Sources: Retail Dive, Chain Store Age, Creditntell

A few years ago, much of my time as a researcher was spent trying to convince people that physical grocery stores weren’t going anywhere. Forecasters had seen how Amazon took a sledgehammer to store sales in categories such as books, electronics, and apparel and after their $14 billion acquisition of Whole Foods in 2017, everyone was convinced groceries would be next.

My gut feeling told me that wouldn’t be the case. For one, the thin margins of the grocery business presented a steep hill to climb towards profitability. Secondly, grocers are amazing merchandisers that know the shopping habits of their neighborhood and region better than a tech executive making decisions from a spreadsheet. Third, having strangers pick out highly perishable and individuated items like meat and produce would end up becoming a friction point in a shopping journey that consumers are well used to performing themselves multiple times per week. Lastly, that spoilage issue would only be exacerbated by a delivery system that would cancel out the advantages of having stores located so close to people’s homes.

For a few years, the march of online grocery hype continued despite only representing something under 5% of total food sales in the U.S. There were unprofitable “quick commerce” startups like GoPuff and Getir that opened hundreds of mini distribution centers in major cities and suburbs that promised grocery delivery in 15 minutes or less. Kroger partnered with the UK’s leading online grocer Ocado to scale a robot-enabled delivery network across the country, while other regional and national grocers scrambled to catch up by offering delivery through third party providers like Instacart and Uber that relied on poorly paid gig economy workers. Meanwhile, Amazon rolled out dozens of physical stores under the “Amazon Fresh” banner that, while offering in-store customers the chance to “just walk out”, had the look and feel of a sterile warehouse optimized for delivery drivers more than food shoppers.

With the onset of the pandemic in 2020, it seemed for a moment that the day had finally arrived when shoppers would adopt online grocery shopping in masse. For a little while, this seemed to be true. Online sales as a percent of total grocery sales more than doubled representing just over 10% at their peak. Then, a funny thing happened: online grocery sales plateaued. The world opened up again and people longed to return to their old habits, including grocery shopping. Many of the “quick commerce” startups folded or dramatically scaled back, Kroger’s Ocado plans focused more on a “hub-and-spoke” model that placed stores at the nexus of the fulfillment model, Walmart shut down its experiment in online pickup only locations, and even Amazon paused opening any new Fresh concept stores while they try to figure out how to do grocery right.

This trend was underscored this week when Click Meets Brick released the latest findings in their monthly online grocery habits survey. Sales in May were down 3.4% representing around 9% of total grocery sales. The reasons were simple: the number of online grocery customers fell by -5%, while those that still shopped online did so less frequently. Even more telling, the only fulfillment channel in the online grocery space to see growth was customer pickup at local stores, where freshness and selection would be less of an issue. Meanwhile, delivery and ship-to-home both fell double digits.

While technology is certainly going to continue to change and enhance the way we shop, six years after the Amazon/Whole Foods deal we can see in hindsight that the hype cycle around online grocery shopping is no different than other “inevitable” changes that Silicon Valley has tried to force on consumers, where something is deemed ripe for “disruption” regardless of whether consumer demand exists (when was the last time you were on the “metaverse”?) as a means of getting wild valuations for start-ups with little to no path to profitability. It's true that grocers will likely continue to offer customers options in the online space, at 9% of sales it’s a niche that is now too large to ignore. And there will be tech startups like Grabango which aim to improve the store experience that should gain traction in the grocery marketplace, however gone are the venture capitalists and tech gurus proclaiming the end of the grocery store as we know it…and I feel fine.

Mike Jordan