Online Grocery Fails to Gain

By Pan Demetrakakes

Brick-and-mortar rules in grocery shopping, with online failing to get much traction, according to the latest study from TABS Analytics.

The fourth annual Food and Beverage Study from TABS found that online grocery increased its market share over last year by about half a percentage point, from 3.9 percent last year to 4.5 percent this year. This meant, however, that it still hasn’t broken 5 percent in the four years TABS has conducted the study.

One of the biggest problems is that online grocery shopping isn’t gaining much traction due to a loyalty rate of only 15 percent. Possible reasons for this include consumers’ desire to see their food, especially fresh food, before they buy; high prices for most online groceries; difficulties in getting timely deliveries; and the fact that, at least with groceries, many consumers simply seem to enjoy the brick-and-mortar shopping experience.

“Our data shows very high satisfaction and loyalty to brick and mortar, so there’s no obvious consumer pain point,” says TABS CEO Kurt Jetta.

Of the major online grocery players, only Amazon showed growth, with an increase in shopper penetration from 14 percent in 2015 to 16 percent in 2016, the TABS study found. Walmart experienced no growth in online grocery, staying at 12 percent penetration; the major grocery banners, collectively, dropped from 16 percent in 2015 to 11 percent in 2016; and Target dropped from 7 percent to 5 percent. (The Target decline reflects its exit from curbside pickup service.)

Brick-and-mortar stores were by far the most popular venue for grocery purchases, racking up 78 percent of sales in 2016. Among these, grocery stores led in regular purchases (defined as six or more per year to a specific outlet), with a 26 percent share. Walmart was second in this metric, at 17 percent. Online’s share of regular purchases came in at just 1.6 percent.

“The major stumbling block [to online grocery] is [retailers’] failure to understand that weakness in online grocery is a demand problem, not a supply issue,” Jetta says. “No amount of drones, curbside pickup expansion, Uber alliances and new warehouses can fix the fundamental issue that consumers currently don’t like to shop online for grocery.”

Another point the study made is that overall sales of consumable goods are declining in many categories in part because of a decrease in “heavy buyers.” Jetta suggests that more intense promotional activity may be the answer.

“CPG manufacturers and retailers need to make a significant investment in promotional activity to sustain and grow their businesses. Weaker promotions is directly correlated to weaker sales trends,” he says. “Sustained promotional levels of 15 percent to 20 percent of sales are needed to kick-start declining sales trends and bring heavy buyers back.”

The TABS report is based on survey panel comprising 1,000 geographically and demographically dispersed consumers between the ages of 18 to 75. It looked at 15 food and beverage categories.

For a video recording based on the TABS study, click here.