Just a handful of years ago, American society became trusting enough to use our credit cards for online transactions. Quickly making retail purchases online became a rote activity, and its meteoric rise led to retail e-commerce spending of $99B in Q4 2017 with no sign of slowing down.

The next big injection in e-commerce dollars will come from online grocery shopping. Let’s look at the state of the industry, who’s getting it right, and what the implications are for regional (and frankly, any smaller-than-Walmart) grocers.

Online Grocery Sales On the Rise

Analysts expect online sales to account for 20% of grocery purchases by 2025, meaning that a full fifth of the grocery purchases in the country will take place without a store visit. As consumers become more comfortable with online grocery shopping, demand will increase, driving the innovation needed for online success to become a feature-complete sales channel for grocery. Profitable delivery of fresh produce and frozen goods is one challenge in need of mastery.

That being said, millions in America have shifted at least some of their grocery purchase online, and the bulk of those purchases are made through Amazon and Walmart’s online storefronts.

A Few Dominant Companies are Driving Most of the Increase

Amazon grabbed a staggering 18% of the online grocery market in 2017 compared to Walmart’s 9%. These two giants were the largest players in the space, with Amazon up almost $200MM (50%) year over year.

Amazon’s performance is driven both by its 2017 acquisition of consumer stalwart Whole Foods, a trusted company with a high-performing portfolio of grocery brands, and its Prime membership program, whose subscriber volume was recently divulged at 100M. Amazon has simply made it very easy to get quality groceries delivered directly.

Walmart, although lagging Amazon in sales volume, has some unique things going for it. Walmart has been the grocery store of choice for millions of American families, in some cases for generations, and this seems reflected in the nature of its online sales. Walmart has a higher percentage of shoppers who buy a complete basket of groceries (compared to a grocery item here or there, which is typical of Amazon’s grocery cart). Walmart will certainly be focused on driving additional per-customer volume, and its “Suggestions” page near the end of the checkout process is but one means to that end.

Kroger’s Online Sales Surging

Holding their own against the titans is Cincinnati-based Kroger, whose online grocery sales jumped 66% year over year. Analytics and Kroger executives alike credit the increase to a spate of forward-looking initiatives, including investments in organic foods, price reduction, meal kits a-la Blue Apron, and development and optimization of the company’s online storefront.

How Can Other Grocers Seize This Opportunity?

In the face of Kroger’s aggressive drive to compete, what can regional grocers do to grab their share of the grocery e-commerce pie? We looked to our decades of experience working with grocers and to business+strategy for guidance.

  • Leverage supply chain entrants.
    • Grocers can take advantage of the booming demand for home delivery by arranging with third party services like Instacart and Shipt. The percentage take these companies require may sting at first glance, but grocers and restaurants alike have realized mutually beneficial relationships with such companies. This would be a good plan A while developing a company’s own integrated delivery capabilities.
  • Master the technology.
    • Kroger knew that Amazon had a well-oiled sales machine in its online storefront, and made its own investments in that same area. Any grocer looking to gain market share should have a top-notch digital experience ready for customers across all devices and touchpoints, and their staff should be masters of using and teaching these new systems.
  • Take customer relationships to the next level.
    • In concert with an easy-to-use storefront, grocers must become master digital marketers, providing the right promotional messages to the right customers at the right time. Smaller chains have in-built loyalty from generational shoppers—they should work to enhance that value by segmenting their customer bases and providing relevant incentives to shop online. Pioneering grocers will use predictive analytics to forecast an individual shopper’s upcoming needs, select the right media, craft a message, and show a tailored price, all down to the family and even the individual level.

Only Just Beginning

The time when Americans buy most of their groceries online is inevitable. Smaller grocers should already be planning their moves to keep their businesses growing. The smartest grocers see this upcoming slipstream for what it is and are becoming poised to overtake their competitors via digital channels. Is your company ready for the next sea change the internet has brought to bear? Costa Solutions is constantly investing in and evolving our business to provide warehouse and inbound freight support no matter what form it takes in the future.