FMI says switch to online grocery sales going faster than expected

Discussion
Photo: Getty Images
Jan 30, 2018
George Anderson

The pace at which Americans are going online to purchase groceries is picking up and that may mean that a large majority of shoppers will bypass stores to place orders in as few as five years, according to a report by the Food Marketing Institute (FMI) and Nielsen.

The findings of the research are significant for a number of reasons. For one, it shows that the adoption rate is growing much faster than previously forecast. FMI and Nielsen had previously forecast that online grocery sales would reach $100 billion nationally by 2025. The new forecast sees that number being reached as early as 2022 with 70 percent of consumers going online to shop for groceries.

Today, 49 percent of U.S. consumers shop for grocery products online. While 61 percent of Millennials shop online for groceries, the younger generation is not alone in this respect. Fifty-five percent of those in Generation X, 41 percent of Baby Boomers and 39 percent of the Greatest Generation do the same.

According to FMI and Nielsen, many grocers and their CPG partners are not yet prepared to adequately handle the challenges facing them. Today, only seven percent of retailers and 22 percent of manufacturers believe they have the right organizational skill set to succeed in a digital environment.

The research has identified transformational imperatives for retailers and CPGs to succeed. These include:

  • Integrating digital offerings with brick-and-mortar operations;
  • Scrubbing data files to eliminate discrepancies;
  • Integrating online and offline forecasting;
  • Optimizing shopper insights by combining retailer and manufacturer information;
  • Improving omnichannel marketing and promotions; and
  • Merging in-store shelf and online inventory capabilities to enable consumers to see the same information whether they are online or in a store.

FMI and Nielsen believe that both retailers and manufacturers will be better served by finding areas where they can work together.

DISCUSSION QUESTIONS: Do you think retailers and CPG brands are being caught by surprise at the pace at which Americans are going online to buy their groceries? What are the keys for those looking to keep pace with the changes in the marketplace while staying profitable at the same time?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Industry shifts of this scale and pace crown new winners and losers, and there are lots of new entrants aggressively playing offense, not defense."
"I’m more interested in figures that show the overall shift of an individual’s grocery spend to online, rather than just new adopters."
"This is the typically reactive culture that the proactive, disruptive innovators have been capitalizing upon for years."

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26 Comments on "FMI says switch to online grocery sales going faster than expected"


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Dr. Stephen Needel
BrainTrust

Nielsen has been saying that online grocery would be about 15 percent for years now. So if anyone is shocked that they may finally have gotten it right, they shouldn’t be. We should be cautious about the percentage figures being shown. Yes almost everyone has done it, but they are not doing it nearly as much as they are shopping in stores, hence the projected 10 percent to 15 percent of grocery being online. Retailers should be aware and if they want to stay relevant to everyone, put online shopping in place.

Joel Rubinson
BrainTrust

It seems like Nielsen was following the old forecasting advice — give ’em a number and a date but never both at the same time!

Keith Anderson
BrainTrust

The last 18 months were a clear inflection point. Platforms like Instacart made online grocery available in more regions than many anticipated; Walmart and Kroger leaped off the sidelines; and, oh yeah, Amazon bought Whole Foods.

The big drivers of profitability are fairly predictable. On the demand side are membership and service fees and pricing strategy. On the supply side are labor and fuel cost management and operational efficiency. Scale and automation will play a big role.

But in the very near term, the key is not to focus on day-to-day profitability at the expense of long-term relevance. Industry shifts of this scale and pace crown new winners and losers, and there are lots of new entrants aggressively playing offense, not defense.

Bill Bortz
Guest
1 year 7 months ago

Great points Keith! I agree with operational efficiency, like my example of FreshDirect being able to hit 20 apartments in one building with one truck vs. suburban deliveries having to hit 20 separate homes.

Max Goldberg
Guest

If CPG brands and retailers are being caught by surprise, they have not been keeping up to date on general retail trends. Online shopping is frequently easier and less time consuming than visiting stores. Multiple stores can be shopped at the same time and prices compared and, for a small fee, the hassle of traditional shopping is erased. Retailers need to invest in true omnichannel efforts. Websites and apps need to be constantly updated, customer data refined to benefit each customer and search, buying and checkout streamlined. More and more, consumers see retail, whether in-store or online, to be one. They want transactions to be seamless. CPGs and retailers need to come together to make this happen before Amazon and Walmart gain even greater market share.

