Walmart, Amazon and others battle to fulfill online orders for bread, canned peas and alfalfa sprouts. In the grocery business, ecommerce is where retailers are finding growth.

In-store shopping still dominates grocery retailing, but adoption of ecommerce continued to grow in 2019, as retailers jockeyed to position themselves in the emerging online food business.

In 2019, Walmart—which already sells more groceries in U.S. stores than any other retailer—worked hard to pass Amazon (No. 1 in the 2019 Digital Commerce 360 Top 1000) as the leading nation’s online grocery seller. Meanwhile, traditional grocery store chains invested in new capabilities and services aimed at keeping existing customers and attracting new, digitally inclined shoppers.

Online grocery sales now account for just 6.3% of total grocery-related spending by households in the United States, according to Brick Meets Click, a strategic advisory firm focused on digital transformation in the food business. But ecommerce is a fast-growing sales channel, while stores are not. At a time when overall grocery sales are virtually stagnant, online sales grew 15% on a year-over-year basis, Brick Meets Click says. In 2020, the firm expects online sales to represent 7.0% of the U.S. grocery market.

To meet that demand, retailers are making ecommerce more widely available. As of September, Brick Meets Click found home delivery and pickup services were available to 90% of all the households in the U.S., up from 81% in 2018.

Here’s a recap of what happened in grocery ecommerce in 2019.

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Walmart sees online grocery results

In its quest for online grocery dominance, Walmart (No. 3) has been aggressive. As of November, Walmart offered online grocery delivery from about 1,400 stores, up from 800 a year earlier and boosted the number of pickup points for online orders by 47.6%, reaching 3,100, according to company reports.

In October, Walmart announced its Delivery Unlimited program, which offers consumers unlimited grocery deliveries for a fee of $98 per year or $12.95 per month. Walmart also recently began testing in three cities a new service for which employees put the food directly into customers’ fridges.

 

Other Walmart experiments include a recently announced deal with robotics company Nuro Inc. to test making grocery deliveries using driverless vehicles.

Walmart’s efforts seem to be paying off, according to a survey of current online grocery shoppers by The Retail Feedback Group (RFG). Among the online grocery shoppers questioned by RFG, 37% named Walmart as the grocery store or service used most recently—more than any other grocer and up from 32% a year earlier. In second place was Amazon, cited by 29% of the survey group, down from 31% a year earlier.

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“With Walmart putting a strong focus on growing their online shopping offerings, both pickup and delivery, it isn’t surprising that they are rapidly growing in shopper trial and adoption,” says Brian Numainville, principal at RFG.

The RFG survey—which questioned 1,000 consumers who had shopped online for groceries over the 30 days prior to the survey—was conducted before Walmart announced Delivery Unlimited, Numainville says. That program is likely to further boost Walmart’s popularity as an online grocery option, he says.

In customer satisfaction, Amazon scores higher than other online grocery option. On a five-point scale where five is highest, Amazon scored an average of 4.60, a drop from 4.70 last year. Shoppers with orders fulfilled by Instacart gave the app-based delivery service an average satisfaction score of 4.58 (down slightly from 4.59 in 2018). Walmart was in third place at 4.45 (down from 4.54 last year), while traditional supermarkets and other food stores scored 4.43 (up from 4.36 last year).

Instacart is not a retailer. Instead, it delivers groceries on behalf of grocers. In many markets, Instacart customers include the nation’s two largest standalone grocery chain operators, The Kroger Co. (No. 17) and Albertsons Inc. (No. 204).

“While Amazon has a long legacy of online shopping, which gives it strengths at many of the touchpoints of online grocery shopping, that hasn’t translated to growth in share in the food arena,” Numainville says.

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In the online grocery business, “Walmart is by far the leader at this point,” says Brian Yarbrough, senior analyst for equity research at investment firm Edward Jones. That’s due, at least in part, to Walmart’s massive store footprint, which allows it to operate pickup points for online orders within a short drive of most American households.

