US grocery ecommerce offers $20bn growth opportunity

Date : 05 October 2017

New figures released by IGD reveal that online grocery will be the fastest growing channel in the US over the next five years.

Channel set to hit $34.7bn by 2022

The online grocery channel is forecast to increase from $15.1bn in 2017 to $34.7bn in 2022, an increase of $19.6bn, with a CAGR of 18.1%. The online channel is developing at pace in the US and although many leading retailers have operated online for over 20 years, it is only in the last three years where we have seen an acceleration of investment and activity.

Store pickup set to be the primary model

Several factors underpin this growth. Many retailers are using their store networks to offer convenient collection options that are often free or low-cost, which are proving popular with shoppers. Walmart recently opened its 1,000th grocery ecommerce pickup location, while Kroger operates over 650 pickup locations. We expect this to be the main channel for grocery ecommerce in the US. Many retailers are entering the channel through partnering with third-party companies, including Instacart and Shipt, requiring relatively lower capital investment.

Meal kit delivery services developing at pace

Growth will also be driven by meal kit delivery services. These are developing at rapid pace, with specialist companies like Blue Apron and Hello Fresh continuing to expand their operations. Grocery retailers, including Walmart and Kroger, are also entering the foray by testing a curb-side pickup service from eMeals, while Albertsons recently acquired Plated. Many retailers, including Publix and Ahold, have also developed their own in-store solutions.

Operators focusing on the ease and convenience of online shopping

New shoppers will be attracted to the channel through the efforts of retailers to make online shopping as convenient as possible, with an emphasis on making it easier to order frequently purchased products. Earlier this year Walmart introduced ‘Easy Reorder’, while Target launched its ‘Restock’ service. New technologies also have an important role to play in this space, with voice-based ordering, driven by Amazon and Google, set to revolutionise how products are ordered.

Using technology to optimise delivery and profitability

Technology is not just important for ordering products, but also has an impact in other online fundamentals like fulfilment and delivery. Recently Walmart and Target have made key acquisitions in the fulfilment space, acquiring Parcel and Grand Junction respectively. Both are technology-led organisations, focused on same-day delivery, and bring new capabilities to both retail organisations. The use of robots to make deliveries and pick orders in store and the advent of drones making small deliveries by air are examples of how new technologies can improve the economics of the online grocery market. However, it may be many years before they are deployed at scale in the US market.

Key actions for suppliers include:

  • Form a dedicated channel investment plan to tap into this growth opportunity, identifying key retailers to partner with as an increasing number enter the channel
  • Ensure that it is easy for first-time shoppers to discover your products, gaining access to their favourites lists
  • Tap into the meal kit opportunity as retailers look to deliver more of these online themselves
  • Stay close to the latest technology innovations, including voice-based ordering, and what this means for product search and discovery

Subscribers: read our new insight deck, Grocery ecommerce in the US.

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Stewart Samuel, Program Director, IGD Canada: based in Canada, Stewart heads up all of IGD's research and coverage on the US market. He is also responsible for shaping IGD's research program across North America. Contact Stewart at [email protected] for further insight on the region's markets, channels and retailers. Follow Stewart on Twitter: @Stewart_IGD