Digital sales are soaring, but grocers might not be able to keep up

The surge in online grocery sales that began at the pandemic’s outset is largely holding steady, but grocers’ digital operations might not be able to keep up with order fulfillment, scheduling and picking.

That’s according to new research out this week from Brick Meets Click/Mercatus and Grocery Doppio.

First, the good news: Online grocery sales climbed 2.4% in December, to $9.1 million in total sales, over the same period in 2021, according to the Brick Meets Click survey conducted at the end of the month. That’s just shy of the record of $9.3 billion in sales recorded during the first quarter of 2021.

The uptick was driven by more households buying groceries online during the month and slightly higher average order values, the research firm said, noting that these factors trailed grocery price inflation.

Pickup, however, was the only format to gain sales in December, climbing 14.7%, Brick Meets Click said. Delivery was down 1.8% and ship-to-home fell 16.2%.

More than half of all U.S. households ordered groceries online last month, up 4% from a year ago.

But a new Grocery Doppio study from insights firm Incisiv and digital fulfillment company Wynshop found that two-thirds of grocery retailers said their digital operations platforms were not prepared for the holiday sales spike.

Eighty-two percent of grocers surveyed said their website and apps were up to par to handle the level of business, but fulfillment, scheduling and picking had trouble keeping up, the survey found.

Due to those inefficiencies, grocers struggled to make online shopping channels profitable in 2022, Grocery Doppio said.

Just over 14% of all grocery sales, or about $128 billion, came from digital channels last year, but grocers lost $298 million in margin from online sales, the study noted, “making most digital operations unprofitable.”

And 77% of grocers said that improving fulfillment efficiency was the No. 1 priority for 2023, Grocery Doppio said. More than 80% of grocery executives and 73% of store associates said upgrades to store technology are necessary to deal with digital sales.

“The big challenge for grocers in 2023 is to improve their fulfillment capabilities in order to keep up with demand and achieve profitability,” Wynshop Chief Revenue Officer Charlie Kaplan said in a statement.

Perhaps not coincidentally, Brick Meets Click found that orders placed with mass retailers (who often have a more-robust digital ecosystem in place than smaller grocers) contributed more significantly to the growth of online grocery sales than orders placed with traditional grocers.

“The investments that mass retailers have put into their pick-up services are a significant driver of the format’s gains,” Brick Meets Click Partner David Bishop said in a statement. “While lower prices are a contributing factor … being able to more consistently execute at the store level is also helping to strengthen retention and engagement with existing customers, especially when compared to grocery.”

The number of people buying groceries from both mass retailers and traditional grocers climbed for the second month in a row, Brick Meets Click found. More than 30% of shoppers surveyed in December bought groceries from both types of retailers, about 130 basis points higher than a year ago. The trend is likely driven by ongoing inflation, the firm noted.

"Smaller grocers have room to build out their digital services to compete with larger players and, potentially, improve profitability,” Sylvain Perrier, president and CEO at Mercatus, said in a statement.

“Regional grocers have many opportunities to improve the customer experience and the profitability of operating an online grocery service today,” Perrier said. “From our ongoing work and research into online customer behavior, we’ve learned how important it is to develop a strategy that makes sense both financially and operationally, and that builds on how a grocer is positioned in the market and with their core customers.”