Is Walmart the New Grocery Ecommerce Threat? Part 1

February 11, 2019

Online grocery shopping isn’t going away. In fact, it’s projected to quadruple by 2023.

Amazon became an even bigger threat in the grocery industry when it acquired Whole Foods in 2017. How big would Amazon’s share of the grocery industry—especially online grocery—become?

Unsurprisingly, Amazon has emerged as the market leader in the U.S. online grocery sales market. But there is another player to consider—Walmart.

Is Walmart the new threat to the grocery ecommerce market? We will answer this question at the conclusion of our two-part series. In this part, we will provide an overview of the online grocery shopping industry. We will detail how big a threat Walmart is in the second installment of this series.

Online Grocery Market

Although large, Walmart isn’t quite the same threat as Amazon. Walmart is expected to capture 4% of all online retail U.S. spending in 2019. This is a 0.7% increase from its 2017 share. Amazon has 48% of the online retail market, which is 4.9% increase from 2017.

Online grocery is a $25.73 billion industry in the U.S. It experienced 13.6% growth from 2013 to 2018 and is projected to grow 6.1% from 2018 to 2023.

There are 2,386 businesses in the U.S. online grocery market. The four market leaders account for 30.2% of the total industry revenue. Those market leaders are:

Amazon with 16.2% of the market

Walmart with 5.3% of the market

Peapod with 4.4% of the market

Kroger with 4.3% of the market

How much of the U.S. population shops online? In 2018, 48% of U.S. shoppers bought some portion of their groceries online. 59% of U.S. consumers plan to buy groceries online in 2019.

However, there is a gap between consumers who shop online and online shoppers who buy their groceries online, according to Forrester’s The State of Global Online Grocery Retail 2018 report. A total of 57% of global consumers shopped online but just 12% purchased groceries online in 2017. The top 3 reasons people don’t buy groceries online are because they prefer to select their own fresh foods, they will get their groceries faster if they go to the store and to avoid delivery costs.

And while online grocery is poised for growth, no business has quite figured out the right business model for online grocery, Forrester Senior Forecast Analyst Satish Meena said in the Grocery Ecommerce: Tap into an Exciting, Exploding Market webinar presented by Progressive Grocer and Salesforce.  Many retailers struggle to figure out how much to sell online and how to sell in-store, Meena said. Ecommerce is a drag on margins, so grocers (including Amazon!) are experimenting with the 3 online grocery models (home delivery, click and collect and third party like Instacart).

Online grocery shoppers tend have higher incomes, live in urban areas, are early adapters and Millennials, Meena said. Frequent online grocery shoppers prefer to buy online and pickup in-store, Capgemini found in it’s The Last-Mile Deliver Challenge report. 81% of U.S. consumers order online because retail stores are as crowded as public transportation is during rush hour, their report said.

Perspective Check: To put the grocery ecommerce market into perspective, the supermarkets and grocery stores industry in the U.S. is a $633.2 billion industry (more than 24 times the size of online grocery). There are 41,499 grocery stores in the U.S. (more than 17 times the number of grocery ecommerce businesses). And while online grocery shopping is booming in the U.S., 87% of shoppers prefer to grocery shop in person.

Online Grocery Shopping

What are consumer’s online shopping preferences and behaviors?

The Retail Feedback Group’s 2018 U.S. Online Grocery Shopper Study provides a wealth of information. Their study sought to “understand usage of online grocery shopping and satisfaction with the current experience being offered by various channels in the US.” It was released in November 2018. All data in the rest of this article is from this study.

Most consumers will continue their online grocery shopping this year. How often will they purchase groceries online in 2019?

49% More Often

48% About the Same

3% Less Often

The number of consumers who use their smartphone to order groceries online is growing. There was a 6% increase in the number of shoppers who used a web browser to buy groceries online from 2017 to 2018. There was also a 5% increase in the number who used an iPhone or Android app. The number of shoppers who used a web browser to buy groceries online decreased 10% from 2017 to 2018.

Why do they buy groceries online? Here’s the top five reasons consumers like grocery ecommerce:

67% Saves Time

55% More Convenient than In-Store Shopping

34% Availability of Hard-to-Find Items

27% Lower Prices/Better Deals than In-Store

21% Physically Difficult to Get to a Store

Key Takeaway: Once converted, an overwhelming majority (97%) show a strong preference to continue buying their groceries online at either the same frequency or more often. The increase in consumers who use their smartphones to shop is not surprising, given that saving time and convenience are the top two reasons people buy groceries online. As long as buying groceries online is quick and easy, consumers will continue to buy them online.

Product Purchases

It is clear that consumers are buying groceries online. This may sound like an obvious statement, but the four online grocery product categories that showed decrease in sales volume were not grocery items. Those categories are health/beauty, pet food, nutritional supplements and non-food items. Which product categories are consumers purchasing online?

78% Grocery

16% year-over-year growth

52% Health & Beauty Care

-2% year-over-year decline

46% Nonfoods

-6% year-over-year decline

42% Produce

14% year-over-year growth

38% Bakery

10% year-over-year growth

38% pet food

1% year-over-year decline

35% Meat

10% year-over-year growth

35% Nutritional Supplements

34% year-over-year decline

35% Dairy

(no comparison data)

33% Prepared Food/Meals

7% year-over-year growth

33% Deli Meats/Cheeses

11% year-over-year growth

32% Frozen Foods

(no comparison data)

31% Natural/Organic

2% year-over-year growth

19% Ethnic/International

3% year-over-year growth

19% Seafood

6% year-over-year growth

Key Takeaway: Grocery, produce, bakery and meat product categories saw the most growth in the past year. It’s looks like online grocery shoppers are gaining confidence buying more products in fresh categories. Quality concerns and wanting a tactile experience with their groceries are common reasons customers don’t want to grocery shop online.

Online vs. In-Store

Shopping online provides a very different shopping experience than shopping in a physical store. Online grocery shoppers attributed specific strengths to shopping in a brick and mortar store and other strengths to shopping online. They also rated in-store and online shopping experiences evenly in three areas.

In-store strengths:

Provides best meeting quality and freshness standards

Better product selection

Feel more valued as a customer

Better customer service

Online strengths:

Makes the most efficient use of time

More convenient

More enjoyable

Can be more pleasantly surprising

Even for both in-store and online:

>Shows the company knows/cares about food

Takes better care of securing payment/personal info

Provides more value for the money spent

Key Takeaway: Physical grocery stores give shoppers face time with store employees. No matter how convenient online shopping is, it can’t compete with in-person customer service. It’s interesting that online shoppers think they get the same value for their money both in-store and online. But it’s the shopping experience itself, not the price, that ultimately determines which shopping channel they will use.

Generational Preferences

Specific online grocery shopping preferences differ by generation. Baby Boomers and Gen X tend to be repeat online grocery shoppers more than Millennials.

Each generation ranked their satisfaction with elements of the online shopping experience differently.

Online Checkout Process

57% Millennial

66% Gen X

75% Boomer

Website/App

57% Millennial

59% Gen X

74% Boomer

Navigation

60% Millennial

56% Gen X

65% Boomer

Item Availability

53% Millennial

51% Gen X

68% Boomer

Identify Sales/Specials and Apply at Checkout

50% Millennial

54% Gen X

62% Boomer

Good Overall Value

50% Millennial

51% Gen X

59% Boomer

Key Takeaway: Overall, Boomers are more satisfied with the different elements of the shopping experience than Millennials. Is the Millennial generation harder to impress than the older generations?

Is Walmart the new grocery ecommerce threat? Stay tuned for Part 2 on February 11 to find out!

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