Neil Saunders
BrainTrust

I think this forecast is exaggerated. Even in the U.K., where online grocery is very advanced, the penetration rate in terms of sales is not this high.

Certainly more and more people are shopping online for groceries; but most of those people do not spend the bulk of their grocery dollars online — they still spend them in stores.

That said, online grocery will grow and that growth will cause disruption. It will also put margins under severe pressure for both CPG firms and retailers.

Ken Lonyai
BrainTrust

If the recent survey is right, it demonstrates more about human nature than technology or logistics. ATMs were adopted very slowly at first. Mobile was (as I recall) a little faster. E-commerce was very tentative and took a long time to gain comfort with the general public. Smartphones had their curve too and even though m-commerce is really accelerating, it was a tentative start. So just as the digital consumer had concerns over clothes and shoes fitting properly and the issues around returning those items were overcome, so too will go online grocery shopping.

The lessons are there for grocers to learn from. I have no pity for those that don’t see it.

Richard J. George, Ph.D.
BrainTrust
Definitely. As I commented on a previous RetailWire article about the center of the store (COS), it is not so much a shopping opportunity as it is a replenishment task. How many COS SKUs do you really need to physically inspect before placing one into your cart? The data still demonstrate the importance of COS, namely that center store today represents 75 percent of total store sales and 50 percent of profits. However customers only spend 18 percent of their time interacting with products there. With this recent forecast on the impact of online the time to rethink the COS is long overdue. I fully agree with the FMI and Nielsen’s conclusion that this issue is best addressed by a collaborative effort on the behalf of retailers and manufacturers. However, I believe we are moving to a smaller COS footprint. My view is that many of the COS products will be purchased online from the brick-and-mortar retailer and delivered to the store for direct placement into a consumer’s vehicle. This will then free up consumers… Read more »
Art Suriano
BrainTrust

There is no doubt that some grocers are behind where they need to be with online shopping services. It is costly and, because they lose impulse buying, the sales totals will not be the same. It is evident that consumers prefer the convenience, therefore developing and implementing a successful shop online grocery system is vital to a grocery chain’s success. The grocery store will serve a different purpose in the future because buying patterns will change. Customers who shop online will still go to the store as they will prefer picking out some of the items themselves, but they will go less often. That is the opportunity that grocers need to be thinking about going forward because the grocer will be able to introduce customers to new products as well as providing unique in-store promotions.

Michael La Kier
BrainTrust

While the pace at which Americans are going online to purchase groceries is picking up, it does not mean that a large majority of shoppers will bypass stores or that this group will bypass stores ENTIRELY. That being said, retailers and CPGs need to move rapidly to shore up organizations to not be ready for 2022, but be ready now. And if they are not ready now, they need to accelerate investments immediately in talent, technology and testing.

Dick Seesel
BrainTrust

The wave of online sales that has swamped general merchandising is now catching up to the grocery industry. This shouldn’t come as a surprise to food retailers after watching other industry segments caught flat-footed. It’s only now that general merchandisers have developed omnichannel strategies that are helping them turn a corner.

The key for grocery retailers is to reach the customer where he or she wants to shop. This may mean home delivery or it may mean BOPIS — and it may also mean a simpler shopping experience in-store with less overassortment to choose from. Rest assured that Amazon is going to deliver a more convenient experience (with higher in-stock levels) while traditional food retailers are still trying to figure out if there is a threat.

Stuart Jackson
Guest

I can’t believe food retailers are surprised by the growth in online — although it does seem high. People still want to go and choose their own groceries in-store but the main issue is the fact that many of the largest grocers have more brick-and-mortar outlets than they’re going to need in the future. But what do they do? It’s a tricky balancing act because the upstart discounters such as Aldi and Lidl can afford to acquire retail space and are prepared to open smaller stores just to put their brand next to yours. The best thing they can do right now is make sure that their own online offering is better than their competition. Really invest in the customer experience and make the experience so easy and so fast that customers will stay loyal and never be tempted to try elsewhere.

