Digital grocery sales hit $128B

Online grocery sales have settled down to a level below the high rates of 2020, but still well above pre-pandemic levels, and are expected to gain traction across a broader consumer base in the coming years.

That might be considered good news for the grocery industry, which has long been seen as an ecommerce laggard, except for the fact that grocers have still not cracked the code on making a profit on selling their low-margin goods online.

Total digital grocery sales reached $128 billion last year, according to research from Incisiv and its Grocery Doppio platform, and sales are expected to grow to $146 billion in 2023.

About 14.4% of all 2022 grocery sales were digital, and that number is forecast to hit 15.3% in 2023 and 20% by 2026, the research firm predicted.

“Digital wasn't just a fad. It's here to stay,” said Gaurav Pant, chief insights officer of both Incisiv and Grocery Doppio, which tracks the digital grocery market. Grocery Doppio is powered by Incisiv in partnership with Wynshop, a provider of e-commerce solutions.

The trend toward digital grocery adoption has increased across all consumer demographics, Pant said, even among old consumers who had been slow to move online before the pandemic. While 63% of grocery shoppers shopped via digital channels in 2022, that figure is expected to reach 87% in 2023.

Digital grew throughout most of 2022, reflecting the broad, double-digit inflation that impacted the grocery industry. Average digital basket sizes increased 26.1% to $95 from the first to the fourth quarter and averaged $82 for the full year. That compares with an increase of about 29.2% for in-store baskets, which averaged $53.10 in the fourth quarter.

Despite the higher order volumes for digital grocery and the years grocers have spent fine-tuning these efforts, online grocery shopping is still not profitable for retailers, said Pant. 

The Grocery Doppio research estimated that grocery left $23 billion in sales on the table last year due to items that were unavailable or unsubstituted in customers’ digital orders. Those shortfalls were in large part due to inventory challenges that retailers faced in 2022, which actually increased during the course of the year, he said.

The other major challenge grocers face is in the cost of fulfillment. While grocery pickup is more cost-effective for grocers than in-house delivery, they still must pay employers to pick the orders from shelves and ensure they get into the hands of the right customers. That’s a significant labor element that had previously been shouldered by the customers themselves.

The Grocery Doppio 2022 scorecard estimated that grocers overall suffered a margin loss of $298 million in their digital business.

Some retailers have enjoyed some success by shifting their customers from third-party online grocery services to their own proprietary apps and websites, however. Third-party apps lost significant share of digital grocery share during the past year, according to the Grocery Doppio research, accounting for 18.9% of grocery sales in December, vs. 31.3% of sales in January of last year.

“Grocers are trying to own more of the shopper experience, to have the customer data inside the organization, which is needed to actually build a profitable grocery business,” said Pant.

Grocers’ own websites accounted for 69% of all digital grocery sales in 2022, according to the Grocery Doppio research.

More than three-fourth of digital grocery retailers — 77% — ranked “improving fulfillment efficiency” as their No. 1 priority area for 2023.

Hiring the right technology talent is another obstacle grocery retailers need to overcome, according to Pant, who said the issue rose to No. 3 on the list of tech challenges retailers said they face in 2023, behind budget and integration.

“Clearly, if they want to build a different business, or even look at integration across channels, they need talent to do that,” said Pant.

He cited the building of retail media networks — an increasingly important element of many retailers’ digital platforms — as an example. Half of all grocers said they will look at a retail media platform in the next 24 months, he said.

“Building a media business is a very different business,” Pant said. “If you don’t have the right talent, people skills and capabilities required to do that, it's not an easy thing to do.”

Barry Clogan, chief product officer at Wynshop, said grocers have the opportunity to improve their margins in their ecommerce offerings as they gain more understanding about how to drive sales and optimize baskets in a digital environment.

It’s also a matter of better understand the online consumer, he said.

“We traditionally have over-indexed maybe to a young family demographic, and maybe to more affluent consumers,” he said. “That’s changed with COVID. Now everybody’s had exposure to online grocery shopping, and grocers have to get better at understanding the different segments and cohorts that are shopping online.”