industry outlook: online grocery
TRANSCRIPT
A report by Sellwin Consulting
May 2021
Industry Outlook:Online Grocery
Industry Outlook:Online Grocery
1. A Look at the Landscape
2. Industry Winners
3. Retailers and Trends to Watch
01A Look at the Landscape
U.S. shoppers learned new behaviors during the pandemic
Online grocery sales grew 54% in 2020 as consumers gravitated to the convenience and safety of online ordering.
43% of consumers tried curbside pickup for the first time, highlighting the evolving role of brick-and-mortar stores in the omnichannel approach to commerce.
As consumers continue shopping for groceries online, brands are scrambling to reprioritize channel strategies into digital stores and marketplaces. With online grocery projected to be over $187B by 2024, investment in advertising is essential to stand out among competitors.
Sources: eMarketer, March 2021; CommerceNext and CassarCo Strategy and Analytics, July 2020
$62.2
$95.8
$112.9
$135.2
$159.3
$187.7
10.4%
12.0% 12.4%12.9%
13.4%13.9%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
28.0%
30.0%
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
$180.0
$200.0
2019 2020 2021 2022 2023 2024
US Grocery Ecommerce Sales, 2019-2024billions and % total ecommerce sales
Grocery ecommerce sales % of ttl ecommerce sales
Half of shoppers are likely to continue online grocery shopping, especially Gen Z, Millennials, and Gen X
Source: Morning Brew – Harris Poll, March 2021
19%
38%
25%
17%
12%
36%
33%
28%
19%
18%
29%
14%
24%
20%
22%
16%
15%
23%
44%
49%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Gen Z
Milennials
Gen X
Boomers
Silent
How likely are you to purchase at least some groceries online post-pandemic?
Very Likely Somewhat likely Not very likely Not at all likely
A customer-centric approach is essential
• Omnichannel Strategy: Retailers and brands must cater to omnichannel with
both retail operations and advertising to ensure that customers have every
purchasing option available.
• Reduce Friction: Out-of-stock notices, high service fees, and long delivery times
can tarnish a customer’s experience and dissuade them from using online
services in the future.
The ultimate challenge: supply chain operations
There’s no leniency now that 2-day shipping has become a standard
in American homes. Customers want groceries immediately within
short delivery ranges, putting a strain on supply chains that were
not prepared for speedy last-mile delivery.
The pandemic proved that customers shift loyalty from trusted
retailers with lagging delivery times or stock issues and move to
new providers who can fulfill their needs.
Traditional grocery already has challenges that comes with the
business: low profit margins, antiquated technologies across
retailers and brands, data transparency from in-store to online, and
storage. The last-mile hurdle for online businesses is an added
obstacle.
Back-end operations are evolving to combat last-mile challenges:
▪ Investment in just-in-time data tools to meet customer
demand
▪ Robotic solutions embedded within store operations
(replacing store shoppers)
▪ Multiple fulfillment and warehousing solutions to meet
omnichannel needs:
• Click and collect
• Dark warehouses
• Micro Fulfillment Centers (MFC)
• Automated Fulfillment Centers (AFC)
DTC brands have an additional problem to solve: cold storage
National brands in grocery chains have an advantage of relying on
the grocer’s store or warehousing as local storage and fulfillment
options. For smaller brands and start-ups though, relying on third-
party logistics providers (3PLs) who excel in grocery cold storage is
a great option. DTCs often have smaller initial storage quantities
and unpredictable demand compared to established brands, which
makes the search for a 3PL difficult.
DTC brands must consider the following when choosing the right 3PL:
- Established ecommerce storage and distribution (ability to store single unit SKUs vs. pallets and cases)
- Regulatory compliance for cold storage, meeting retailer requirements
- Advanced data and technological capabilities
02Industry Winners
Amazon WalmartInstacart
Marketers must focus digital strategies on retailers and marketplaces with growing media portfolios, powered with
grocery-centric data.
Ecommerce ad spend is projected to
be $23.9B by end of 2021, and
Instacart, Walmart, and Amazon are
quickly adapting to capture grocery
audiences and ad dollars.
