ChaseDesign just finished our annual study of 1,000 shoppers to see what the latest insights are around online grocery shopping, specifically focused on which delivery methods are winning out pre, during and now post-COVID times.
For starters, we do see a trend that online grocery shopping has become an important part of a shopper’s repertoire. Its growth had been slow for a decade as so many other retail channels or categories continued to take off. In 2011, less than 1% of grocery shopping was done online. Even eight years later, in 2019, it was only 3% of all grocery shopping, according to LEK Consulting.
COVID obviously changed that, almost overnight. Online grocery shot up from $30 billion in 2019 (3% of total U.S. grocery spend, both online and in person) to almost $80 billion in 2020 (8% of total spend). In 2021, even as shoppers returned to the store as pandemic restrictions lifted, it still grew a bit more to over $90 billion (10% of the total), according to Mercatus. COVID spawned or accelerated a whole group of delivery companies to this retail sector, including Instacart, Shipt, Uber Eats, Gopuff, Ocado, Gorillas and Postmates.
However, in 2022, we’re seeing predictions of flat to minimal growth, maybe $100 billion (11% of total), largely due to changing preferences around delivery and higher fees associated with it, as well as the return of shoppers to the store as pandemic concerns around safety have been overcome by their desire to be back in public. Some of these delivery startup companies that were getting huge valuations in 2019 and 2020 are now struggling to stay afloat.
In 2021, physical grocery stores had a larger percentage increase in sales than online. In-store grocery shopping grew by 18% in 2021, while online grocery shopping grew by only 14%. This is significant, because the base of shopping in-store is so massive in comparison to shopping online.
And online grocery purchases continue to decline this year. Now only 54% of shoppers are buying online, versus 59% in 2020. That number is forecast to move even lower for 2022, closer to 30%-35% of the shoppers. Also, the number of online monthly shopping trips is down 12% from 2020 to 2021, and an even steeper drop-off is predicted for 2022, according to Mercatus. Perhaps that is to be expected with the impacts of the pandemic subsiding, but it also presents an opportunity to reflect, learn and design for growth.
What exactly is driving shoppers from online grocery shopping back to stores? Well, the biggest reason they opted into online grocery shopping during COVID was safety. Now that so many people feel like the pandemic is behind us, they are coming back to stores in massive numbers, hence the reason in-store grocery shopping grew so much in 2021.
The questions now become, what can be done to drive growth and support shoppers both online and in-store coming out of the pandemic? And how can retailers learn from the spark that the pandemic introduced and better connect with shoppers’ needs and interests to create a better experience that keeps them coming back regardless of channel?
For starters they need to look at the challenges people are facing as they shop.
The majority of shoppers want to see the items before buying. The physical touch of products matters to them, as does the ability to get what they want now versus having to wait for delivery. Grocery shopping is still a very social experience for many and they want to see what’s new. The ability to interact with products, help narrow their selections, find what they are looking for, discover fresh product and be inspired is critical to the shopping experience.
Online retail needs to do a better job of elevating features that enable these shopper needs instead of relegating them to the search bar and an endless sea of options. While fulfillment and delivery took center stage during the pandemic, it’s the experience of shopping that now matters.
There’s no doubt fulfillment is a critical piece of the puzzle; however, retailers also need to invest in designing intuitive and easy-to-shop experiences that position online retail for growth by guiding the shopper, elevating the experience and helping them understand their options while they quickly find what they are looking for.
Target is doing this well, investing in its total shopping ecosystem to prepare for the future and securing a leadership role across digital and physical touch points. In addition, Target has long made their physical stores a core part of that strategy, and has been devoting resources to stores for the past several years to capture the emotional essence of shopping and ensure they continue to lead the overall experience, taking the top experience spot in last year’s study. This year, Walmart took the top spot. Why? Walmart witnessed what Target was doing and realized they too needed to reinvest and reinvent their total store experiences to be more elevated and engaging to compete. They spent the last two years investing billions of dollars to revamp their app, website, stores, departments and categories.
Back to delivery, while online grocery is moderating and regulating back to pre-pandemic growth rates, it’s delivery of groceries to home that’s really in a nosedive. Most recently, as inflation has hit all of our pocketbooks, shoppers revealed that the No. 1 reason they are now avoiding home delivery is the added costs. Home delivery hit its high point in 2020 with over 31% of all online grocery shoppers choosing to opt for home delivery. According to a Mercatus & Chase Design Study, this has declined to only 23% in 2021 and appears to be dropping even lower as the 2022 numbers become available.
When it comes to online grocery shopping, growth is happening in curbside pickup and in-store pickup. Both these fulfillment experiences represent big opportunities for both brands and retailers to create incremental basket and growth. In fact, 42% of shoppers will add items to their order if they pick up in-store, which is 10% higher than if they pick up curbside (32%). That’s a $400 million commerce gap to be filled just between those two pickup methods. What a great opportunity for retailers and their brand partners.
As retailers continue to move fast to evolve, they are testing different methods of curbside delivery, in-store pickup and even spending billions of dollars to figure out more efficient home delivery. Kroger, Target, Walmart, Meijer and even Amazon have struggled to figure how to make a home delivery a more cost-efficient fulfillment option. But so far, the simple physics of picking, packing, driving and delivering an order to someone’s home are proving to be a wall of costs that can’t be penetrated.
Joe Lampertius has worked in the brand packaged goods and retail sector his entire 30+-year career. He has had the fortune to lead many great teams, and over the past four years he has been President of ChaseDesign|10Red|JGA teams, leveraging behavioral insights to drive design thinking to deliver category and total store growth