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Digital and Delivery Shape Up as Grocery’s Newest Battlegrounds

The digital shift is forging new battlegrounds for the grocery segment.

For the platforms and the giants of retail — Amazon and Walmart among them, along with DoorDash — the focus is on price, fees and the value of consumers’ time as they battle for consumers’ share of wallet and loyalty.

PYMNTS Intelligence data revealed that 63% of shoppers made most of their common grocery item purchases in stores in early 2020, but this figure has dropped to 44%, as digital gains a wider embrace. Separate research done jointly by PYMNTS and Amazon Web Services (AWS) noted that the average order for grocery purchases online stood at $116, compared to in-store purchases of about $88.

Sixty-two percent of shoppers who buy more groceries through digital channels than in stores cited convenience as a significant factor. Fifty-four percent of respondents mentioned high prices or the lack of benefits and deals as reasons for their switch to digital alternatives.

Convenience and cost, then, are key considerations, and convenience and cost are the key attributes of what the platforms, with scale and thousands of options, seek to promote in order to cement customer loyalty.

As noted during the recent Amazon conference call to discuss earnings, CEO Andy Jassy said that the company is seeing “significant growth … in consumables and everyday essentials. When customers are getting items as quickly and conveniently as they are now from Amazon, they’re going to consider us more frequently for more of their shopping needs.” Those consumables and essentials include foodstuffs.

Chief Financial Officer Brian Olsavsky elaborated on the call: “From a customer behavior standpoint, we still see customers remaining cautious about price, trading down where they can, and seeking out deals coupled with lower spending on discretionary items.”

Walmart, for its part, has continued to gain traction in grocery and digital initiatives. We’ll know more when the company posts its latest earnings results later in the month, but the most recent fiscal quarter showed that grocery helped lead comp sales in the United States and digital commerce momentum — where that latter stat was up 24% year on year (grocery as a segment was up mid-single digit percentage points).

Walmart has an outsized presence in food and beverage, with an 18% share in the segment, overall, as PYMNTS has estimated, far outpacing the roughly 2.5% share logged by Amazon.

The Fee Factor

Cost demands an examination of fees, and, as reported last month, Amazon lowered the threshold for free grocery delivery for Prime members to $100, down from the previous minimum of $150. Walmart offers free grocery delivery on orders over $35.

For the aggregators, the push is on to move beyond restaurants, as fees in that channel have had the impact of spurring consumers to show up and pick up their orders. In the meantime, DoorDash has sought to leverage its existing audience to acquire eGrocery customers in the face of competition for consumers’ delivery spending.

“We have a strategic advantage because we have a network of consumers; we have a network of dashers already built out, and that’s allowing us to improve unit economics at a much faster pace,” DoorDash Chief Financial Officer Ravi Inukonda said, noting that the grocery business’s gross order value doubled relative to last year.

And Instacart, as Karen Webster noted in a column previewing its initial public offering (IPO), seeks to forge “a way to deliver an omnichannel experience for grocery stores and Instacart shoppers [as well as] an opportunity to create a digital grocery shopping identity that also connects to grocery store loyalty programs that can save consumers time and money while shopping in store.”