Here’s what you should know about each of the
industry winners and how marketers can help clients
with their digital grocery strategy.
$18.7
$23.9
$30.2
$36.4
$41.3
$46.0
12.3%12.5%
13.7%
14.6%14.8%
15.1%
10.0%
20.0%
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
$45.0
$50.0
2020 2021 2022 2023 2024 2025
Projected Ecommerce Channel Ad
Spend
Ecommerce channel ad spending % of digital ad spending
Sources: eMarketer, March 2021
Over 500M products and 600 retailers are listed on Instacart, covering 8% of
all US online consumer goods. One game changer for Instacart is alcohol
delivery operating in 24 states and counting; a booming and seemingly
pandemic-proof business that Walmart and Amazon have yet to crack within
their own platforms.
Instacart has also developed two revenue-generating streams: Instacart
Express and self-service advertising (launched May 2020). Instacart Express
is the annual membership solution for customers ($99 annually for
$9.99/monthly) and offers many benefits including reduced or no fees on
delivery, service and peak hour pricing. While Instacart does not release the
number of subscribers to this program, this membership will be powerful and
loyal audience for advertisers on the platform.
Instacart
Sources: Jungletopp.com, August 2020; Instacart, March 2021
EmailFeatured Products
Instacart Media Portfolio
Delivery Promotions Coupons Hero Banner
On Site Off Site
The platform is a second-price auction system; Featured Products is keyword-based and exact match only.
14
What to watch for Instacart in 2021
Aspirational mid-to-upper funnel activations: The company is quickly broadening its media portfolio beyond standard commerce advertising, eyeing video, OTT and more. Marketers must react quickly as ad products come to market.
Hot stock: Instacart was slated to IPO early 2020, but with new VC funding, may pursue a direct listing instead later this year
Expansion outside of grocery: Partnerships with Sephora, Best Buy, and more recently Michaels allow Instacart to expand its regional footprint and product portfolio
Customer Loyalty: Instacart is quietly building up its Express membership program, creating long-term recurring revenue and a platform-loyal audience
It made headlines last summer when news broke that Walmart had officially
surpassed Amazon as the top online grocer (although Amazon disputed that
study data). Walmart’s grocery business had two main leads going into the
pandemic:
1. Combining Walmart Grocery and the Walmart ecommerce app under one experience
2. Adjusting 3600 stores and growing to allow click-and collect capabilities (out of 4748 TTL US stores)
Walmart is increasingly pushing an omnichannel approach (even launching its
own loyalty program in 2020, Walmart+), which creates an interesting
advantage for brands, advertisers, and ultimately customers. Stores were
recently redesigned with an ecommerce mindset and now allow customers to
easily navigate through aisles with bold typeface signage, self-checkout
kiosks, and contactless payment solutions such as Walmart Pay.
Walmart
Source: Grocery Dive, August 2020Walmart overtakes Amazon as No. 1…”, Aug 2020
Walmart uses a first-price bid auction for keywords, with min and max bid levels on manual and automatic campaigns:
On Site
Sponsored Products: Search In-Grid, Brand Amplifier, Product Carousel, Buy Box
Display: Walmart.com, Pick-up and delivery, Walmart apps
Off-Site
Display: Web, Social Media
Walmart Media Portfolio
What to watch for Walmart in 2021
In-store experience: Walmart is testing ghost kitchens across Canada and offering pick-up and delivery services of meals through delivery partners like Uber Eats
Addition of micro-fulfillment centers: These automated fulfillment centers will include technology from various partners such as Fabric, Dematic, and Alert innovation, focusing on automation and pick retrieval
Beyond commerce: With additions into health insurance and fintech, Walmart is rolling out much-needed services for its customers beyond traditional retail
The Trade Desk: Walmart partnering with TTD and rebranding of its media group to Walmart Connect show intent to be one of the largest ad platforms in the US, connecting a massive retail audience to advertisers
Amazon had a confusing start to grocery, but after acquiring Whole Foods and simplifying its services, the company is now a true competitor in the vertical.
