By: Rachael Ulman
Published: March 12, 2020
In light of the COVID-19 pandemic, we are all being forced to rethink our “old way” of operating. One area where this is particularly true is in-store vs. online grocery shopping. Online grocery shopping isn’t new in the U.S. In fact, it’s been around for over 20 years. However, the U.S. has lagged other countries, particularly the U.K. and South Korea, in customer adoption. In the U.S., a mere 3% of grocery spending takes place online, according to Bain & Co. research. But in the U.K. and South Korea, online grocery penetration can be as high as 15%.
But, the coronavirus is about to change all of that. This pandemic is poised to significantly increase the adoption of online grocery shopping services by offering the benefit of avoiding crowds of shoppers, with the convenience of home or drive thru delivery. Thankfully, this coincides with the ramp up of online grocery services in the past 10 years, with Walmart and Instacart having the largest geographic footprint and the lead. We are at an inflection point.
Up until 2012, many U.S. consumers didn't have an online grocery service available to them, due to challenges of servicing low customer density areas (e.g., rural markets), the operational complexity to fulfill from store, and the technical costs to set up these services. But, then two grocery players emerged who could offer widespread geographic coverage and the resources needed to scale: Walmart & Instacart. Walmart was already the largest grocer in the U.S. and had stores located within 10 miles of 90% of the U.S. population. Starting in 2013, Walmart began rolling out home delivery and store pick up to customers. Around that same time, Instacart launched with a service that allowed any grocery store to offer online shopping without a large technology or personnel investment.
Fast forward to today when over 3,100 Walmart stores are offering order online/curbside pick up, and roughly 1,400 other Walmart stores are delivering online orders to shoppers’ homes. By leveraging its wide geographic store footprint, Walmart has become the leader in online grocery market share (see below). Instacart holds the #2 spot, thanks in part to its easily scalable implementation model and low overhead costs for grocers.
In online grocery, there is a strong first mover advantage compared to other shopping categories. Due to the high upfront time needed to create a first time online grocery order, after a customer’s first purchase, they tend to be very loyal to their chosen service. The coronavirus scenario will be a land grab for new customers. And, expect many previously in-store grocery customers to stay with online grocery shopping long after the pandemic has passed.