Amazon fights back

Amazon also has been expanding its online grocery operation. In October, Amazon made grocery delivery from its Amazon Fresh and Whole Foods Market a benefit of its Amazon Prime loyalty program, saving Prime customers what had been a $14.99 per month extra fee for the service. Amazon Prime costs $119 per year, or $12.99 per month. The program’s benefits include free 2-day shipping on about 100 million items; 1-day shipping, same-day and two-hour delivery on some products; video streaming; and other benefits.

During the fall of 2019, Amazon expanded the Amazon Fresh service to include the Indianapolis, Houston, Minneapolis and Phoenix markets. Amazon says it now provides grocery delivery in more than 2,000 U.S. cities and towns.

Amazon also is widely believed to be planning to open dozens of grocery stores under a new brand. The ecommerce giant has so far confirmed that it plans to open a new grocery store—which so far is unnamed—in the Woodland Hills neighborhood of Los Angeles.

Observers expect any new Amazon grocery stores to be tightly integrated with the Amazon Prime rewards program and offer free home delivery from the start. Like most grocery chains, Amazon’s stores will likely sell significant food and beverage brands, but also include a large selection of private-label brands (possibly including Whole Foods store brands). Amazon has not confirmed or denied any of those details.

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“I would never count Amazon out,” says Yarbrough. But Amazon’s experience in the grocery business has been a struggle, he says. He cited two factors complicating Amazon’s grocery ambitions:

  • The grocery business is hard. Because much of the inventory is perishable, the logistics are more complicated. Products cannot be stored for months in warehouses and deliveries typically can’t be dropped off on a customer’s porch when nobody is home.
  • Grocery retailers have been smart. Having watched Amazon disrupt much of the retail business, grocery retailers have been “on the offense” in pursuit of digital customers.

Grocery store chains

Kroger  and Albertsons also have been actively adding omnichannel capabilities, notably delivery services and pickup points for online orders. And to make those options more efficient, the retailers are turning to robotics.

Over the summer, Kroger and British online grocery retailer and technology vendor Ocado Group said they would build a $55 million, 375,000-square-foot ecommerce fulfillment center in Forest Park, Georgia. The new fulfillment center—which will use Ocado’s technology—is part of Kroger’s plan to build 20 “Ocado-powered” warehouses in the United States. In June, Kroger broke ground on the first of those facilities in Monroe, Ohio, near the retailer’s Cincinnati headquarters. In March, Kroger announced plans for a center in Lake County, Florida

Since 2017, Kroger has been working on a strategic plan, called Restock Kroger. Among other things, the goal is to expand Kroger’s digital and ecommerce efforts and make broader use of personalized customer data.

Albertsons also plans to get into the business of operating automated fulfillment centers. But instead of opening standalone facilities, it’s building “micro-fulfillment centers” inside existing stores, using a system designed by robotics firm Takeoff Technologies. In October, Albertsons opened its first center at a Safeway in San Francisco. In December, Albertsons agreed to purchase additional systems from Takeoff and plans to open another pilot at a Safeway in San Jose, California, before the end of 2019.

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According to Albertsons, the Takeoff robotic system holds about 15,000 to 18,000 of the local market’s most popular products. By automating the fulfillment of online orders, the system increases productivity by up to ten-fold  compared with humans.

Looking ahead

The online grocery arms race will continue in 2020, RFG’s Numainville says. He expects Walmart to continue to gain ground as more consumers try out and adopt ecommerce grocery shopping. The same thing could happen for—but more slowly—for supermarket operators, he says.

“Amazon seems to be at kind of a crossroads with leading, yet declining, overall satisfaction,” Numainville says. He says Amazon has seen a declining number of customers trying out its service and, at 9%, attracted the smallest percentage of first-time users among those surveyed in RFG’s study. Walmart, by contrast, had 18% of first-time users and supermarkets had 22%.

“It will be interesting to see what they do to continue to grow their presence in the online grocery segment of their business,” Numainville says about Amazon.

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