Five trends are shaping the transformation of the US grocery industry.
Understanding them is key for grocers to achieve profitable growth in this new competitive environment.
In the past two decades, e-commerce has altered customer shopping behaviors and transformed the US retail landscape from brick and mortar to omnichannel. Grocers have remained largely immune to digital disruption—until recently.
Powerful trends, including new competitive pressures, technological advances, and evolving consumer attitudes and behaviors, will disrupt the grocery business from coast to coast in the next few years. Some grocers are learning from other retail sectors and countries, recognizing threats early, seizing opportunities, and catching a wave of profitable growth. Others are struggling, and some may disappear.
Until relatively recently, the US grocery sector has remained sheltered from the forces of e-commerce for a couple of reasons: Most American shoppers still prefer to choose their own food (especially meat, produce, and other perishable goods), and few grocers have had the financial capacity to invest in the highly efficient, large-scale cold chains required to make home deliveries at a profit. That is changing.
While online sales accounted for anywhere from 3 to 4 percent of the US grocery market in 2019,1 the share could be greater than 10 percent by 20252 as major retailers—including well-funded entrants from outside the sector—invest in automation and innovative operating models to solve challenges in fulfillment and last-mile delivery. As quality rises and online grocers make more compelling offers, millions of shoppers will get comfortable offloading a task that only about 15 percent say they enjoy.3 We have seen that online grocery is supply driven, and as online grocers provide more supply, customers will adopt the new method of grocery shopping.
Grocers large and small should step back now and reevaluate their near- and long-term strategies. There is no time to waste. It took TV 13 years to reach 50 million users. The iPod took four years, Facebook took one year, and Twitter took nine months to hit that number.4 The speed of technology adoption has been startling some of the world’s most successful companies since the 1990s—and it is accelerating faster than ever. Major grocery players, including traditional competitors (such as Kroger and Walmart), e-commerce giants (such as Amazon), and start-ups with venture-capital funding, are making the kinds of major investments and acquisitions—in customer-value proposition, customer experience, picking, and delivery—that herald an era of true transformation.5
Many US grocers can and do actively look to other parts of the world for examples of how to be effective online. In fact, many of the technological innovations in this space come from outside of the United States, such as technological developments in pickup from Israel and Western Europe. There have also been a range of approaches to last-mile delivery. In the Netherlands, for example, Picnic provides customers with fixed delivery slots, backed by their milkman model and demonstrated to be able to reach up to 14 deliveries per hour. In China, Hema offers guaranteed delivery of both groceries and prepared meals in fewer than 30 minutes. We are also starting to see significant innovations in the omnichannel grocery-customer experience in several Asian markets (such as China and Japan). This isn’t to say that there aren’t home-grown US innovations happening—there most certainly are, especially on the gig delivery front—but the disruption in online grocery is a global phenomenon, and US grocers should look around the world for solutions to help inform their digital journeys.
We are following five powerful trends that will shape the industry’s transformation in the United States. Understanding them could help grocers of all sizes chart a course to profitable growth in the new, much more competitive environment.
Trend 1: The fight is on
Until relatively recently, shoppers’ grocery options were limited to what was available at their most convenient brick-and-mortar store. Today, tens of millions of Americans can shop for groceries online, where their options include curbside pickup and home delivery. Many formidable players are now competing for e-grocery dominance.
Amazon’s acquisition of Whole Foods Market in 2017 gave the e-commerce giant new credibility in fresh grocery and allowed the expansion of immediate Amazon Fresh service to new markets. Instacart, which launched in 2012, has expanded rapidly and can reach more than 80 percent of US households.6 In response, many traditional grocers are rapidly expanding their online operations (Exhibit 1). For example, Walmart has been expanding its online-order offering, with same-day delivery from 1,600 stores and pickup from 3,100 locations as of November 2019.7 Kroger has expanded its pickup locations for online orders to 1,900 locations and offers delivery of online-ordered groceries from 2,300 locations.8