Strapped budgets and rising costs are driving grocers to narrow the focus of their technology budgets next year, prioritizing big issues such as labor shortages, security, fulfillment and digital channels, according to a Grocery Doppio report by Incisiv and Wynshop released Thursday.
The “State of Digital Grocery Performance Scorecard Q3 2023” reported that 71% of grocers won’t increase their overall technology budgets in 2024, but 83% plan on investing more on digital technology. They also plan to increase their tech budgets for security (67%) and artificial intelligence (79%).
Fewer than one in five grocers (18%) plan to dedicate more to their overall technology budgets next year, and that increase is estimated to average 4.3%.
"You can read grocers' digital pain points between the lines of their 2024 budgets," said Wynshop Chief Revenue Officer Charlie Kaplan in a statement. "They need technology tools to optimize labor amidst rising costs, they need better inventory management as supply chain disruptions persist, they need tools for operational efficiency in fulfillment and they need ways to lean into digital incentives and loyalty."
Digital technology spending will increase an estimated 7.9% in 2024, with 11.2% on labor optimization, 9.6% on inventory optimization, 8.1% on picking optimization and 7.3% on digital offers and loyalty, the survey found.
The report also showed that while digital grocery sales were up in the third quarter at $30.4 billion, compared to $29.5 billion in the previous quarter, the category’s portion of the overall market declined to 12.9%—the first time this year it has gone below 13%.
Total grocery sales rose to $236 billion in Q3, up from $226 billion in the previous quarter.
Third-party apps experienced a substantial reduction in market share for the quarter, losing 4.1% of the overall market and capturing just 15.9%. The report noted that third-party apps made up more than a quarter of the market at the same time last year at 26.6%.
Digital basket sizes were up 12% from Q2, while the average number of items per basket shrank by two to three items. Shoppers at large grocers had basket sizes four times that of their smaller competitors, according to the report.
"Digital grocery sales do appear to have reached a plateau, but digital still influences most grocery sales," said Gaurav Pant, chief insights officer of both Incisiv and Grocery Doppio, in a statement. "Along with this indicator of relative market maturity, we are seeing grocers become more focused about where they are spending on technology. Investment in digital channels and security are both increasing, while AI is clearly seen as an important area of future growth as well."
The report is based on a survey of 36,910 shoppers and 3,504 grocery industry executives, plus analysis of customer data from more than 2 million orders.