Online grocery sales’ decline demonstrates volatile market

Two bags of groceries on the floor with apples, bananas and bagels showing.

Written by James Shea

In May, online grocery sales slipped to their lowest level in a year, falling to $7 billion, according to the Brick Meets Click/Mercatus Grocery Shopping Survey.

Bricks Meets Click co-founder Bill Bishop said the decline in online grocery shopping is to be expected because more people are vaccinated and returning to stores.  The data, however, does not mean a fundamental shift back to the pre-pandemic way of shopping, because a large number of people have permanently embraced online shopping.

Over the last year, millions of people have enjoyed the convenience of shopping online and getting groceries either delivered or doing curbside pickup, Bishop said. The experience saves people time and makes shopping easier, but right now a lot of people are enjoying the newfound freedom.

“People are absolutely obsessed with sort of opening up and going places today,” Bishop said.

Last April, online grocery sales recorded $7.2 billion in transactions and began a steady increase as the pandemic and lockdown took hold. Online grocery sales peaked at $9.3 billion in January and February of this year. but declined in April and May.

Despite the decline in sales, the survey found that a fewer number of buyers were more engaged with grocery stores. The survey also found that most shoppers were using either pickup or delivery but not both.

Bishop said customer behavior is volatile right now. It is hard to read too much into monthly fluctuations because the dynamics are changing quickly. Online grocery sales dropped to $8 billion in February of this year but reached $9.3 billion in March. And year-over-year numbers are hard to compare because customers last year were buying in huge volumes, especially toilet paper and other non-perishable items.

“I hate to use the word noise, but it’s a very slow statistical variance,” Bishop said. “You’ve got variance in the sample and variance and people’s behavior.”

The other drastic change is the number of new players in the market. Everyone is offering online groceries. Groceries like Aldi and others have entered the online shopping arena. As well, the new speed-based delivery services like Go Puff and Gorillas have entered the market. People have more choices for online grocery purchases than a year ago.

Despite the monthly changes, Bishop sees an overall trend toward digital purchases, not just in the grocery industry. Customers prefer getting their entertainment through digital streaming and purchasing clothes and other goods through e-commerce. Online grocery shopping is just part of a larger transformation of the economy.

“Everything is going digital,” Bishop said. “The rate of change will vary. And for a long period of time, it didn’t look like grocery stores would be going digital. But now it’s very evident, (customers) like the convenience factor of doing online shopping to the point where you can skip a complete trip to the store. And don’t forget, the majority of people don’t really want to shop.”

Bishop does see some differentiation between curbside and pickup. He thinks fewer people are willing to pay for delivery and prefer pickup. People like the convenience of having someone else do the shopping but are not willing to pay for the added cost of delivery. Still, delivery is up 40%.

In May, the survey showed $1.7 billion of grocery sales were shipped directly to the home and $5.3 billion were either delivery or pickup. The survey showed the 30% of active users only used pickup and 17% had groceries delivered.

The key for grocery stores to grow online sales is getting the customer to make the first order, Bishop said. Once the system understands the basic items a customer shops for regularly — eggs, milk, bread and so on — it becomes easier for the customer to place the next order. Bishop said a huge number of people made the transition and more and more people are doing it every day.

But the system is not perfect. Many grocery stores have a hard time tracking inventory and keeping it updated in real-time. That is why people often have items replaced for an online order, something that can lower customer satisfaction, but the industry is investing and improving that process, Bishop said.

“Very often you might have, you know, some really wonderful slices of beef in your store that you’ll never see online,” Bishop said. “So you have the need to actually update the data on the system. And the retailers are equipped and organized to do that.”

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