Online Sales Growth to Further Pressure Profits: Study

Online grocery sales are predicted to reach more than 8% of total grocery sales in the U.S. by 2022, a dramatic jump compared to the 5% of sales seen at the end of 2017, according to a new Brick Meets Click online grocery forecast.

The forecast projects a five-year compound annual growth rate of 13%, compared to 1.3% for sales originating in-store (excluding the effects of inflation).

David Bishop, partner with Brick Meets Click, says the findings illustrate the "impact that online is having on how grocery retailing is conducted.” 

“Our forecast numbers show steady growth, and this supports the case for two important points," he said. "First, online grocery is already important and will become even more important in the near term, and second, the store will continue to be the place where grocers make most of their sales—but the growth of e-commerce puts even greater pressure on retailers to find ways to make this part of the business more profitable.”

The forecast points out that in-market providers—online grocers that maintain a physical presence in the markets they serve—still have room to grow, while mature pure-play retailers face "stiffer headwinds."

Bishop said Brick Meets Click expects that in-market provider growth rates will vary from market to market, depending on the mixture of competitive options that are available. 

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"In the top 50 markets, which account for 55% of the population, our assessment reveals that there are already 10 in-market services available on average,” Bishop said. Growth rates will not just be impacted by the total number of online grocery rivals, but also the "range of value propositions offered by different trade channels like club, grocery and pet, as well as the various fulfillment options like delivery or pickup," he said. 

“As a market develops in this way, it attracts an expanding online shopper base; however, it will also trigger switching from one provider to another among existing active shoppers as they look for a service that better fulfills the promise of a better shopping experience,” said Bishop.

Brick Meets Click’s forecast is generated using a market model developed over the past five years that incorporates market, competitor and shopper elements from its grocery insights platform, Grocery IP. 

“It’s critical that retailers understand how far, how fast and where online grocery will grow in their markets so they can more effectively adapt their strategic plans and make investments decisions," said Bishop. "Analyzing online sales by provider type while leveraging drivers of growth helps us more accurately and confidently gauge the direction and speed of growth for the different online types over the next five years—whether at the national market level or in specific metro areas."