The Online Grocery Opportunity for Retailers and Consumer Packaged Goods Companies

More than one-third of primary grocery shoppers purchased groceries online in the past 12 months

Randy Burt
Randy Burt

After years of promise fueled by stellar growth in European markets, but limited success here in the U.S., online grocery is finally reaching an inflection point: American shoppers are finally warming to buying food and beverages online.

A.T. Kearney undertook a study of online grocery in the United States to understand who is shopping online, analyze online shopping preferences and find strategic recommendations for grocery retailers. Based on a recent survey of primary household grocery shoppers, 90 percent of whom are female and 34 percent of whom live in urban areas, the study showed that this is a market poised for dramatic growth—and one in which retailers have a prime opportunity to delight customers and improve their bottom line.

The Findings

Growth. Online grocery spending across categories is going up. More than one-third of primary grocery shoppers purchased groceries online in the past 12 months, fueled by urban dwellers, Millennials and those earning more than $75,000 per year. An overall increase in online grocery use crosses all age groups, income levels and regions. People who said they bought groceries online in the past year include:

  • 37 percent of buyers in the 25- to 34-year-old age group.
  • 25 percent of shoppers 65 years old and older.
  • 41 percent of urban dwellers.
  • 22 percent of people earning more than $75,000.

Online grocery is one of the largest sources of growth for retailers and consumer product manufacturers alike, with growth of 15 to 18 percent expected over the next decade—bringing it to a 12 to 16 percent share of the total market.

Changing Channels

Online shoppers use both websites and apps to shop for groceries, with some increased activity on social media as it becomes more available. However, among older shoppers, websites continue to be the focus, while apps and social media are less popular. That said, as smartphone adoption continues to accelerate, mobile and social will likely play increasingly important roles in online grocery.

Consumers Say One Thing, Buy Another

Nearly two-thirds of respondents said they would buy more groceries online if they could guarantee the quality and freshness of products; 58 percent said that prices that better compete with those in stores, and free or low-cost delivery would also drive online buying. As a result, the most popular online categories are non-perishables: personal care, beauty, packaged foods and baby food.

But as one online grocery delivery service exec noted, “Customer perception and customer action are different things. Customers believe they shouldn't be buying perishables online due to freshness, but they actually do. Perishables are among our top-performing categories.” As shoppers gain experience and confidence buying food online, and retailers continue to improve their capabilities, the food market’s existing barriers will continue to erode.

In a related vein, the study showed that shoppers want value, but will pay for convenience. Many customers said they still avoid online grocery because of a perception that costs are higher; they want savings—71 percent of respondents want coupons, 67 percent want price comparison between stores and other sites, and 65 percent want loyalty programs.

At the same time, they want convenience and speed. Nearly two-thirds of respondents said they would shop more online if they were offered convenient checkout and had the ability to quickly reorder items. Furthermore, 80 percent of respondents said they are willing to pay for home delivery instead of going to the store for pickup—particularly when it comes to same-day service—even as the majority still are visiting the store to shop.

Analysis: The Online Grocery Opportunity

Overall findings of the study indicate that as e-commerce becomes the central growth opportunity in North American food retail, winning over tech-savvy consumers will depend on meeting logistical challenges of online food sales, and gaining an understanding of customer needs and desires. While pure-play online retailers currently have an edge with their business flexibility and speed to market, a physical presence remains crucial for connecting with most customers.

Traditional food retailers can take advantage of their existing assets as they build out their digital capabilities and enhance their online offering, while consumer products manufacturers will need to develop online-specific strategies and tactics to capture growth and share. But one thing seems sure: The star of online grocery is rising.

See more on the study here.

Randy Burt is a partner in the Chicago office of A.T. Kearney, a global strategy and management consulting firm, and an expert in food retail, merchandising and supply chain. He can be reached at randy.burt@atkearney.com

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