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Has online grocery shopping peaked?

Americans, it turns out, would rather visit a store than buy food online.
Image: Shutterstock

Bonnie Russolillo is one of millions of Americans forced by the pandemic to buy groceries online. The experience was better than she expected — the broccoli crowns were perfect and she was mostly pleased with the substitutions for out-of-stock items.

But here’s the bad news for companies that have spent billions building web supermarkets: Russolillo and shoppers like her prefer to walk the aisles themselves. “If I feel it’s safe, I’d much rather do my own shopping,” says Russolillo, who is 62 and lives on Long Island. “It’s much different than going online and looking at pictures.”

Online grocery sales have surged as much as 200% this year, according to Earnest Research, part of a broader boom in home cooking now that thousands of restaurants are closed. The $840 billion grocery industry has been one of the few bright spots amid a pandemic that has infected about 1.7 million Americans, killed almost 100 000 and crushed the economy. Walmart Inc., Inc. and startup Instacart are all reaping the rewards, and some e-commerce prognosticators say the online grocery industry has finally hit an inflection point promised for decades.

But how much of that spending shift will stick is guesswork. It’s difficult to predict lasting behaviour changes from a fear-fuelled surge — growth peaked more than a month ago. Problems with online food shopping also persist. The operations are expensive to run, and limits on capacity and inventory abound right now with supply chains upended. The shopping experience can be clunky and confusing, especially for older consumers. And one thing the pandemic hasn’t changed is that Americans still like to squeeze their cantaloupes and eyeball their rib-eyes.

Russolillo and her husband Ray learned the hard way that ordering produce online is a lot trickier than buying a box of cereal or a bag of dog food. “The picture showed a bunch of bananas. So we ordered what we thought was one bunch of bananas,” Ray says. “The delivery came and we got one banana. Who buys just one banana?”

In the pandemic’s early days it seemed as though buying online groceries would become routine — or at least pick up a sizeable number of converts. “The customer demand we expected over the next two-to-four years has happened in the last two-to-four weeks,” Instacart chief executive officer Apoorva Mehta said in early April, a time when most Americans were under strict stay-at-home orders. Visits to Walmart’s online grocery site that month soared more than fourfold, according to data tracker SimilarWeb, fuelling the retailer’s fastest quarterly sales growth in almost 20 years.

But even in cities hardest hit by the pandemic, more than 7 in 10 people have continued to visit stores for groceries and other essentials, according to surveys by the consulting firm McKinsey & Co. In states with more relaxed restrictions, the figure is more than 8 in 10. Over one-third of shoppers say they’ll decrease their use of web groceries or stop ordering food online altogether when shelter-in-place restrictions ease in their area, according to a survey conducted for Bloomberg by Civic Science.

“We’ve already hit the high water mark and people are getting back to some normal habits,” says Kurt Jetta, founder of research firm TABS Analytics, who has been studying the grocery industry for 25 years. “People really like going to the grocery store.”

Consider Stacy Yore in Boca Raton, Florida. To call her a discerning grocery shopper would be an understatement. She likes her bananas on the small side with just a touch of green. She knows marbling enhances steak’s flavour, but prefers to pick out a lean cut herself for health reasons. And grapes, don’t get Yore started: “They have to be a particular shade of yellowish green. If they’re just green they’re sour but if they’re yellowish green they’re ripe and sweet and delicious.”

“The delivery came and we got one banana. Who buys just one banana?”

Despite the pandemic and the needs of her ageing mother, she still goes to the store because she doesn’t trust Amazon, Instacart or Walmart to get it right. “If someone brought me something that wasn’t ripe I would not be happy,” Yore says.

She’s not alone. Among those who use online grocery pickup services, only half include produce in their orders primarily due to concerns over quality, according to Field Agent, an industry researcher. Fresh food is the thing that consumers are most likely to buy in physical stores exclusively once the pandemic subsides, according to research from Evercore ISI. Items like bottled water, pet food and other bulky, non-perishable household staples have better prospects online, due to the hassle of lugging them out of stores.

