Online grocery sales projected to grow 11.7% over five years

Online grocery sales in the U.S. will grow at a compound annual rate of 11.7% during the next five years, according to the 2023 Brick Meets Click/Mercatus Five-Year Grocery Sales Forecast.

The growth will result in online grocery increasing its share of total grocery sales to 13.6% in 2027, up from 11.2% in 2022, the survey projected.

The forecast, which had been released annually before the pandemic but was paused for the last two years, reflects that online grocery sales growth is slowing after the gains of the last two-plus years, said David Bishop, partner at Brick Meets Click.

“Now more than ever, grocers need a grounded view of the future market while simultaneously strengthening the customer experience to protect their base business and improving the profitability of this higher cost-to-serve mode of shopping,” he said.

Total grocery sales, including both online and in-store sales, are projected to grow at a 7.4% compound annual growth rate (CAGR) over the next five years. Excluding inflation, total grocery sales are projected to grow at a 2.5% CAGR, driven by an approximately 1.7% increase in household spending and 0.8% gain in the number of households.

The five-year CAGR for online sales, excluding inflation, will be 6.5%, the report projected, while in-store sales will grow at a rate of 2%, excluding inflation.

Pickup will remain the fastest-growing segment of online grocery and will account for more than half of online grocery sales by 2027, according to the report. The research predicted a five-year CAGR of 13.6% for pickup, compared with 10.8% for delivery and 8% for ship-to-home. As a result, pickup’s share of online grocery sales is forecast to expand to 50.3% in 2027, compared with 45.4% in 2022.

Many U.S. grocery retailers are still in the process of rolling out pickup services across their base of stores, the report explained, while delivery is already saturated. In addition, the use of delivery is more sensitive than pickup to financial and health concerns.

Spending per order and order frequency rates are both anticipated to increase but to varying degrees across the three online segments. Average order values over the next five years are projected to grow at a CAGR between 4.2% and 6.4% (inclusive of inflation), with ship-to-home coming in at the lower end, delivery in the mid-range, and pickup at the higher end.

Grocery-related inflation is expected to continue at a five-year CAGR of 4.8%, starting from 10.9% in 2022 and tapering down to 2.8% by 2027. Inflation will fuel nearly three-quarters of the projected gains for in-store sales but less than half of the gains expected for online sales, the report concluded.

Health concerns are expected to continue to drive the demand for online grocery to some degree. About 10% of month active users of online grocery said they were motivated by concerns about contracting COVID-19, according to the October 2022 Brick Meets Click/Mercatus Grocery Shopping Survey. The recent rise of other respiratory illnesses, such as RSV and the seasonal flu, is also motivating customers to shop online for groceries, according to the report.

“When it comes to achieving online channel profitability, my advice to grocery retailers is: Work smarter, not harder, and focus on the fundamentals,” said Sylvain Perrier, president and CEO, Mercatus. “Know who your customers are and the value you provide them. Use that insight to deliver a more personalized brand experience that is consistent and frictionless.”

He suggested that retailers deploy simple tactics to improve margins such as:

• offering lower-cost pickup services;

• engaging with multiple third-party delivery providers; and

• leveraging first-party retail media.