In this report, we share our top takeaways from our latest consumer survey, which looked at the online grocery market in the US.
Major names in US grocery are piling into e-commerce. These companies are rolling out delivery points, partnering with rapid delivery firms and acquiring fulfillment providers. At the same time, Amazon appears to be recognizing how hard it is to gain traction in grocery with an online-only operation. The company has moved into brick-and-mortar formats and pared back its AmazonFresh coverage over the past year.
In this report, we take a deep dive into the fast-moving online grocery segment and present the findings of our latest consumer survey, conducted in March of 2018. This report forms part of our How the US Shops series of reports, each of which is based on proprietary consumer research. The main body of the report features analysis of our survey findings, question by question. First, though, we bring together data points from various questions that we asked respondents as we discuss four top takeaways from our survey.
1. Online Shopper Numbers Do Not Reflect Market Size
The online grocery market is disproportionately small relative to the number of consumers who say they shop for groceries online. Some 23.1% of all shoppers we surveyed said that they had bought groceries online in the past year, but most online grocery shoppers actually spend very little of their grocery budgets online:
We estimate that e-commerce will account for only about 2.4% of total food and drink retail sales this year. This is equivalent to sales of around $23 billion in a market approaching $1 trillion in value.
Those retailers interested in growing the online grocery market must do more than simply boost participation; they must also convert occasional and small-basket shoppers into regular, full-shop customers.
2. Amazon Is the Most-Shopped Online Grocery Retailer, but Few Use It Like a Regular Grocery Retailer
Amazon is by far the most-shopped retailer for online groceries. Some 59% of online grocery shoppers surveyed said they had bought from Amazon in the past year, versus 26% for second-place Walmart. However, that does not mean that shoppers turn to the site for their regular grocery shops. In fact, a number of data points suggest that shoppers tend not to use Amazon for conventional, full-basket grocery shops, while they do tend to visit Walmart.com for such shops.
So, although Amazon has the most online grocery shoppers, it is established grocery retailers such as Walmart that are pulling in consumers looking to complete bigger-basket, full-assortment grocery shops.
3. Cross-Channel Grocery Retailing Looks Set to Beat Pure-Play Formats
Our long-standing view is that it is much more difficult to make pure-play Internet retailing work in the grocery category than in nonfood categories, and Amazon’s recent history supports our conclusion. The company has ventured into brick-and-mortar retail by acquiring Whole Foods and launching Amazon Go stores. It has also withdrawn AmazonFresh from some US regions and recently merged its Prime Now and AmazonFresh operations.
Meanwhile, other major grocery retailers have been rapidly expanding their collection services, enabling more shoppers to pick up their grocery orders from stores. This reflects the strength of cross-channel shopping in the grocery sector.
We think that the mature online grocery markets of the UK and France, where multichannel retailers dominate, further indicate that it is not pure plays that tend to lead in online grocery. We expect to see Amazon innovate further to avoid facing a similar situation in the US as online pure plays have faced in mature European markets.
The popularity of grocery pickup services and the extension of same-day delivery by retailers such as Target seem to foretell a polarization in online grocery: we expect to see lower-cost, collection-based services fulfilling the majority of large, family-type orders and premium services such as Amazon Prime Now and Shipt fulfilling smaller orders via same-day delivery.
4. Walmart Is in a Strong Position Online
Walmart has a confident lead over its brick-and-mortar rivals in online grocery and one indication of Walmart’s online strength is that it sees a narrower gap between online and in-store shopper penetration rates than its major rivals do. However, because Amazon captures so many online purchases, Walmart’s share of online grocery shoppers is still much lower than its share of in-store grocery shoppers. Just over one-quarter of online grocery shoppers we surveyed had bought from Walmart.com in the past 12 months.
Relative to competitors such as Target and Costo, Kroger also shows strength in online grocery. In our survey, Kroger ranked second in terms of online shopper numbers, with 8% of those polled saying they had bought groceries online from Kroger in the past 12 months. In terms of in-store shopper numbers, Kroger ranked third among major grocers. And, like Walmart, Kroger sees a narrower gap between online and in-store shopper penetration rates than most of its major competitors do.
Like Walmart, Kroger has been rolling out hundreds more grocery collection points. But, unlike Walmart, Kroger charges customers to pick up their order—typically, $4.95 per collection. Among those who expect to buy groceries online in the next 12 months, we found that in-store and online Kroger shoppers were more willing than Amazon or Walmart grocery shoppers to pay for delivery and were more willing to pay delivery charges at higher levels. These shoppers’ willingness to pay to collect their orders is supporting Kroger’s strong position in online grocery.
Almost a quarter of all shoppers buy groceries online, although that does not necessarily mean they shop online regularly.
All age groups we surveyed registered strong levels of online grocery shopping. It is not a market led by the very youngest shoppers, however, as these consumers’ busy lifestyles and smaller households typically result in more last-minute, small-basket shops. It is shoppers ages 30–44 who buy groceries online most often. Consumers in this group are likely to be more settled and, in many cases, to have young families, which drives up basket sizes and willingness to plan grocery shops ahead of time.
Our survey found that shopper penetration across US regions was fairly even, suggesting that online grocery shopping is not confined to a few large urban centers. One regional exception was the West North Central region, which was the only area where the proportion of consumers buying groceries online was less than 20%.