Groceries are a critical battleground in the retail wars. Walmart started out selling only general merchandise but embraced groceries to lure shoppers into its stores regularly. Amazon has pushed into grocery over the past decade as a way to reach the delivery frequency needed to offset the billions it spends on shipping.

The pandemic poured rocket fuel on grocery delivery as stores curtailed hours and customer counts, and who cares when the truck shows up if we’re home all day? Even the founder of notorious dot-com flame-out Webvan is now back for another stab at the business.

Limited demand and the high cost of last-mile delivery serve as the main obstacles for successful online grocery ventures. It works in densely populated cities like New York because couriers there can make multiple deliveries per hour. The suburbs are much trickier, and volume is key to bringing the costs down.

Walmart, the nation’s biggest grocer, has largely avoided the unfavourable economics of home delivery by focusing on curbside pickup, now available at more than 3 600 of its 4 750 US stores. The free service appeals to suburban and rural consumers because they can schedule it when convenient, rather than being beholden to a random delivery window.

Despite Amazon’s dominance in e-commerce, fresh food is the one area where Walmart maintains a clear edge over its rival. More than half of purchases made on Walmart’s website were groceries in the first quarter, according to researcher M Science, up from 38% at the end of last year. Indeed, Walmart has been so successful with groceries that profit margins have suffered, so the company recently merged its food-shopping app with the main app so customers can put a few higher-margin non-food items in their carts next to the bananas and bread.

As retailers jostle, the next few months will be critical in assessing the lasting effects of the pandemic on shopping habits. Recent data is muddied by the stockpiling of late March and early April, as well as government stimulus checks that buttressed consumer spending as millions of jobs evaporated. Signs of strain are emerging: Shoppers used credit cards to pay for 46% of grocery transactions in April, up from 27% in December, suggesting people have less money to pay for basic needs, says Ted Rossman, an analyst at

The key question is the same as when Webvan went bust 20 years ago: Will there be sufficient demand to justify the costs?

“What drove the rapid increase in online grocery’s penetration? It was fear — fear of catching the virus,” says David Bishop, a partner at retail sales and marketing firm Brick Meets Click. “Anyone who is rooting for online to stay at this rate, unfortunately, is rooting for the virus.”

© 2020 Bloomberg


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Ordering for online pickup is a good middle-ground. One can get packaged goods without trudging through the aisles, but enter the shop to buy fresh produce.

My main concern with online retail is that it is clearly not profitable to deliver individual orders to customers, there is not many if any online retailers that are profitable. Even Amazon does not make its money from delivering its own inventory to clients, it makes its money mostly from listing other suppliers goods. Delivery is a loss leader.

This is nothing new. In our grandparents day retail was a delivery business. Gran would phone up the grocer, they would make up the order and the delivery guy would drop it off. That business model was destroyed by the likes of PnP that bought in bulk, got bulk discounts and sold it in in huge stores, cutting the logistical costs substantiually.

What I do not get about tech firms are that they tend to be staffed by hipster SJW’s yet they are some of the most unsustainable businesses out there, wreaking havoc on society and the environment. How is it good or sustainable for the environment to have thousands of delivery vans and scooters burning fossil fuels, poluting and clogging up our cities?

Amazon destroys small businesses and high street retail that are one of the last remaining ermployers of low skilled people globally. It is using predatory pricing, pricing below its cost of sale, to drive out the competion and establish a global monopoly.

I truely believe that capitalism and the free markets are the best way to uplift people out of poverty and to establish a peaceful and relatively just society. But true free markets requires robust competition and the likes of Amazon are taking the anti-competitive behaviour of Wallmnart (PnP and Shoprite at home) to new extremes.

Common sense will tell you that it is impossible thjat your free at home delivery of your groceries cheaper than what you can get at reatilers selling in bulk is impossible.

One should also consider the negative externalities of people losing their jobs, damage to the environment that in the end will become the cost of you the taxpayer. To add insult to injury the likes of Amazon hardly ever pay any tax in the area that they operate in, with clever tax planning they are all resident in tax havens.

End of comments.





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