Despite spikes in online shopping as a direct result of COVID-19 lockdowns, the fundamentals behind online grocery still make it economically unsustainable in its current form, said Kurt Jetta, founder and chief analyst of TABS Analytics, a technology-enabled firm serving the consumer products industry.
Earlier this year and prior to the pandemic, Jetta told WGB that demand doesn’t support the investment in online grocery, and that grocers’ resources are best spent on in-store experience and promotions. WGB followed up with the outspoken analyst to learn if this remains true as the pandemic wears on.
“Even more so. [COVID-19 created] about as favorable of conditions for online grocers as you can get. Yet Walmart claims it’s still losing money,” said Jetta, who added that while the mass merchant saw a huge surge in demand, only 11% of the increase was attributable to e-commerce, and of that, an estimated 8% or 9% was food and beverage. “Not very big gains considering Walmart’s footprint.”
Every year since 2013, TABS Analytics surveys 1,000 adults in August for its Annual Consumer Value Study, Food and Beverage. The study examines the purchasing habits and frequency around 15 bellwether categories, including salty snacks, frozen pizza and cookies, which account for 20% of CPG retail dollars.
Based on this year’s survey, the firm finds that Walmart has outpaced Amazon to become the No. 1 online food retailer. Jetta said Walmart accounts for about 30% of online grocery transactions, and Amazon’s share is about 27%, down from 33% in 2019. Amazon has publicly challenged this assertion, noted Jetta, which he sees as further evidence of its accuracy.
“Amazon is as opaque as one can be in grocery. There’s no reason they should have responded [to the report]. Clearly, we struck a nerve,” he remarked.
This year’s survey, which Jetta called “a very accurate barometer of overall demand” that also “uncovers weaknesses,” revealed some surprising results. Specifically, the percentage of adults purchasing online regularly (6 or more times a year) declined vs. last year. The percentage of shoppers using delivery regularly (6 or more times a year) was down to 21% in 2020 from 27% in 2019. Thirteen percent of respondents in this year’s survey say they regularly use pickup, down from 14% last year.
Equally surprising was that dollar store frequency was down (a channel which Jetta suspects may have lost market share to value-priced Aldi), and “marginal guys who were left for dead like Peapod, saw phenomenal results,” he said.
But whether Walmart or Amazon reigns as the top online grocer, Jetta said he’s done the math and “online grocery will never be profitable under the current business model."
“For one, the paradigm [Amazon and others] have bought into with next- or same-day delivery is so self-destructive,” he said. Grocers’ already razor-thin margins take an even bigger hit when delivery and pickup are in the mix. What’s more, most orders arrive in multiple shipments, further chipping away at profits.
“[Online grocery] is such a misallocation of effort,” Jetta added. “E-commerce is less than 10% of the market, and it’s unlikely food and beverage will ever represent more.”
Some categories, like personal care is higher [20%]. Products such as vitamins also do well online. But when it comes to the perimeter, ice cream, soda and more, consumers go brick-and-mortar with far greater frequency.
Given that people like the experience of going to the grocery store, said Jetta, grocers would do well to invest more in-store. “Pay workers more, and you’ll have better more motivated people. And don’t go cheap on the perimeter. People love the perimeter, just look at Wegmans’ success with its perimeters.”
Consumer appetite for deals has also increased during COVID-19, said Jetta. The survey found that everyday low price, circulars, large sizes and FSI’s saw the largest gain in usage vs. 2019.
“And make the offers more compelling,” urged Jetta, pointing to Publix’s well-advertised buy one, get one offers as yielding “best-in-class results.”