From niche to need it today

Once viewed as ‘nice to haves,’ amenities like online ordering and curbside pickup are redefining the grocery shopping experience.

By Anne-Frances Hutchinson

If 2020 was the year of unceasing disruption in the grocery industry, 2021 will most certainly continue the trend. “This recovery will not be a straight path,” according to Bain analysts. “Companies will advance where they can, retreat when they must, often simultaneously, then adapt and start again.”

When news of a vaccine broke, the anecdotal outlook for online grocery shuddered in anticipation of a return to the before times. Spoiler alert: We’re not returning to the before times, which may be very good news for companies investing in systems and technology to support the pandemic-driven growth of online ordering and grocery delivery.

“Despite only 3% of grocery dollars coming from online, sales are expected to triple and reach $74 billion by 2023,” according to CPG industry marketing and research firm Acosta. “Millennials are spending the largest portion of their grocery budget online today, and we expect it to grow across generations in coming years. Thirty percent of current grocery pickup shoppers noted they plan to use the service more often in the future—led by those who currently only rarely utilize the offering.”

In 2018, Kroger, the country’s biggest grocery retailer, led the charge toward a seamless online shopping experience with the launch of Kroger Ship. A 2020 partnership with digital marketplace innovator Mirakl launched their integration into a ship-to-home marketplace model designed to expand selection while making shopping more convenient.

“Our customers are increasingly turning to our e-commerce solutions provided at Kroger.com for their grocery and household essential needs,” said Kroger’s group VP of product experience, Jody Kalmbach. “To better serve our customers, we’re continuing to invest in technology that enables us to expand our digital services to deliver anything, anytime, anywhere.”

The company was already nipping at Amazon’s heels, increasing online sales 112% from 2017 to 2019. Their company’s prescient e-commerce investments (which continue apace) enabled them to respond to the burgeoning demand for ship-to-home, delivery, and pickup orders spurred by the virus. Digital sales for the firm leapt by 79% in 2020, putting them on eMarketer’s annual list of Top 10 U.S. Retail E-Commerce Companies for the first time. With annual online sales of $11.28 billion they landed in ninth place, narrowly eclipsing Costco.

In a recent analyst call, Kroger CFO Gary Middlechip pointed to the company’s plan to improve e-commerce profitability by lowering the cost of fulfilling pickup orders and increasing digital ad income. “We see a clear path to further improved digital profitability by leveraging our personalization tools to increase basket size and improve sales mix, further reducing the cost to fulfill an order by our process improvements and automation, and continue to grow digital media revenue,” he said.

The growth spurt has grocers seeking ways to make e-commerce more profitable. “To that end, companies are making workforce adjustments, renegotiating with third-party providers, and investing in new hardware, software, and dedicated facilities,” reported Business Insider’s Daniel Keyes.

“As the pandemic continues, more grocers and CPGs will adopt intelligent automation to handle the growing demand for scarce products in certain categories,” Mercatus president and CEO Sylvain Perrier told RIS. “Grocers will also continue investing in automation that powers efficient, contactless services such as: automated checkout, fulfillment technologies (micro-fulfillment centers), central-fulfillment centers and picker robots, and driverless delivery vehicles. And as grocers scale up their e-commerce operations, they’ll be focusing specifically on fulfillment technology to efficiently power their CPG-sponsored promotions and newly launched auto-replenishment programs.”

In November 2020, Bricks and Clicks/Mercatus reported, “The number of active online grocery shoppers placing at least one delivery or pickup order during the past month increased to 38.7 million, up 3.6% from 37.5 million in August 2020, and they placed an average of 1.62 orders per month, up 2% compared to 1.59 orders per month in August 2020.” They expect grocers “may experience headwinds for growth in their delivery and pickup offers.”

When Lending Tree asked consumers, “Have you splurged on anything to feel safer during the pandemic?” They found grocery delivery to be the most popular indulgence. When asked what splurge service they’ll continue to use post-pandemic, the top response was grocery delivery at 63%.

The popularity of delivery had been increasing prior to the pandemic, with Acosta reporting that in 2019 roughly half of online grocery shoppers were picking up their orders at the store, and that 30% were planning to continue to do so. Millennials drive the trend, with 50% using online grocery pickup anywhere from once a week to multiple times a week. Of all shoppers surveyed, 26% said they have groceries delivered at home by a delivery service.

“Retailers with both a physical footprint and an online presence are funneling resources into developing a multichannel platform that capitalizes on both,” according to CB4’s Jaclyn Trop. “In particular, the BOPIS (buy online pickup in store) model has grocers dedicating more floor space for customers and gig workers from third-party delivery services like Instacart to fulfill their orders. Minnesota-based Cub Foods is doubling its square footage devoted to staging online orders, while Whole Foods Market, which is owned by Amazon, has converted several stores in New York, Chicago and other cities to delivery-only service.”

One trend pushed forward by the pandemic, contactless e-commerce pickup, may be gaining steam. Albertsons is testing lockers at some stores, including selected Safeway and Stop & Shop locations. Selection, payment, and scheduling take place online, and shoppers take their completed orders from a drive-up locker secured with an access code.

“Contactless PickUp through our state-of-the-art, temperature-controlled lockers makes it even easier to shop with us,” Chris Rupp, executive vice president and chief customer and digital officer at Albertsons Companies said in a release. “Whether customers choose to shop in our familiar neighborhood stores or through our websites and apps, we are ready to provide them with extraordinary service where and how they want to get their groceries. Our strategy to leverage technology and innovation to continue to grow our digital business is focused on creating products customers love that truly make their lives easier.” The post-pandemic demand for these kinds of contactless services remains unclear.

In a presentation to FMI, the Food Industry Association, Elizabeth Buchanan, head of consumer intelligence for North America at NielsenIQ noted that the $66 billion CPG food and beverage market outstrips the $40 billion restaurant delivery market. For grocers, BOPIS may be the ultimate lasting strategy.

“Trips that are initiated online and then picked up in store continue to power CPG e-commerce,” she said. “This provides shoppers peace of mind on things like delivery fees and on scheduling and timing—not having your groceries show up during the middle of your conference call, for example, and sitting on your porch for an hour.”