Amazon.com Inc., Walmart Inc. and other e-commerce players are expected to see a sharp spike in their grocery businesses as the new coronavirus spreads, an uptick in buying activity that experts say could lead to widespread adoption as more shoppers move online to stock their cupboards.
While the majority of grocery shopping in the U.S. still takes place in brick-and-mortar stores, rising concerns over the virus outbreak are likely to cause a long-term uptick in online food shopping as consumers avoid public places such as malls, restaurants and movie theaters, analysts say. Many companies are also sending home throngs of employees to telecommute while schools are closing in some states to slow the spread of the virus, moves that increase the likelihood that consumers will shop online.
In short, online grocery shopping could become a sought-after alternative for panicked consumers and a meaningful catalyst for online grocers. Larger players like Amazon, Walmart and The Kroger Co. are expected to be the big winners in the growth of the multibillion-dollar online grocery game in the U.S., while smaller grocers and meal-kit companies that have been building out their e-commerce networks also will benefit. There is plenty of business to be had: According to eMarketer, U.S. food and beverage e-commerce sales will reach $38.16 billion by 2023, nearly double from $19.89 billion in 2019.
"This is a huge opportunity for those big retailers," said Nick Minnick, director of retailer development for Chicory, a New York-based tech company that connects recipe content with online grocers including Walmart and Amazon, in an interview. "With the hysteria going on with the coronavirus, a lot of traditional brick-and-mortar shoppers are hesitant to go into a crowded space and are looking at potential e-commerce options."
The potential surge in online grocery sales comes amid an onslaught of consumers stocking up on sanitizers, face masks, basic foodstuffs and canned goods to prepare for the worst. As of March 11, the coronavirus had killed more than 4,300 and hopscotched to more than 100 countries, including the United Kingdom, Italy and the U.S., where states such as New York, California and North Carolina have declared a state of emergency, according to the Center for Systems Science and Engineering at Johns Hopkins University. The number of confirmed cases in the U.S. has surpassed 1,000.
Amazon and Kroger did not respond to requests for comment. Walmart declined to comment.
Amazon and other online grocers are expected to see an uptick in their online grocery business as the coronavirus spreads and keeps shoppers at bay. Prime member grocery carts at the Whole Foods store in Arlington, Va. are pictured.
Source: S&P Global Market Intelligence
E-commerce only represents 3.2% of total U.S. food and beverage retail sales, making the online grocery business overall still a small industry, according to Andrew Lipsman, principal analyst with eMarketer. Perceptions of high cost, a lack of online delivery options and a preference to shop in-store for food have kept many consumers at bay.
But the virus outbreak, combined with recent moves by many retailers to waive fees and expand delivery service, could be a tipping point that pushes consumers to try e-commerce for the first time and ultimately accelerate growth in the industry, experts say.
"This is sort of pouring gasoline on that fire," Lipsman said in an interview.
Online grocery boom
Seattle-based Amazon is in the best position to capitalize on the demand, given that it holds the largest share of the online grocery market in the U.S. as of 2018 when it sold $8.2 billion worth of groceries online, according to a 2019 eMarketer report that cites data from Edge by Ascential. Amazon has its two online grocery businesses, Amazon Fresh and Prime Pantry, as well as its network of more than 500 Whole Foods Market Inc. stores that can be used as mini distribution hubs. Any uptick would add to an increase in sales after Amazon waived its $14.99 grocery delivery fee for Prime members in 2019.
The company was followed by No. 2 player Walmart, a distant second that brought in $2.84 billion in online grocery store sales in 2018. Walmart has been ratcheting up pressure against its e-commerce rivals, with plans announced in 2019 to expand its grocery delivery program to more than 1,400 U.S. stores.
The No. 3 player was Kroger Co., which had $1.51 billion in online grocery sales in 2019 and has been growing its grocery network by building automated warehouses that can fill grocery orders for either pickup or delivery. The company also waived a fee that its CEO said led to an increase in pickup orders.
Ahold, the owner of Food Lion and Giant Food stores, was the fourth-largest online grocer in the U.S., with total online grocery sales reaching $1.17 billion in 2018. Other players include meal-kit company HelloFresh SE, Costco Wholesale Corp., Fresh Direct Holdings Inc, meal-kit company Blue Apron Holdings Inc. Boise, Idaho-based Albertsons LLC and Minneapolis-based Target Corp.
Evidence of an uptick is already apparent at San Francisco-based online grocer Instacart, which handles orders for a variety of stores including Walmart, Kroger, Wegmans Food Markets Inc. and Aldi. Instacart said March 6 that its sales growth rate surged due to customer demand for pantry items, including powdered milk and canned goods as well as personal care products like hand sanitizer and vitamins. Instacart also said it has observed increased adoption of its new "Leave at My Door Delivery" service, which allows consumers to have their groceries delivered without coming to the door or being home.
Amazon did not respond to inquiries about its online grocery business. But R.J. Hottovy, a Morningstar analyst who covers Amazon, said he has heard from e-commerce industry officials that order volumes are up "significantly" for the Amazon Fresh grocery delivery business and Amazon Prime Pantry service.
"We've seen a material spike," he said.
Hottovy said he expects the spike to continue. He noted that Amazon has warned consumers of potential delays in online grocery orders due to a large influx of recent orders. "You can't even get a Prime pantry order in under a week," he said.
Consumers may increasingly transition to online grocery buying as they steer clear of public places, experts say.
According to a February Coresight Research survey, 27.5% of U.S. respondents said they are avoiding public areas or limiting visits to public areas like shopping centers, entertainment venues and workplaces, or changing travel arrangements, while 58% are likely to take similar actions if the outbreak worsens.
James McCann is CEO of McCann Investments, which invests in early-stage companies in the grocery tech, food tech and consumer goods space. He said three groups of consumers will drive the online grocery trend: people who are genuinely sick and unable to go out; shoppers who are staying home as a result of an employer mandate; and people who are panicked about the virus and trying to limit contact with potential sources of infection such as shopping carts, door handles, products that mayve have been handled by other customers and coins at the checkout.
"More people will be eating more food at home," said McCann in an interview. "Your local grocery store is supposed to provide the replenishment for that."
Many are staying away from the office now, but "multiply it by 30 million [people] who are suddenly working from home in the U.S," he said.
Consumers who try online grocery shopping due to coronavirus fears could ultimately lock in that behavior over time, said Lipsman, of eMarketer.
"It doesn't mean that they are going to do it with the same regularity that they might do during a crisis," Lipsman said. "But if they create some habit around it, maybe that means they will end up doing online grocery orders half a dozen times throughout the year once things normalize."