Brick Meets Click: Online grocery shoppers focus on pricing as sales dip 10% in November
However, sales dipped only 2% from the $7.8bn reported for the previous two months, suggesting that online sales may have leveled out after Covid-era highs, and remain significantly higher than they were pre-pandemic.
“Customers still predominantly shop in-store, but online is becoming a larger part of it and continues to stay significantly higher than what we saw before the pandemic,” David Bishop, partner at Brick Meets Click, told FoodNavigator-USA.
Consumers are looking to stretch their dollars as purchasing power has dropped. They’re making choices about what’s important to them, he explained, pointing to customers with health-related concerns staying on with online grocery shopping given an increase in respiratory viruses.
“But if they don't have that concern and they're feeling a little more pinching in the wallet, then it could be the motivation to either move over to a value channel like Mass where Walmart plays, or just simply go back to shopping in store,” Bishop explained.
Fewer households buying groceries online, lower order frequency and constrained spending per order all contributed to the online grocery sales declines.
According to the survey, the number of households ordering groceries online using delivery, pickup or ship-to-home options dipped 7% in November compared with November 2021, attributed to a “dramatic drop” among consumers ages 60+ and a “significant slide” among 30-44-year-olds.
Delivery orders are those received through first- or third-party providers such as Instacart, Shipt or a retailer’s own employees, while pickup orders are received by consumers inside or outside a store or at a designated locker/location. Ship-to-Home orders are those delivered by legacy contract carriers such as FedEx and UPS.
Grocery monthly average user base sales contracted 5%, while Mass base sales advanced 6%, attributed to customers who place a high importance on cost and “seek to avoid unnecessary spending.”
“This increased focus on cost may be influencing where and how Grocery’s customers receive online orders and motivating some of them to shift trips to Mass – especially those who already shop online with both formats,” Brick Meets Click says.
In November, overall total grocery spending declined 5% from the same month in 2021. With online sales dropping at twice that rate, the share of online’s total grocery sales contracted more than three points to reach 10.1% for the month.
The Brick Meets Click/Mercatus Grocery Shopping Survey is an ongoing independent research initiative created and conducted by Brick Meets Click and sponsored by Mercatus. Brick Meets Click surveyed 1,749 adults who participated in their household’s grocery shopping 29-30 November.
Online sales stable in pandemic’s wake
When the pandemic began in 2020, online grocery sales skyrocketed as consumers stayed home, Bishop explained.
Online sales dipped in mid-2021 and began to recede, but are still running at a rate that’s three-to-four times higher compared with pre-Covid.
The higher elevated base is relatively stable, despite monthly fluctuations, he said.
“It has just shown that this mass adoption or trial, if you will, that was really triggered or motivated by Covid, has shifted up a fair amount of spending online.”
Online spending comprises approximately 10% of total grocery sales today, which is considerably higher than pre-pandemic levels of between 2-3%.
“We recognize that customers still predominantly shop in-store, but online is becoming a larger part of it and continues to stay significantly higher than what we saw before the pandemic,” he added.
Moderate growth on the horizon
According to Bishop, approximately 50% of consumer households buy grocery items online once a month or more, ranging from a single box of cookies shipped to their house to a whole basket of goods for home delivery or pickup.
Looking ahead, “we expect there to be growth, although the growth will moderate back considerably versus what we've experienced over the last two years,” he said.
Growth rates will be comparable to what had been projected prior to the pandemic, and much of that growth will come from consumers who tried online shopping during Covid.
However, inflation and economic uncertainties may also have an impact.
Conventional grocers such as Kroger and Albertsons are “going to have to execute more effectively their online or omnichannel strategies,” Bishop advised.
Meanwhile, mass retailers like Walmart and Target likely will continue to thrive, he predicted.
Pricing sensitivity more than just product costs
Conventional grocers are facing pain points from consumers’ increased sensitivity to pricing, specifically the cost of shopping online.
For instance, not only are customers seeing increases in product prices, but also in costs associated with using online services such as extra charges, standard fees and tips.
Online service prices “are where customers are becoming more aware and sensitive to the differences that they experience when they shop in one channel like mass versus what they experience when they're shopping in the grocery channel,” Bishop said.
In addition, all online grocery retailers are feeling pressure to deliver products customers want “in the desired state that they want when they want them.”
For instance, if customers order frozen ice cream, they expect that it’s delivered frozen, and if they order broccoli, they expect it to be fresh and crisp and not delivered wilted and limp.
“This starts to play out in how they execute their strategies as well as then looking at how they refine the cost aspects of the service to potentially make it more appealing to the customer, but also create some internal operational efficiencies that allow them to lower their costs,” he said.
It can become a “win-win” for both customers and retailers, Bishop concluded.