Buy now, pay later surges for groceries
What this means: BNPL is entering its prime this year. For many consumers, it’s the perfect solution to turbulent personal finances and rising costs. BNPL is the younger generation’s savvier version of layaway, but for consumers who are racking up credit card debt or having difficulty in paying bills after the pandemic, it’s a solution that’s tailor made for today’s retail environment. BNPL usage in essential categories provides a huge relief to consumers in their everyday purchasing, but consumers aren’t always fully educated on the long-term impacts of these programs if not paid back on time.
Rising costs-of-living have pushed consumers toward BNPL services that enable them to pay for purchases over time. In 2022, the share of online purchases using BNPL grew by 14% year-over-year (YoY), with revenue from BNPL growing 27% YoY, according to an Adobe Analytics U.S. e-commerce report. In the first two months of 2023, BNPL order share was up by 10% YoY, though revenue fell by 19% YoY, indicating that consumers are using this payment method for smaller purchases.
Adobe looked at BNPL usage across major categories, including groceries, home furnishings, apparel and electronics. In the first two months of 2023, groceries’ share of BNPL orders grew a staggering 40%, while home furnishings grew by 38%. By contrast, apparel grew by 8% and electronics fell by 14%.
“The rise of BNPL usage for groceries tells us that consumers are likely making bigger purchases online to take advantage of special promotions and stock up on staples, thus managing living expenses in more flexible ways,” explained Vivek Pandya, lead analyst, Adobe Digital Insights, in a blog. “The strong online growth of home furnishing purchasing is expected to bolster BNPL adoption, given the higher ticket prices in this category.”
Rise of BNPL for groceries
Although food prices are starting to cool, grocery bills still remain higher than normal from inflation. The Consumer Price Index for food at home increased 10.2% for the past 12 months ending in February, down from 11.3% in January, marking a continual decline since August 2022.
Simultaneously, consumers are more often buying their groceries online. In 2022, consumers spent $86.8 billion on groceries online, a 10.8% increase year-over-year (YoY), according to an Adobe U.S. e-commerce report. Additionally, shoppers spent more than $126 billion on home furnishings, a 10.2% increase YoY. This strong growth contrasts with electronics, which remains the top category by total spending ($202 billion), but had more modest growth at 4% YoY. While apparel was another major category that drove $171.8 billion in 2022 spending, the number fell by 3.8% YoY.
With increasing online grocery sales coupled with a growing list of BNPL services, consumers are finding it increasingly easier to choose extended payment plans. Shoppers can employ BNPL service providers, such as Klarna, Affirm and recently Apple, in addition to and BNPL services available at stores, including Kroger, FreshDirect, Walmart and Target. Now the battle at point-of-sale is being won by BNPL over credit cards, according to J.D. Power. Nearly one-third (29%) of consumers said they first became interested in a BNPL service because it was offered as an option at checkout.
Respondents also cited friends and family recommendations (16%) and social media (14%) as other factors that piqued their interest in BNPL, J.D. Power said. By the end of 2021, shoppers had spent more than $20 billion using BNPL, which is projected to generate up to $680 billion in transaction volume worldwide by 2025. According to J.D. Power data, the total percentage of consumers with an active BNPL account increased to 22% in January from 18% in October 2022 and 14% in July 2021.
Additionally, nearly 60% of consumers say inflation makes them more likely to use BNPL products to pay for purchases, according to a Credit Karma study conducted by Qualtrics. According to the study, 53% of consumers who have used BNPL products say they use them to pay for items out of necessity with another 45% saying they’re most likely to use BNPL options when their finances are tight. As of March 2022, the majority of Americans (61%) have used buy now, pay later services to pay for an item they needed, up from 44% in September 2021, Credit Karma reports. At the same time, half of respondents who have used BNPL say their usage has gone up in the past six months, with the majority of users juggling between one to three BNPL purchases at a given time, the online credit service reported.
Who is using BNPL
Younger generations in the U.S. had not used BNPL as often in 2020 as their older counterparts, but this had changed by March 2021, according to The Motley Fool. For instance, more than 61% of respondents ages 18 to 24 said in 2021 they had used a BNPL service — a number significantly higher than the almost 38% recorded in a 2020 survey. The growth in this age group was 62%, although it was not the highest growth. The age group of 55+ saw BNPL growth of nearly 100%.
Currently, interest in BNPL services is slightly lower for millennials (42%) than Gen Z (50%), according to GWI.
“Millennials are most likely to use BNPL for the convenience, while Gen Z and all other gens prefer how it lets them spread out payments,” Chris Beer, data journalist at GWI, told Retail Leader Pro.
Continued economic uncertainty is projected to continue to drive many shoppers to delay payment for purchases by leveraging BNPL options online shopping.
“E-commerce demand has remained resilient in an uncertain economic environment, driven in part by lasting pandemic habits where consumers had no choice but to leverage online food and home furnishing shopping services,” Pandya said. “Now consumers have embraced the rich e-commerce experiences that made them feel comfortable getting these necessities delivered to their doorsteps, making these categories new growth drivers in the digital economy.”
What’s next: With economic uncertainty rising, the usage of BNPL may only increase throughout the remainder of the year. The question is what types of purchases that consumers do next for BNPL? With the service allowing consumers to defer and split payment instead of racking up debt and interest, experiential purchases may be prime for this type of alternative. However, it’s clear that consumers are focused more on satisfying their needs vs. wants, and that essential categories like grocery and drug will likely sustain programs this year.