, including via online methods if online grocery shopping is part of their normal routine. However, if consumers think that online grocery shopping is too expensive for them as prices rise, they may cut back on online ordering and shop more for groceries in stores.
According to Packaged Facts’ latest report on the online grocery market, advances in the online grocery market will continue at a double-digit pace, with online food and beverage sales expected to grow at an average annual rate of 12.0% through 2027.
As online grocery sales continue to grow and competition tightens, retailers are looking for opportunities to expand availability and to make grocery delivery and pickup more efficient and less costly. The future of online grocery will feature new technologies like drone and autonomous vehicle delivery, automated warehouses, intelligent voice ordering, virtual reality shopping environments, and better monitoring of product quality and stock.
Many big retailers, such as Walmart and Kroger, are investing in technology and infrastructure to offer more items for pickup or delivery and to fulfill online orders faster and for a lower cost.
For instance, Kroger began to partner with UK-based Ocado to automate online grocery warehouses in May 2018. April 2021 brought the debut of the first such fulfillment center in Ohio, and the companies have announced plans to open 19 more facilities to fulfill online grocery orders. These fulfillment centers use artificial intelligence, robots, and automation to make preparing orders for pickup and delivery more efficient.
Nine new “spoke” sites that work with nearby automated fulfillment “hubs” to extend reach to more consumers were announced in May 2022. Four “spokes” were already operating in Lockbourne, Ohio; Tampa and Jacksonville, Florida; and Indianapolis, Indiana. Five more of these facilities were planned for Louisville, Kentucky; Oklahoma City, Oklahoma; Austin and San Antonio, Texas; and Birmingham, Alabama. In February of this year, Kroger announced it had opened a new spoke facility in South Florida to work in partnership with its fulfillment center in Groveland.
Similarly, Walmart has invested in drone and autonomous vehicle startups to develop better and less expensive last-mile delivery. Walmart is in a unique position to increase direct delivery by drones or self-driving vehicles because the company has 4,700 stores that are within 10 miles of 90% of the US population. This reach means that fast delivery speeds may be achievable in most areas since the vast majority of consumers live near stores or specialized fulfillment centers.
In January 2023, Walmart announced that 36 of its US stores have drone delivery hubs operated by DroneUp, Flytrex, and Zipline, with the ability to reach 4 million households in seven states (Utah, Arizona, Texas, Arkansas, Florida, Virginia, and North Carolina). In 2022, Walmart completed more than 6,000 drone deliveries. Drone delivery is available for orders weighing up to ten pounds in as little as 30 minutes for a delivery fee of $3.99.
Walmart drone delivery partner Zipline recently announced its fixed-wing aircraft has made 600,000 commercial deliveries (mostly of medical supplies in Africa). A number of companies including Sweetgreen and GNC have signed up to deliver with Zipline’s new drone when it will be available in the US in 2024, indicating that retailers and restaurants are eyeing drone delivery for the near future, even as there are indications that the drone delivery market may be struggling in 2023.
Automation is necessary to increase speed of order fulfillment; reduce costs; and expand services to more customers, more areas, and more available products. Worker shortages and rising labor costs have challenged grocers, thereby making online grocery services more expensive for marketers in the short-term. Labor challenges require innovation to overcome and will likely drive prices up (in both the short- and long-term) and might affect options available to shoppers. For instance, home delivery may become less favored as prices rise; consumers could increase their use of pickup options to save money or if delivery becomes unavailable at some stores.
Additional analysis of the online grocery market can be found in the May 2023 Packaged Facts report The Future of Grocery: Online Grocery, Meal Kits, & Direct-to-Consumer Food.
About the blogger: Cara Rasch is a food and beverage analyst for Packaged Facts. She studies consumer and industry trends in this space and has a B.A. in economics from Allegheny College.
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