Countless posts have been written about the short-term effects of the Corona Virus on grocery retailing. But what happens after we put this all behind us? Will we go back to business as usual, or will the effects have a longer-term impact?

We believe that one element of the industry will be dramatically different, namely online grocery shopping….and here’s why:

First of all, let’s set a baseline of how large a piece of the grocery pie ecommerce constituted before the crisis. While other industries (fashion, consumer electronics, personal care etc.) had reached penetration numbers north of 20%, in grocery retailing, even the most advanced markets were hovering in low single digits. According to Nielsen, 4% of grocery transactions in the US were conducted through ecommerce in January 2020, while in the UK that number reached approximately 5.3%.

To date, much of the adoption in the growth of online grocery shopping has been attributed to younger generations – primarily millennials and generation X, who tend to be tech-savvy and more comfortable navigating digital platforms. But data points to the fact that much of the current surge in online grocery is begin driven by older age groups who are discovering the channel out of necessity and are adapting to it in droves.

Evidence of this is duly recognized by industry leaders. In a recent article published on CNN, JJ Fleeman, chief e-commerce officer for Ahold Delhaize in the United States, (which owns brands like Stop & Shop, Food Lion and the online delivery service Peapod) noted “We are seeing a larger percentage of customers over the age of 60 that are coming online.”

More evidence of the massive move to online can been seen in the sharp growth of demand for grocery shopping apps. According to Apptopia, leading apps such as Instacart, Walmart Grocery, and Target’s Shipt have seen up to 200% increases in downloads between Feb 15 and March 15. In some cases the growth has been tough to manage for even the most advanced of online retailers – Amazon announced last week that it’s Prime Pantry delivery service in the US would be halted following a surge in new customer registrations and order volume. And Instacart announced plans to add 300,000 grocery shoppers over the next 3 months to keep up with surging demand, according to a post in the company’s blog published on March 23.

The move to online shopping is gaining traction across the board. According to a study conducted in the US by Gordon Haskett Research Advisors on March 13th, a whopping one third of consumers surveyed stated that they had bought food online in the past week, with 41% of them having done so for the first time. One respondent made the point “Once things go back to normal, I will probably use online again,” she said. “It was really easy.”

Based on the above observations, and assuming that retailers adapt fast enough to manage their abilities to meet demand, we predict that a much higher percentage of grocery sales will continue to be conducted online even after the effects of the Corona Virus subside, and life gets back to normal. Many customers who had previously shopped exclusively in-store and now have been forced into trying online shopping will realize just how convenient the process is and will settle into a new status quo of splitting their purchases between physical and digital channels.

And it’s this new status quo that will create both threats and opportunities for traditional grocery players attempting to grow their online share of wallet:

Let’s start with the primary threat – associated with the risk of defection. In the physical world, where you’ve been visiting a store for years which is conveniently located close to your home, it’s harder for competitors to tempt you away. They would need to have/build a physical location that meets all your requirements – not an easy task if they don’t already have one. But in the online world, savvy competitors such as Amazon, Walmart and a host of new generation local online services are experts at targeting potential shoppers online and offering mouthwatering discounts and benefits to poach them away. Account sign-up is easy, and their platforms are mature and well-oiled. Retailers who aren’t prepared to defend against these approaches with their own retention and automated loyalty strategies will pay a hefty price.

On the other hand, retailers who manage to create a pleasant online experience, from sign-up through checkout, will be well placed to capitalize on the opportunity. This includes making sure that product search is easy, nutritional and recipe information is available, and delivery / pick-up scheduling is convenient. All of this needs to be achieved in a manner on which shopper interactions between online and digital channels are seamless, and that the shopper is served with personalized information, recommendations and offers to help them manage their grocery spend. If retailers are not able to do that at scale over their entire shopper base, they should at least begin with their most loyal and valuable customers, ensuring that they receive VIP treatment via personalized landing pages with relevant savings and meal suggestions, preferential delivery slots, waived delivery fees and more.

As the dust settles, we are convinced that the 4-5% of groceries currently spent online will be dramatically higher and will continue to grow from there.

But who the big winners will be in the online land grab is a harder prediction to make.

Stay well and happy trading

Chen Katz