Online Grocery’s Future Depends on Its Premium Past

Whole Foods Market’s new delivery surcharge won’t scare away online grocery’s core consumers even though orders have flattened this year, writes food and beverage analyst Emily Moquin, as the service leans into its benefit-driven audience

Getty Images / Morning Consult artwork by Ashley Berry

With average monthly online grocery orders flattening throughout 2021, the future growth of online grocery shopping will depend on targeting specific consumer segments and leaning into the premium benefits of the service. 

The future of online grocery depends on shifting back to being more of a premium service.

While the COVID-19 pandemic accelerated the adoption of online grocery shopping among everyday consumers, along with its investment among retailers, growth is now leveling off.

Who’s Ordering Online Groceries Most Frequently

Average monthly online grocery orders

Polls conducted monthly during the first week following the last day of the reference month, among a representative sample of roughly 2,200 U.S. adults each, with margins of error of +/-2%. Estimated monthly frequencies for each category were calculated as the weighted average of midpoints for each response option bucket identifying various monthly frequency levels.

Morning Consult’s October U.S. Consumer Spending report shows that average monthly online grocery orders among all U.S. adults were flat through September 2021, while in-person grocery shopping widened its lead. The groups reporting the highest average monthly online grocery orders are those that were part of the service’s more premium origin story: urban residents, millennials and high-income consumers. 

Those are key consumer groups for Whole Foods Market, which on Oct. 25 rolled out its $9.95 delivery surcharge for online grocery delivery nationwide. The two-hour delivery service was previously free for Amazon.com Inc. members who placed orders of $35 or more. Grocery is a notoriously low-margin retail category, making free delivery difficult to sustain in the long run.

Average monthly orders dipped among all consumers in the summer months, likely driven by summer vacations and elevated comfort levels with dining out. However, it is likely orders will pick up heading into the final months of the year due to the holiday season.

Urban Residents, Millennials and High-Income Adults Lead the Pack in Online Grocery Orders

Average monthly online grocery orders by community, generation and income level

Polls conducted monthly during the first week following the last day of the reference month, among a representative sample of roughly 2,200 U.S. adults each, with margins of error of +/-2%, with margins of error of up to 7% for responses shown. Estimated monthly frequencies for each category were calculated as the weighted average of midpoints for each response option bucket identifying various monthly frequency levels.

City residents, millennials and those with high incomes rely on online grocery for practical reasons and are willing to pay premium fees as a result. Before the pandemic, online grocery shopping already had a strong foothold with urbanites thanks to the realities of life without a car or a nearby grocery store. For millennials, reliance on digital channels plays a factor, but they are also in a busy, often family- or career-centered life stage, where the convenience of online grocery shopping wins out over in-store visits regardless of fees. And high-income consumers are less likely to be swayed by the costs of shopping services or delivery fees, and may even view these as reasonable trade-offs for their time. 

Amazon’s entry into online grocery forced big players such as Walmart Inc. to invest in their offerings in order to protect their market share when e-commerce in grocery started to grow. Those retailer investments accelerated during the pandemic, which brought in safety-minded consumers. Now, as growth of online orders flattens and in-store visits increase — and with the addition of Whole Foods’ delivery fee — it looks like the future of online grocery growth will once again depend on these key consumer groups.  

 

Sources:

U.S. Consumer Spending and Personal Finances Survey

The consumer spending and personal finances survey is intended to gauge consumers’ spending patterns and the health of household balance sheets. It typically acts as a leading indicator for credit card payments and retail sales, as well as providing insight into spending allocation well ahead of other data sources. Respondents are asked recurring questions on topics including household income, spending, savings, debt, housing payments and life events. Policy-related questions on respondents’ experiences with government programs such as stimulus payments or child tax credit distribution are included on an ad-hoc basis. The survey is conducted monthly among a representative sample of 2,200 U.S. adults. The survey was first run in September 2020, with some additional questions added in subsequent versions. Data is collected during the first week of each month, with questions pertaining to the previous month.

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