Online Grocery Growth Isn’t Stopping Yet

Though most food purchases occur offline, e-commerce sales are higher than pre-pandemic and expanding.

March 15, 2022

Groceries Delivered to Your Front Door

ALEXANDRIA, Va.—Online sales of groceries soared during 2020 when shelter-at-home orders were prevalent, and while online grocery sales continue to grow, the rate is much slower, according a Forrester report fueled by IRI data.

Food as a percentage of e-commerce is now bigger than ever, comprising 37% today versus 26% pre-pandemic; however, for the majority of grocery categories, most sales still occur offline. All of the food categories that IRI tracks have single- or low-double-digit percentages of sales transacted online, and three categories—frozen food, health and beauty—actually declined in online penetration since their peak during the pandemic.

Forrester estimates that 15% of all online grocery sales are click-and-collect orders, up slightly from 13% in the fourth quarter of 2020. According to the research, edible items tend to be purchased at Walmart and are more likely to be ordered by click-and-collect. Walmart’s pickup and delivery capacity grew 20% last year, and the big box retailer plans a 35% increase this year. In 2021, Walmart lifted the number of orders coming from its stores by 170%.

Walmart says it’s delivering convenience to customers through its Walmart InHome service, which transports customers’ purchases straight into their kitchen or garage refrigerator, as well as picking up returns. It’s now scaling the service to 30 million U.S. homes, up from six million, and hiring 3,000 additional associates to captain an electric fleet of delivery vehicles.

Smaller grocers have seen substantial gains throughout the pandemic, particularly for perishable items. These stores already captured 55% of all online edible perishable sales before the pandemic and now capture 65% of those same sales. Nonedible items tend to be delivered to consumer addresses via delivery vans with 62% of nonedible items being purchased from Amazon.

Supply chain issues and inflation have led shoppers to seek to lower their food costs, and many have turned to private labels. Thirty-seven percent of U.S. online adults responding to a November 2021 Forrester survey said they were buying more private-label brands. Store brands’ annual dollar volume increased by $1.9 billion in 2021, setting a new record of $199 billion in sales in all U.S. retailing channels, according to PLMA’s 2022 Private Label Report.

(A category deep dive at the 2022 NACS State of the Industry Summit will cover private-label performance in the convenience retail channel. Register today.)

Forrester says the challenges that online grocers now face are higher prices for food and consumers’ concern over how much they’re spending on food. Food prices are up 1%, and food at home jumped 1.4%, both the fastest monthly gains since April 2020m with dollar stores showing the largest increase in grocery prices. Grocery prices in the dollar channel are up 14.3% compared with a year ago and up 22.5% versus two years ago.

With inflation up 7.9% over the past 12 months and gas prices at record highs, Gen Z is feeling the impacts of inflation more so than older generations. Millennials, Gen X and boomers are paying prices roughly 11.3% higher than a year ago, while Gen Z consumers are facing an increase of 13.5%.

Consumers and businesses alike will need to adapt, with Janet Yellen, U.S. Treasury secretary, saying “very uncomfortably high” inflation will persist all year. The U.S. Federal Reserve is expected to begin increases in interest rates, which would boost the dollar and put downward pressure on oil prices, reports Reuters.

Reuters also reports that the U.S. economy may have room for the added pressure of inflation and high gas prices, saying that growth entering 2022 was strong.

"The U.S. has become less sensitive to energy shocks," with a steady decline in the share of income spent on energy, Bank of America economists wrote in a note. "With Omicron cases fading, the reopening of the service sector has resumed ... Excess savings built up over the last two years can fund this rebound."