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Online groceries accelerate market share gains as pandemic upends US shopping

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A sign advertises Amazon Prime grocery pickup at a Whole Foods Market grocery store in San Ramon, Calif.
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Online grocery shopping is making faster-than-expected market share gains, as retailers such as Amazon.com Inc. and Walmart Inc. ramp up offerings in response to a COVID-19-fueled jump in demand.

Online grocery is projected to account for 11.1% of total U.S. grocery sales in 2022, up from expectations of 6.8% prior to the pandemic, according to the latest forecast by Mercatus, an e-commerce grocery platform. By 2026, online sales are expected to account for 20.5% of the grocery total.

The arrival of the omicron variant helped to push December sales to $8.9 billion — a 33% jump from July, according to Brick Meets Click and Mercatus. Retailers have added services to ease adoption, including one-hour grocery pickup for Amazon Prime members at Whole Foods Market Inc. stores, unlimited free delivery for Walmart+ subscribers, and the addition of fresh and frozen items to Target Corp.’s Drive Up pick up service.

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There will be “choppiness in demand” this year, with online grocery sales moderating by spring as omicron-driven infections wane and potentially surging again later this year if new waves of infection occur, said Lydia Boussour, lead U.S. economist for Oxford Economics.

“We’ve seen that e-commerce and online grocery have tended to be strong with renewed waves of COVID infections,” Boussour said. “The virus will continue to drive spending patterns in the near term.”

Retailers’ response

Instacart, which offers home delivers from a variety of stores, said it expects demand to remain robust in 2022 due to changes in consumer behavior and grocery-industry adaption.

There has been ” increasing activity from COVID in the last few weeks,” the company said in an emailed statement to S&P Global Market Intelligence.

Instacart and Target’s Shipt service both saw increases in first-time downloads of their grocery delivery apps in December 2021 compared to November, according to data from Apptopia. Data on grocery-specific app downloads for Amazon and Walmart was not available.

Amazon and Walmart did not respond to inquiries for this story.

Consumers have “learned how to order groceries online, and for retailers, they’ve invested to expand capacity,” said Arun Sundaram, who covers Walmart and Target as a senior equity research analyst at CFRA.

Price points

Some grocery shoppers indicated a willingness to pay more for the convenience of online ordering and quick pick-up options, according to a 451 Research survey conducted in the third quarter of 2021.

Roughly 22% of respondents who shopped for groceries in-store over a 12-month period indicated they would be willing to pay moderately or slightly higher prices per item if grocery stores enabled online, pickup in-store, buy in-store and ship-to-home options, according to the survey. That is a particularly significant finding given that most consumers today are concerned about inflation, said Sheryl Kingstone, head of Customer Experience & Commerce at 451.

Another 37% of the 451 survey respondents indicated an interest in digitally driven grocery ordering and pickup options, provided there was no cost increase.

Some U.S. grocers that charged for online ordering and quick pick-up options waived those fees during the pandemic. Whether the fees return, or whether stores otherwise consider charging more for online grocery delivery services, will hinge largely on companies’ ability to improve the quality of the customer experience, CFRA’s Sundaram said. That might include shortening delivery times, expanding items eligible for online ordering, or ensuring safe delivery of highly perishable goods such as fruits and vegetables, the analyst said.

Limited items and concerns about perishable goods have “deterred many consumers from adopting online grocery shopping,” Sundaram said.

451 Research is part of S&P Global Market Intelligence.

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