Customers are noticing too; in the dunnhumby Retailer Performance Index, Amazon came out as #1 for the top US grocery retailer in 2021 in terms of perception, fueled by strong COVID-19 performance and momentum.
The foray into physical grocery is interesting. Amazon Fresh products and stores are much more competitive in price with mass grocers (vs. Whole Foods) and are built to accommodate online shopping with designated order pickup and staging areas.
Ways to shop groceries through Amazon:
• Fresh and Whole Foods online, Prime Now - availability is regional and for Prime members only
• Amazon.com – non-perishables and household items
• Physical stores – Fresh (11 stores and growing) and Go Grocery (28 stores + compact convenience), Whole Foods (500 stores)
Amazon
Amazon Media Portfolio
Sponsored Products for Amazon Fresh
DSP: Display & Video Advertising
Custom Display & Share-of-Voice Takeovers
Fire Devices: OTT & Tablet
DSP: Amazon Publisher Services (APS) & Third-Party Exchanges
Audio / Voice
Physical Grocery Custom Solutions & OOH
Amazon Live cooking shows
On Site Off-Site
The platform is a second-price auction system; bidding includes exact and broad match types. Understanding product PPM (pure product margin) will be key for margin-sensitive grocery products as advertisers launch campaigns.
What to watch for Amazon in 2021
Real Estate- Amazon plans to open at least 84 Fresh stores and new 140K sq. ft grocery MFC’s in strategic markets, all enabled technology-enabled.
Private brand competition – Advertisers should be aware of Amazon’s grocery brands (Solimo, Happy Belly, Aplenty – new 2021 launch, etc.) as these products take over valuable digital shelf space that was once sponsored ad placement.
Amazon Advertising growth – With Amazon recently surpassing 10% of US digital ad share*, analysts predict that Amazon’s ad business can reach $85B by 2026, tripling current revenue within 5 years.
Evolving Grocery Tech – Amazon’s toolkit includes Just Walk Out, Alexa skills, the Dash cart, in-garage delivery and the newly released Amazon One palm payment.
Source: Wall Street Journal, April 2020es Amazon as No. 1…”, Aug 2020
Mid and upper-funnel budgets will
grow to take advantage of each
retailer’s rich 1P data:
Key fundamentals of advertising about each retailer portfolio
Go back to basics: If you’re not
paying, you’re not playing:
You can’t sell inventory you don’t
have:
Pay attention to inventory trends and in-
stock availability, as brands allocate
goods across multiple retailers and their
respective online channels.
Inventory availability will become much
more segmented and complex as more
retailers expand online channels and
introduce marketplaces. Each grocer has
varying fulfillment methods (in-store
shopping, click-and-collect, and home
delivery), making inventory planning
difficult. Demand planning teams will
serve advertisers with the knowledge of
where and when inventory will be in-stock
across key items and promoted products.
Amazon, Walmart and Instacart are pay-
to-play environments, and advertisers
who are not using sponsored placements
in their media strategy are missing out on
a fundamental piece to owning a share of
shelf across each retailer. Brands must
capitalize on high-performing keywords
and provide a strong foundation for brand
defense as more competitors enter the
online marketplace. Replicate winning
strategies from established consoles like
Amazon and Walmart across other
retailers and marketplaces.
Prime, Fresh and Whole Foods audiences
are available in the Amazon DSP, and
brands can leverage this rich data to reach
and drive them to custom single or multi-
category landing pages, brand stores, or
detail pages.
The announcement of Walmart’s
partnership with The Trade Desk is
another push to catch up to Amazon’s
advertising revenue, along with a rebrand
of Walmart Media Group to Walmart
Connect. What will set Walmart apart is
how measurement will be used to win
share of mid-to-upper funnel and non-
endemic budgets.
03Retailers and Trends to Watch
The grocery landscape is quickly changing, and more retailers are expanding digital offerings
Here are our picks of retailers to watch in 2021, pushing boundaries with omnichannel ambitions and investments:
Kroger’s grocery business skyrocketed in 2020, entering the top 10 US ecommerce sites
for the first time. To address this meteoric rise, Kroger is doubling down on
omnichannel capabilities with an emphasis on ecommerce revenue and profitability
growth:
• Adding more automated Customer Fulfillment Centers (CDC’s) in partnership with
grocery technology company Ocado; servicing online grocery orders through machine
learning and automation.
