The Future is Now for Online Grocery Due to COVID-19
The grocery industry may be booming right now, but it’s also an overwhelming environment due to the dramatic effects of the COVID-19 pandemic, many of which remain to be seen. An increase in sales comes at the expense of scrambling to manage inventory, ensure sufficient staffing, follow health and safety protocols, and accommodate a surge in online grocery ordering.
Essentially, the timeline that grocers thought they may have had to handle the growing demand for online grocery orders has been dramatically condensed, and now they must make quick decisions to fulfill demand.
These decisions don’t need to be blind guesses, however. Based on what we’ve been seeing in the industry over the last few years as to what works well for fulfilling online grocery orders, there are steps grocers can take both immediately and over the next several months to fulfill orders efficiently and profitably.
Breaking the 10% Threshold
Before this crisis occurred, online grocery was still trending significantly upward.
Among major retailers, including Ahold Delhaize, Albertsons, Amazon.com/Whole Foods, Kroger, Target, and Walmart, the number of stores offering same-day delivery grew by nearly 50 percent from the beginning of 2019 to the end of the year, through a combination of company-managed services and third-party platforms like Instacart.
Furthermore, the number of these stores offering curbside pickup, combined with Instacart pickup locations, nearly doubled over this period, according to company data we analyzed at Fabric, as cited in our recent grocery report.
On the demand side, Deutsche Bank recently (but before the pandemic) projected a compound annual growth rate (CAGR) of 28.2 percent for online grocery vs. a 2.5 percent CAGR for total grocery sales. That would have led to online grocery’s share of the total grocery market breaking 10 percent by 2024.
But with these supply channels already in place and urgent demand, we now expect online grocery sales to cross 10 percent as soon as this year.
No Turning Back
While it’s unclear exactly what the grocery landscape will look like after the crisis, there’s good reason to believe that online grocery demand will continue to grow. There may be some temporary regression toward the mean as life gets back to normal, but in the long run, online grocery will expand.
That’s because once consumers get a taste of how convenient online grocery can be, many will want to continue to use these services, especially as grocers get better at quickly fulfilling orders.
This type of paradigm shift has occurred following past crises, too. For example, the 2003 SARS outbreak, as the South China Morning Post reports, helped spark the growth of two startups at the time — JD.com and Alibaba’s Taobao — which today remain e-commerce giants in China.
And after the Sept. 11, 2001, terrorist attacks in the U.S., many businesses changed their approach to IT backups and business continuity plans, as PC World reports.
These types of events can force businesses to quickly adapt, and grocers have to do the same in the coming months so that they’re not always scrambling to fulfill online orders.
Simplifying Online Fulfillment
For grocers to keep their heads above the water during this crisis and beyond, they should take three key steps: an immediate one, a near-term one, and a long-term one. These include:
Improving manual fulfillment efficiency
For grocers trying to fulfill online orders by having employees shop throughout the store to pack orders, it’s important to realize this is an unsustainable strategy. In fact, every delivery fulfilled by manual, in-store picking causes retailers to lose over $10 on each transaction, according to Jefferies.
In the short term, grocers can enhance their manual picking efficiency through improvements such as having employees pick by zone. Grocers can also increase efficiency by pre-portioning counter goods like deli meat in half-pound increments and then listing these portions for sale online, rather than having to cut varying amounts for each online order.
Taking control of fulfillment
Using a third-party fulfillment service like Instacart might seem easier than managing fulfillment in-house, but grocers still generally lose money on these transactions while giving up control of valuable customer and vendor relationships.
Furthermore, having these third-party shoppers in your store can ruin customer experience, especially at a time like this when people want to get in and out quickly, rather than waiting for shoppers to check every item off on their phones and taking pictures for customers. Even before this crisis, one-third of consumers noticed a negative impact on the in-store experience due to manual pickers, according to our survey.
So as soon as possible, grocers should switch to fulfilling these orders on their own, even if it means hiring more workers to help with fulfillment.
Using automated solutions
As grocers bring fulfillment in-house, they can also use automated solutions to increase efficiency. For example, micro-fulfillment centers can go live in a matter of months rather than years. Plus, they can significantly improve efficiency and cost effectiveness by leveraging existing real estate that’s located close to end consumers, thus mitigating the slow and costly last mile, while automating fulfillment.
Grocers that can start to implement these solutions over the coming months will be well-positioned to capture market share once this crisis ends, as many consumers will still want to shop online.
In addition, those that can improve online fulfillment and take control of their own services can increase the standing of their overall brands and improve the in-store experience, which is key because in-store shopping isn’t going away either. Instead, we’re entering a new era of grocery, one where stores serve an increasingly experiential purpose, while those who primarily want convenience will continue to order online.
Steve Hornyak is chief commercial officer at Fabric, formerly CommonSense Robotics, which is a logistics platform that makes on-demand fulfillment possible, profitable, and sustainable for retailers while powering every retailer's unique offering.