While almost one-quarter of consumers have bought groceries online, most online grocery shoppers buy only a very small share of all their groceries on the Internet.
Amazon is by far the most popular retailer for online grocery purchases. Otherwise, Walmart, Kroger, Target and Costco are the only retailers with meaningful numbers of online grocery shoppers—and Walmart has a big lead among those retailers.
Amazon’s retreat from online-only grocery leaves Peapod and FreshDirect as the main pure plays in the space, although visitors to the websites of Giant and Stop & Shop (both of which, like Peapod, are owned by Ahold Delhaize) are directed to Peapod.com for online purchases, which enhances Peapod’s scale.
Only a very small number of consumers we surveyed said they shop at Peapod and FreshDirect. This may be attributable to the two pure plays’ liimited geographic coverage: Peapod covers only 24 markets in eastern US states while FreshDirect delivers in only six states. These retailers see the highest penetration rates in the Mid-Atlantic region: a sizable 21% of online grocery shoppers in the region said that they had bought from Peapod in the past 12 months and 14% said that they had bought from FreshDirect.
Online vs. Offline
We also asked respondents where they bought groceries in-store, and we provide an online/offline comparison for multichannel retailers below. These data confirm that, in online grocery, Walmart is outperforming key multichannel competitors:
Notably fewer online grocery shoppers buy from Walmart.com (some 25.5%) than in-store grocery shoppers buy from Walmart stores (fully 60.8%). However, this is likely due to the very large share of shoppers that Amazon captures online, and we think that the most meaningful comparisons are between Walmart and its multichannel rivals.
Amazon may be the top choice among consumers buying grocery items online, but few shoppers appear to be using the site for regular, full-basket food orders. Amazon sells groceries through a number of services, so we asked those shoppers who had bought groceries on the site in the past 12 months which of its services they had used.
Our data also show that Amazon shoppers are more likely than average to use the Internet for only a small portion of their grocery purchases. By contrast, those who have bought groceries online from Walmart in the past 12 months are more likely than average to do most or all of their grocery shopping online.
As we show in the next section, shoppers’ irregular usage of Amazon is also reflected in the types of grocery categories they buy on the site.
We asked shoppers what grocery products they had bought online in the past year, and the survey results confirm that consumers remain reluctant to buy fresh food online. Apart from alcoholic drinks, the categories shoppers said they bought the least often online were chilled prepared foods and fresh dairy products, meat, fish or eggs. Fresh fruit or vegetables also ranked relatively low in terms of online purchase frequency.
While packaged nonfresh food ranked highest, the category’s popularity is somewhat skewed by its breadth. Reflecting this breadth, our survey question defined the category as encompassing “chocolate, canned foods, breakfast cereals, snacks, pasta, rice, prepared sauces, etc.”
The survey results showed that nonfood groceries, such as toiletries, household cleaning products and pet food, are very popular categories for online purchase. Such nonperishables are well suited for e-commerce and shoppers frequently buy them from trusted brands, and so do not feel a need to see or choose the products in person.
Notably, Amazon grocery shoppers are much less likely than the average shopper to purchase fresh and frozen categories online. As we chart below, Amazon online grocery shoppers were approximately 10 percentage points less likely than average to have bought fresh dairy, meat, fish or eggs, or fresh fruit or vegetables, online. These figures further support the conclusion that shoppers look to Amazon less often than other online grocery retailers when they need to undertake a regular, full-basket grocery shop.
Walmart online grocery shoppers are significantly more likely than the average shopper to buy fresh and frozen food categories online. This supports the perception that shoppers are turning to Walmart for full-basket grocery shops.
Delivery or Collection?
Reflecting the widescale rollout of collection services by a number of grocery retailers that sell online and somewhat patchy home-delivery coverage, online grocery shoppers are slightly more likely to pick up their orders than to have them delivered.
How Much Shoppers Will Pay for Delivery
We asked those respondents who expect to buy groceries online in the next 12 months how much they would be willing to pay for delivery. While almost one-third expect delivery to be free, a sizable 29% said they would pay up to $5 and nearly 20% said they would pay up to $10.
For context, Walmart charges $9.95 for each grocery delivery, while Instacart typically charges $5.99 per delivery for those without an annual subscription to Instcart Express. Target-owned Shipt charges $7 for delivery of orders under $35, but users must pay for a membership, too. Peapod charges $6.95–$9.95 for delivery.
As we noted earlier, just over half of those we surveyed told us that they do not expect to buy groceries online in the next 12 months. We asked them why that is, and the group cited three particular reasons much more frequently than all the other possible reasons presented in the survey:
For this report, we conducted an online survey of 1,885 demographically representative, Internet-using American adults between March 15 and March 24, 2018. Online surveys represent Internet users and, according to the Pew Research Center’s latest published data, 88% of Americans were Internet users in 2016. The proportion of the total US population using the Internet has been climbing by around two percentage points per year, according to Pew data. So, in March 2018, when we undertook our survey, it is likely that approximately 90%–91% of Americans were Internet users.
The groceries category covers more than food, and respondents were given the following definition: “By groceries, we mean the kind of food and nonfood products that you regularly buy from a grocery store, including food, drink, pet food, household cleaning products (e.g., laundry detergent) and personal care products (e.g., shampoo, diapers).”