• Doubling its vaccination capacity to 1 million doses a week, setting the grocer apart
from its competitors with a leading edge on healthcare and pharmacy capabilities.
• Increasing efforts with Kroger Precision Marketing, to reach customers through
personalization while maximizing marketers’ media investments.
Kroger
Sources: Supermarket News, December 2020, March 2021
It’s hard to mention online grocery without mentioning Target. It’s been a tumultuous few
years struggling to keep up with Amazon and Walmart, but Target saw huge growth with
its ecommerce channel in 2020 and Shipt played a major part.
Target acquired Shipt in 2017, boosting ecommerce capabilities and quietly building in
same-day delivery capability to its main site. Customers are required to join Shipt as a
member and to receive same-day delivery, must have a minimum cart of $35 (same as
Walmart same-day).
Even with Shipt and a commitment to a multi-year, multi-billion dollar investment in
digital, Target is continuing to optimize its store presence by doubling down on
partnerships with Apple, Levi’s, and introducing Ulta into 100 stores in 2021. This omni-
approach is positioning Target as a one-stop shop for customers.
Target
Albertsons owns the #4 rank of top grocery stores, with over 2200 stores nationally and
its own media platform as well (Albertsons Performance Media, powered by Quotient).
To prepare for long-term digital growth, Albertsons has made several strategic
investments across fulfillment and technology:
Ecommerce fulfillment:
• 1400 locations and counting with curbside pick-up (Drive Up and Go)
• Algorithmic approach to e-commerce back-end operations, from picking to slotting
• MFC partnership with Takeoff Technologies (serving 6-10 stores each)
Google partnership:
• Personalized grocery lists powered by Google Cloud AI
• Building shoppable maps and information about online ordering through Google Maps
• Enabling Google Business Messages to deliver essential vaccine information
• Easy checkout with Google Pay
Albertsons
Sources: Food Industry.com, November 2020; Supermarket News, March 2021
Same-day delivery service GoPuff is hot off a recent $8.9B valuation and rapidly building a
national delivery network. GoPuff offers a wide breadth of products and categories
including grocery, alcohol, OTC medications and baby products, within 30 minutes or less
24 hours a day. Delivery fees are flat ($1.95/order) with a minimum of $10.95/order,
significantly lower than the competition.
Physical footprint:
- 250+ micro-fulfillment centers, operating in 650+ cities nationwide
- Alcohol deliveries in select cities
- Acquired beverage retailer BevMo!, operating 161 stores on the West coast
Like its competitors, GoPuff has a loyalty program called GoPuff Fam, which waives all
delivery fees for its monthly or annual subscription. This program will provide valuable
insights as GoPuff is also developing retail media network, GoPuff Marketing Solutions,
allowing brands to run media on and off GoPuff’s platform.
GoPuff
Sources: Grocery Dive, March 2021
04What’s next in digital grocery
Grocery purchases will truly become omnichannel with
customers purchasing in-store and online
interchangeably.
Retailers and brands will invest
heavily in data integrity and
operational capabilities
Data quality will be a foundation for how quickly
inventory moves through supply chain channels to the
customer.
As costs go down from inventory optimization and
elimination of food waste, we expect to see retailers
reinvest dollars into data-driven personalization efforts.
Consumers will benefit from the race for recurring revenue
Loyalty programs are valuable tools for stores to own key customer data, especially as Instacart and Amazon take a greater share of online grocery.
Stores will have to innovate faster with data-driven insights to include in-store benefits across restaurant partnerships, in-store meal-kits, healthcare services, and more.
Unique packaging ingredients to replace
plastic: mushroom root, beeswax, bamboo
Large scale retail distribution deals for
vertical farming companies
Using AI to eliminate food waste from demand planning to dynamic end-
of-life pricing
Customers demand sustainability from origin to last-milePlastic substitutes, low-carbon footprints, food waste are just a few sustainability measures brands and retailers will promote to support their own environmental goals
