The Future of Food: Digital Grocery Growth is Here to Stay
Ecommerce sales in the last 8 weeks have grown more than they have in the last 10 years. This growth has especially impacted verticals that sell essential goods for life in lockdown, like health products and athleisure. It makes sense that one of our most essential purchases, food, is experiencing growth too.
Evidence of a surge in online grocery shoppers emerged soon after lockdown began. In March, grocery delivery apps began seeing record numbers of daily downloads. Some, like Instacart, reported a download surge of up to 218%. And according to Coresight Research, nearly half of shoppers are buying more groceries online due to COVID-19.
It’s not difficult to understand why there’s been such a sudden demand for grocery pickup and delivery. Consumers have been motivated to buy their food online and have it delivered, because this minimizes risk of contact.
The initial surge in app downloads in the grocery industry hasn’t been a one-off. The high demand for grocery delivery has stayed consistent throughout the lockdown period. Business Insider Intelligence is forecasting that online grocery will see an increase in popularity and adoption among all generations, continuing its surge through to Q2 in 2020.
With groceries now claiming fame in the ecommerce space, it’s time to dig into how grocery ecommerce works. Read on to discover the different categories of grocery ecommerce, how they operate, and the challenges they face. Lastly, we’ll explore the future of food in ecommerce.
Breaking down the different types of online groceries.
Buying groceries online sounds straightforward, but when you take a closer look at online groceries, a few categories emerge. There are apps that connect you with a personal in-store shopper. Then there are direct to consumer food brands that often specialize in specific types of food or diets.
Each category of grocery ecommerce caters to different consumer needs, and uses a different approach to fulfill orders. Let's break them down
Meal kits and meal delivery
Meal kit and meal delivery is a subscription service business model. Businesses create weekly menus for consumers to choose from, and the meals are then delivered, pre-portioned.
Meal kits do not come fully cooked. Instead, the pre-portioned meals arrive as separated ingredients that are sometimes partially prepared. The consumer then cooks the meal using included instructions.
Meal kits are popular because of their convenience. The kits make meal preparation simple. There’s no need to think about what meal to make and there’s no need to shop for the ingredients.
Meal delivery services take convenience a step further by sending meals completely pre-cooked. Customers just have to heat the meal before eating.
So far in 2020, this category of online groceries has seen exponential growth. German company HelloFresh nearly doubled its American customer count in the first quarter of 2020, compared to 2019.
The meal kit category is all about simplicity and speed. But many consumers see added value in the ability to subscribe to services that align with their values or their diet. There are services that cater to specific needs like vegan eating, and others that focus on sustainable agriculture or organic foods.
For example, Sakara delivers meal kits that are nutrition-focused, use organic and ethically sourced ingredients, and are chef-crafted recipes.
Direct to consumer food brands
Direct to consumer (D2C) food brands sell their products directly to customers without third-party retailers, wholesalers, or other distributors. Some D2C brands will operate omnichannel, with both an online and brick-and-mortar stores, whereas others sell only through ecommerce.
One example of a D2C food brand is Wild Fork Foods. This food market has changed the way consumers buy meat by offering high quality, affordable meat and seafood. Their meats are sourced from slow feeding American farms, and blast frozen so the meat is delivered at peak freshness.
Wild Fork Foods' success can be attributed to the same benefits of D2C that other brands have identified. The D2C model allows brands to directly interact with, and listen to their customers.
With direct communication, D2C brands can respond quickly to customer concerns, and adjust products and offerings based on consumer feedback. These insights allow D2C brands to evolve their customer experience. They can build direct relationships with customers, and long lasting brand loyalty.
D2C for food brands also have the benefit of full control over how their products are merchandised and sold. They don’t leave it to a third-party retailer to decide how their products are displayed in a store. This, again, supports D2C brand’s ability to get to know and understand their customers.
More recently, PepsiCo launched two D2C websites where users can buy PepsiCo products for home delivery. This move signals this large retailer's recognition of how valuable direct to consumer ecommerce is.
Grocery delivery apps
Grocery delivery apps enable consumers to shop their grocery list online. An app employee then goes to the retailer to shop your order, and deliver it to your doorstep.
