Grocery delivery was once seen as a luxury service for a niche group of wealthy suburban shoppers who could afford the convenience of having a few bags of produce and pasta left on their doorstep. But a year and a half after stay-at-home orders kept much of the country working from home, grocery delivery has exploded into mainstream shopping — and it’s likely here to stay, according to industry analysts.
“Most grocers didn’t view delivery that seriously pre-pandemic,” said James Cook, director of retail research with the global commercial real estate and professional services firm Jones Lang LaSalle. “But the demand for online grocery skyrocketed and that includes both delivery and click and collect.”
Restaurants were gutted by the pandemic. Walk-ins and reservations fell by 100 percent between April 2019 and April 2020 as the coronavirus swept across the country, according to OpenTable online reservation service. By the end of August 2020, more than 32,100 restaurants had closed, with roughly 61 percent of them permanently shutting their doors, according to a September 2020 local economic impact report from Yelp.
At the same time, cooking at home underwent a cultural renaissance. People made their own sourdough bread, experimented with “fluffy” or Dalgona coffee, canned their own vegetables and cooked carrots seasoned to taste like bacon. This helped people stuck at home to break up the monotony of pandemic life — but also drove online delivery to more than triple its market share of overall grocery sales compared to 2019, according to a June 2021 report from grocery market research firm Brick Meets Click.
“Despite the fact that people are now returning to restaurants, sales at grocers are holding at higher levels than before the pandemic. It’s not a zero sum game," said Sara Wyeth, a lead retail and restaurant analyst with S&P Global Ratings.
Walmart U.S. e-commerce sales grew 69 percent between 2019 and 2020, according to the company’s annual report. Its new Walmart+ loyalty program includes free delivery, which is designed to drive more online sales, Walmart CEO Doug McMillon said in a February earnings call. Kroger’s delivery business grew by 150 percent in 2020 compared to the year before, according to the company’s annual report. It brought in more than $10 billion in overall online grocery sales, which includes delivery and pickup. By the end of 2023, Kroger expects to double the size of its digital business compared to 2020.
“We continue to expect those broader trends to hold in place,” said Rodney McMullen, CEO of Kroger, in a June earnings call. “Everything that we can see, the customers continue to like to shop online.”
But the cost of grocery delivery for grocers — and for consumers — can be pricey. Grocery stores were not designed to fulfill online orders, said Mickey Chadha, a vice president in Moody's retail team. Pickers are paid hourly to walk up and down aisles gathering items for online orders, a process that can be costly to a grocery company, he said.
Grocery stores were designed for individual shoppers, not pickers filling dozens of orders an hour. While supermarkets retrofitted their spaces during the pandemic to meet new demand, there's little space left to expand the service without any major outlay.
But it would be far more costly to scrap online delivery than to lose a few dollars on an order, Chadha said.
“You can’t look at it as separate, because you’re losing the big picture,” he said. “If you don’t offer [online ordering] somebody else will and you will lose the sale.”
Companies such as Kroger and Safeway have added a $9.95 delivery fee on certain online orders to help cover this loss. Safeway FreshPass subscribers get free delivery on orders over $30. Kroger orders over $35 are also free. Amazon Whole Foods orders were free for all shoppers with a Prime membership, but Amazon recently notified customers that it will begin charging a $9.95 delivery fee on online deliveries beginning Aug. 30 in several areas, including Boston, Chicago and Portland, Maine.
“Mass market grocery is a high-volume, low-margin industry, and the complexities of serving online have long meant it is an unprofitable channel for many grocers, who have tended to overlay more and more cost onto their store businesses to meet e-commerce demand,” Lawrence Hene, chief product officer at online grocery facilitator Ocado Solutions, told NBC News in an emailed statement. “With the market growth in the past 18 months, this is no longer a viable long-term strategy for grocers online.”
“We don't look at the digital customers as better or richer. They're just more engaged.”
In April, Kroger partnered with Ocado to launch the country’s first fully automated grocery fulfillment center in Monroe, Ohio, designed to prepare a 50-item order in just five minutes. More than 1,000 robots speed around the 375,000-square foot facility picking grocery items. Most of the deliveries are packed into a Kroger delivery van to be dropped off the next day at homes anywhere within a 90-mile radius of the facility. Between 2022 and 2023, the company expects to open up to six more U.S. fulfillment centers, it said in March.
This type of automation cuts down on labor costs and drives additional sales, Yael Cosset, Kroger’s chief information officer, told investors in March. Online shoppers visit stores and online sites 1.5 times more frequently and spend more than twice as much as store-only customers, she said.
“We don't look at the digital customers as better or richer,” she said. “They're just more engaged, more loyal, more committed to Kroger because they get more of that value, whether it's through the convenience, the access to offers, the values or a set of our services.”
Kathryn Turner, who lives in Raleigh, North Carolina, told NBC News she has transitioned from an occasional to regular online grocery shopper. Before the pandemic, she said she would order sparkling water or food for lunch with Amazon Prime Now to be delivered to her office, where she works as an accountant at a property management company. But now she almost exclusively picks up her online orders using a Kroger curbside service.
“I try to limit contact with other humans as much as possible,” said Turner, who spends about $500 a month on groceries between herself and her girlfriend. “I’m vaccinated but I don’t know what the rest of the world is doing.”
While her grocery tab has ticked up in part because she’s not visiting stores to see clearance items or sales that aren’t available online, she said it's worth it.
“I have too much anxiety to go into the grocery store, or I don't want to spend all that time to look around shelves,” Turner said.