New data from IGD reveals that the online grocery channel is set to represent 5% of the US grocery market by 2022, with a value of $82.0bn.
Channel sales almost doubling in 2020
This new forecast represents a significant acceleration of growth within the channel. Previously we had forecast that sales through the channel would not reach this value until 2025. This new forecast aligns with retailers’ recent results and comments on the channel which have indicated that demand for online grocery shopping has accelerated by around three years due to the pandemic. Channel growth for 2020 is estimated at 91.5%.
Source: IGD Research
Hypermarkets and supermarkets holding their own
The updated data also reveals a respite for the gradual loss of share that hypermarkets and supermarkets have been experiencing, in part due to the growth of online. Supermarket share is forecast to remain stable at 38.8% between 2020 and 2022, while hypermarkets will see a marginal decline from 27.0% to 26.9% over the period.
Gains in convenience and discount channels
Convenience and discount will be the other winning channels. The discount channel is expected to increase by $7.5bn to $106.8bn by 2022, with its share growing to 6.5%. This will be driven the continued expansion of hard discounters, including Aldi and Lidl, and the dollar store operators, Dollar General and Dollar Tree. Convenience is set to benefit from a bounce-back in 2021, after a more challenging 2020 as travel activities were curtailed, along with improving fresh food offers, enhanced food-to-go ranges and additional services.
Online surge requires a response
While the channel trends are broadly in line with pre-pandemic patterns, the acceleration in grocery ecommerce growth is a fundamental shift that retailers and suppliers are having to respond to. For retailers it involves pulling forward capex plans; most retailers had planned for this level of growth but not over a condensed timeframe.
Retailers adapting stores and testing fulfillment models
While most have been able to scale up by adding labour over the last nine months, they are now starting to adapt their stores. This incudes freeing up space for additional order staging and expanding the number of car park spaces in the short term. Over the medium term, it includes looking at multiple fulfillment options including dark stores and dedicated fulfilment centres as volumes grow, with the aim of improving channel efficiencies and profitability.
Suppliers upskilling and recruiting for new capabilities
For most suppliers, it will require larger teams to manage the channel, and/or more resource for teams managing key online accounts including Amazon, Walmart and Kroger. Many companies are already focusing on upskilling and bringing new capabilities into their businesses, while also getting closer to many of the technology firms powering the solutions. This includes providers of automated micro-fulfillment, third-party marketplaces and digital marketing platforms.
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