Grocers Juggle Bottom Line, Food Delivery Costs

Online grocery sales rose to a record $6.6 billion last month, up 65 percent from March, propelled by high demand from pandemic lockdowns, according to research firm Brick Meets Click.

Rather than donning masks and following social distancing rules, shoppers have turned to grocery delivery services as 43 million customers shopped online in May, up from 39.5 million in March, a nearly 9 percent hike, the survey revealed.

While supermarkets have embraced delivery to meet the demand, many grocers haven’t figured out how to get food to customers’ homes profitably and others wonder if they ever will, The Wall Street Journal (WSJ) reported.

Bristol Farms, a California grocery store chain that operates 19 supermarkets, said its delivery business has doubled since the pandemic.

But Kevin Davis, a consultant and the company’s former CEO, said the surge represents convenience rather than a replacement for in-store shopping.

“It’s more expensive and not as profitable,” Davis told WSJ. “It’s a two-edged sword.”

Iowa-based grocer Hy-Vee, with its chain of more than 245 supermarkets located in the Midwest, said it plans to expand pickup, which can be cheaper than delivery.

CEO Randy Edeker told WSJ delivery “is not something we discourage, but it’s nothing we’re pushing to grow.”

Nilam Ganenthiran, chief business officer at Instacart, the California grocery delivery and pickup service, said the grocery business has taken a giant step into eCommerce since the pandemic emerged three months ago.

“The days of a grocer not offering eCommerce are behind us,” Ganenthiran told WSJ.

Last week, PYMNTS reported Instacart raised $225 million in new funding, bringing its valuation to $13.7 billion. The company has doubled the number of customers and now offers services to more than 500,000 people who want groceries delivered to their door.

The company’s customer service team also increased by nearly 20,000, up from 1,200 in March, WSJ reported.

Mid-Atlantic food retailer Weis Markets has 198 stores and as online sales rise, it will buy more refrigerated lockers, delivery trucks and technology, its CEO told WSJ. But any expansion comes with higher labor costs, which could hurt margins.

“It is not terribly profitable, and it probably gets unprofitable with more orders,” CEO Jonathan Weis said.