The massive surge in online grocery orders in wake of the coronavirus may have permanently altered shopping habits, which, while a boon to consumers, could pose a challenge to the bottom line of retailers, a new report finds.
A significant proportion of the increase in online grocery shopping, up to 35 percent to 40 percent, will survive and carry on even as lockdown measures come to an end in 2020, according to an analysis of the sector by Bain & Co.
Over the next five years, “online grocery penetration could as much as double in select markets,” Bain finds, warning that the acceleration of the shift could “massively dilute retailer profits.”
In order to ensure the shift make sense for their bottom lines, supermarket chains and other retailers in the grocery business will need to take steps to “improve the poor economics” of the online shopping and delivery sector, the report warns.
“Around the world, shoppers are breaking with lifelong habits by ordering groceries through the Internet,” the Bain report notes. “This unexpected surge poses a threat to the industry, even though mainstream e-commerce adoption has been on the horizon for so long.”
The big problem, Bain notes, is that delivery groceries to the homes of shoppers, or curbside pickup, for that matter, are “structurally less profitable than in-store transactions.”
Given already thin profit margins, the loss supermarket chains and other retailers are taking on each order can add up fast, according to the report.
In order to make online shopping profitable, grocery chains and other retailers need to reexamine their fee structure with an eye to either raising the amount they charge for deliveries or, in some cases, starting to charge a fee in the first place.
Another possibility is selling space on their online shopping platforms to advertisers and automating the grocery order fulfillment process, though that would also require heavy, upfront capital expenditures, Bain notes.