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Why Supermarkets Are Increasingly Going Online

grocery stores thumbnail Supermarkets have long been the primary source for a constant and necessary component of consumers’ everyday lives: food. Whether it is running in quickly for a gallon of milk after work or spending an entire Saturday morning checking off a grocery list, supermarkets are the go-to spot for a wide variety of food and beverage needs. Driven primarily by increasing per capita disposable income and consumer trends toward premium, organic and all-natural products, the Supermarkets and Grocery Stores industry is expected to grow over the five years to 2017. Overall, industry revenue is expected to increase at an annualized rate of 0.9% to total $607.9 billion.

However, while the industry exhibited overall growth for the better part of a decade, supermarkets and grocery stores have experienced increasing competition from several other sources, most notably online grocery stores. While the industry’s largest operators, including Kroger Co., Albertsons Companies LLC and Publix Super Markets Inc., have experienced strong growth over the period, benefiting from their size and reputation, many smaller operators have struggled to compete with these online and alternative retailers. As a result, the number of industry operators is expected to grow marginally, totaling 42,205 companies in 2017.

To remain competitive, traditional brick-and-mortar operators in the industry have begun to enter the online space. Supermarket giant Kroger now offers online shopping and delivery in Arkansas, Indiana, Kentucky, Michigan, Mississippi, Ohio, Tennessee, Texas and Virginia.  However, the online sale of groceries is not included in the Supermarkets and Grocery Stores industry, and therefore does not affect industry revenue. Other companies have attempted to incorporate technology by offering digital-only coupons available via smartphone apps to consumers. However, while these tools may incentivize consumers to shop in-store rather than online, they fail to provide the perks that online shopping offers consumers.

grocery stores revenue graph

Online grocery shopping

Online shopping, no matter what it may be for, offers consumers a convenience that brick-and-mortar stores cannot provide: the ability to make purchases from the comfort of their own home. Time-crunched consumers can find salvation in the ability to order their groceries directly from their computer or smartphone and have them delivered right to their door, sometimes on the same day that the order is placed. However, some products such as fresh meats and cheeses are more difficult for online operators to deliver; moreover, consumers may prefer to see these types of products in person before purchasing them, a service online operators cannot provide, driving shoppers to brick-and-mortar supermarkets and grocery stores.

In 2015, according to data company Nielsen, 30.0% of millennials were already ordering their groceries online and having them delivered to their home. This was followed closely by Generation Z at 28.0% and Generation X at 22.0%. Overall, the Online Grocery Sales industry is expected to increase at a strong annualized rate of 10.1% over the five years to 2017, to reach $13.5 billion. While a single operator, Peapod, holds more than 5.0% market share of the Online Grocery Sales industry, Fresh Direct and AmazonFresh follow close behind with 4.9% and 2.2%, respectively. As more companies are attracted to this growing industry, the number of industry operators is expected to increase at an annualized rate of 5.3%, totaling 2,584 companies in 2017.

grocery stores establishments graphOutlook

While the Supermarkets and Grocery Stores industry is currently nearly 45 times the size of the Online Grocery Sales industry, these e-tailers will continue to put pressure on brick-and-mortar stores. Over the five years to 2022, the Supermarkets and Grocery Stores industry is expected to grow at a stronger annualized rate of 1.1% to reach $642.4 billion in 2022. With more disposable income in hand, consumers are expected to continue seeking healthier, all-natural and organic products, benefiting industry revenue. However, the Online Grocery Sales industry is expected to grow at an annualized rate of 6.7% to $18.6 billion in 2022, benefiting from a low unemployment rate and an increase in internet usage. As the unemployment rate continues to decline, more consumers will be strapped for time and potentially more willing to do their shopping online. Furthermore, per capita disposable income is also expected to grow, enabling more consumers to afford the delivery and shopping fees often associated with online grocery shopping.

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