Sterling Hawkins
BrainTrust

It shouldn’t be a surprise and I’m with Stuart here. In addition to investing in the online experience, there are solutions that start to connect online and in-store that warrant investments from some retailers such as endless aisles or checkout-less shopping similar to Amazon Go. To leverage much of the infrastructure already in place, building the synergy amongst channels is going to be the best bet for legacy players.

James Tenser
BrainTrust
I guess it’s time to declare online grocery shopping will be an overnight success in 2023 — and after only 26 years! Sarcasm aside, we’ve seen forecasts like this many times before. I’m guilty myself of predicting a five-year path to mass penetration as far back as 1998. Sure lots of shoppers will honestly report that they have used an online grocery order service at least once or twice, but that’s a long way from a pervasive behavioral shift. Let’s do some simple math: If 70 percent of shoppers shift 10 percent of their grocery shopping spending to online ordering, that works out to about 7 percent of wallets overall. Grocery sales represent a huge denominator in that fraction, so the volume ($100 billion estimated in the Nielsen/FMI report) is significant. But supermarkets still need to cater to the remaining 93 percent of purchases with excellence. Retailers get that they need to serve shoppers all the ways they want to be served, and many are investing in online ordering platforms for delivery and/or click and… Read more »
Gene Detroyer
BrainTrust

Mother: “I have nothing in the kitchen, I have to go to the grocery store.”

Daughter: “Mom, save time, order online. That’s all I do.”

Mother: “But, its so difficult.”

Daughter: “It really isn’t. It will save time and it is so convenient.”

Mother: “OK, but you will help me?”

Later:
Mother to daughter: “That was easy and so convenient. And it saved me so much time! I don’t even need to go to the grocery store.”

Shep Hyken
BrainTrust

The consumer is finding out how easy and convenient it is to order online. There is much data out there that is showing the trends. These aren’t assumptions. They are hard facts. The retailer must adapt. Some are going to do it better than others, and they will have a head start, if not disrupt a competitor. So don’t sit on the sidelines and be a passive observer. Attend conferences, sign up for webinars and read the reports. There’s plenty of knowledge to give a retailer the information needed to keep up and even get ahead.

TJ Zlotnitsky
Guest

It is clear to anyone willing to accept reality that the move towards an omnichannel grocery world is going to accelerate. Grocers who don’t act proactively and mindfully to position themselves to compete in this new reality, will not survive this.

One acute challenge many grocers may be overlooking or underestimating when it comes to integrating online and offline forecasting and merging in-store shelf and online inventory capabilities, has to do with being able to execute against those objectives with Direct Store Delivered (DSD) merchandise. Virtually no retailers today have the right capabilities in place to overcome this challenge.

With DSD representing a quarter of the sales and half the profits at grocery, any go-forward strategy that doesn’t factor in the idiosyncrasies of DSD and solve for them is doomed to failure.

Cate Trotter
BrainTrust

The big question is how many of those who shop online for groceries are doing it exclusively? While a lot may have bought or are buying their groceries online, it’s wrong to read this as meaning that they’re not still buying in-store. With that in mind, I think retail needs to be mindful of the adoption rate and be preparing for it, but also not to shift all focus away from the in-store experience. The best option is to invest in solutions that span both online and in-store to reflect how most people are shopping. Online grocery shopping is going to keep growing, but I’m more interested in figures that show the overall shift of an individual’s grocery spend to online, rather than just new adopters.

Doug Garnett
BrainTrust
Doug Garnett
President, Protonik
1 year 7 months ago

Let’s reset what FMI likely found — because they have put words into consumers mouths as they interpret the research.

“Groceries” is used by them to imply “all groceries.” The research should say “some grocery items.” So all their research shows is that some things are being bought online.

That makes their conclusion crazy: “…a large majority of shoppers will bypass stores to place orders in as few as five years.”

In other words, FMI’s conclusions are based on a massive leap of faith not even pointed at by the research.

Here’s what we SHOULD expect. Some people will avoid stores. Based on other digital/online history, likely 10% to 30% (at most). A very large majority will buy a few grocery items online (80%?).

What should groceries do? Proceed at a reasonable pace and look with skepticism at the data — to find those steps that have big payback for the grocer rather than merely big payback for the vendor selling services or tech.