Grocery delivery apps are different from meal kits and D2C food brands because they sell a service instead of a product. The food purchased through the apps still comes from a traditional brick-and-mortar grocery store.
For the consumer, the path to purchase using grocery delivery apps feels similar to most ecommerce experiences. The user shops product pages and checks out with their order as they would with most ecommerce purchases. In this model, the physical grocery store functions as a warehouse for groceries that are shopped online.
Grocery delivery apps include a range of features like real-time order tracking, delivery scheduling, push notifications, and monthly shopping list reminders.
3rd party apps versus chain retailer apps
Apps like Instacart and Shipt are considered “3rd party” because they work in partnership with major brick-and-mortar grocery retailers. These apps use teams of local shoppers to handpick items during the retailer’s regular store hours.
Some major retailers, like Canadian grocer Metro, offer their own online grocery shopping apps. This allows them to own the online shopping channel themselves, rather than share that profit with a 3rd party. The apps offered by grocery retailers are comparable to 3rd party apps. They use a similar shopping interface, and offer the same features.
The demand for grocery delivery has remained consistently high since the start of the pandemic. According to the Coresight Research U.S. Online Grocery Survey 2020, this category stands to surge about 40% in 2020. With grocery delivery becoming more habitual as lockdown continues, it’s predicted that delivery apps will continue to grow in popularity.
The demand for grocery ecommerce has revealed challenges.
But, the rise of online groceries has come with some challenges. The sudden onset of lockdown and social distancing measures made the growth of these online grocery sales channels happen very abruptly. For many large scale food retailers, the pandemic highlights the limits of store-based online fulfillment.
Chain retailers like Metro offer both online and brick-and-mortar stores. This makes it more challenging to provide accurate information about what is in stock when a customer places an order.
Large retailers face further challenges because depending on retail floors to fill orders is a difficult model to scale. Large grocery stores aren’t optimized for pick-and-pack order fulfillment. They have thousands of SKUs spread across a store, a design intended for in-store shopping. An employee tasked with fulfilling online orders will be slower than they would be in an optimized fulfillment warehouse.
Grocery delivery apps have faced challenges with the sudden volume of users. Instacart has actively hired more workers in an attempt to reduce wait times for online grocery delivery.
Instacart also added a “fast and flexible” feature. It allows customers to choose to have their order delivered by the first available shopper instead of selecting a specific delivery window.
With demand for grocery delivery apps so high, grocery delivery apps and grocers are facing challenges in fulfilling orders. Because of this, some consumers are looking elsewhere for their groceries. Consumers are becoming more aware of local and online businesses that offer food delivery. This spike in brand awareness is benefitting D2C and meal kit delivery brands.
It’s simple and speedy to order your fish from Wild Fork Foods, or a week’s worth of healthy meal kits from Sakara. This convenience is attractive to consumers who want to minimize contact by avoiding brick-and-mortar stores, or for those who don’t want to compete for a slot to have groceries delivered.
The pandemic has driven consumers to broaden their grocery shopping habits and diversify where they buy from. Shoppers were originally motivated by lockdown to experiment with diversifying their grocery shopping. Now, they’re building shopping habits that are likely stick around, especially if D2C and meal kit brands take this opportunity to build customer loyalty and trust.
The future of food: Are online groceries here to stay?
Before lockdown measures began, FMI and Nielsen had updated their predictions on online grocery sales. In 2017, they predicted that grocery ecommerce sales would grow to $100 billion by 2025. Now, they’ve updated their prediction to $143 billion by 2025.
This prediction might grow even more because of the momentum grocery ecommerce has gained in the last two months.
The online groceries surge in demand may have been driven by the sudden stay-at-home measures brought on by the pandemic, but that doesn’t mean the grocery ecommerce trend isn’t here to stay.
Demographics of consumers who may have previously been resistant to online shopping are now trying it out because of necessity. This experimentation will help with the development of a new habit, which will keep these consumers hooked on grocery ecommerce.
We'll see a continued increase in adoption from all generations. This includes Baby Boomers, who have previously been slow to buy groceries online.
This sudden willingness to adopt grocery ecommerce reflects the digital transformation that is reshaping retail. As more and more consumers make online grocery shopping a habit, the more growth we will see in this ecommerce space.
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