Cristian Grossmann
Guest

In order for retailers and CPG brands to be competitive in the online grocery market, they’ll need to consider the small customer experience touches that will keep members of various generational cohorts loyal. For the Millennial market, encouraging discoverability within the shopping interface and offering deep discounts for produce that may be considered imperfect (like Imperfect Produce has done.), or developing “generic” brands like Whole Food’s 365 or Brandless will gamify the shopping experience, helping this younger cohort build strong weekly shopping and cooking habits. For older generations, making weekly re-orders of the same items quick and easy is important, as well digitizing the traditional “coupon book” through good old-fashioned email marketing.

Ralph Jacobson
BrainTrust

Caught by surprise? Peapod has been around since, like 1989. Get serious. This is the typically reactive culture that the proactive, disruptive innovators have been capitalizing upon for years. The advantage to online retailing (be it by retailers or D2C CPGs) is that the shopper never knows if you’re operating out of your garage or if your a global conglomerate (Unless you’re one of the marquis brands of today). So, you can “punch above your weight class” via online retailing, and food retailing is so ripe with opportunity now.

Efficient fulfillment is probably the main key to profitability, and that is easier said than done. However, it IS being done right now by those organizations that are leveraging the technologies that take into account both internal data sources (call center, site traffic, etc.) as well as external data sources (local events, news, weather, social, etc.) to increase demand forecasting accuracy to drive efficient supply chain operations.

Craig Sundstrom
Guest

It probably sounds very impressive until one realizes the numbers have been hyped by focusing on EVER goes online vs. mostly or always goes online, and the $100B is in an $700-800B market.

But in answer to the question: no I don’t think they’re “being caught by surprise.” OTC being in the field day-to-day I imagine they, or the more alert among them anyway, have had a very good idea for some time.

Kenneth Leung
BrainTrust

I don’t think the vendors should be surprised. The issue I see is the economic model and disposable income. Shoppers want convenience as long as they can afford it and the retailers will deliver it as long as profit from it. We are in a state which we are in high employment in certain areas and fuel costs are low. The question I have is, what happens when the economy inevitably slows down and if the fuel cost goes up? Can the online shopping model be sustained profitably by retailers? What is the answer to the economically undeveloped areas?

Patricia Vekich Waldron
Staff

I don’t know how they could possibly be surprised! Convenience is a must for today’s consumer!

Ken Morris
BrainTrust
Ken Morris
Retail industry thought leader
1 year 7 months ago

Consumers continue to demonstrate their appreciation for convenience. In today’s fast-paced busy lifestyles, consumers are looking for ways to save time and online grocery shopping is a logical choice. Makes it easy to replicate shopping lists and for consumers to reorder items they routinely order on a weekly basis.

Building an online ordering site for grocers is probably easier than adopting all of the operations tasks that are necessary to successfully execute online orders and ensuring that real-time inventory is accurate. Where most breakdowns occur in BOPIS and BOHD (buy online, home delivery) is fulfilling the orders in the store, which are tasks employees are not accustomed to performing. Additional staff is needed to pick and pack the merchandise and if the order is delivered, that adds more costs to the order. Employee training is imperative. Retailers need to factor in all the additional costs into the pricing model to ensure profitability.

Bill Bortz
Guest
1 year 7 months ago

The geographical shift back to the city, and the likes of FreshDirect and Instacart will play a large role in this movement. Companies that can handle the last mile by leveraging scale; i.e., it’s easier to pull one truck up to an apartment building in NYC and deliver 20 orders than it is to have one truck stop at 20 suburban households. This is what will make urban grocery more competitive. I would say that retailers that focus in densely populated areas will need to move the most quickly. I believe that demographics will play a large part as well, with Asian and Hispanic users buying twice to four times the perishables than “white” households, I’d expect the ethnic markets that find a way to either protect themselves, or get into the game in an meaningful way, will lock down their base shoppers. Interesting times!

wpDiscuz
Braintrust
"Industry shifts of this scale and pace crown new winners and losers, and there are lots of new entrants aggressively playing offense, not defense."
"I’m more interested in figures that show the overall shift of an individual’s grocery spend to online, rather than just new adopters."
"This is the typically reactive culture that the proactive, disruptive innovators have been capitalizing upon for years."

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