TopShelf Spotlight: US eGrocery Sales Predictions to Improve Business Growth in 2023 and Beyond

The Future of Grocery Retail: Exclusive 5-Year Forecast Report

The 2023 Brick Meets Click/Mercatus 5-Year Grocery Sales Forecast is out and it’s a goldmine of insights for retailers looking to position for growth in the coming years.

The future is now! Grocery retailers must have a clear understanding of, and that lie ahead in order to drive growth today. The forecast helps remove the guesswork from retailers’ growth plan and empowers them to:

• Make data-informed decisions about their online grocery strategy
• Get a sense of how the market will develop within the next five years
• Prepare now to improve competitiveness and profitability over the long-term

Let’s unpack some of the groundbreaking trends projected and how retailers can leverage them to reduce pressure on the bottom line and improve share of wallet in 2023 and beyond.

eGrocery Over the Next 5 Years: A Transformative Force to be Reckoned With!

The big news: US online grocery sales are expected to grow at a steady pace over the next 5 years.

Rising inflation and reduced purchasing power have and will continue to cause a short-term pullback through 2023, but as economic conditions improve in 2024, online sales growth will return to a positive growth trajectory

The silver lining to the temporary drop in online sales growth is that customers lost during this period are more than likely to return and contribute significantly to boost in eGrocery sales over the long run.

A Sneak Peek Into the Future of US eGrocery: Trends That Will Shape the Coming Years

Let’s break down some of the key trends the forecast outlines and our key takeaways from it:

Online grocery sales will grow at a steady pace (6.5%) from 2023 to 2027

Online grocery’s share of wallet, which was 11.2% in 2022 will climb up to 13.6% in 2027. After noteworthy growth in the past couple of years, the projected sales for the upcoming 5 years will take a hit in the near future owing to macroeconomic factors affecting grocery spending habits.

Key Takeaway: The eGrocery trend is here to stay

Despite an initial slowdown, online grocery sales will return back to steady growth numbers. The increase in share of wallet over the next 5 years promises a bright future for grocers who own and control their first-party commerce channels as households continue to bank on the unparalleled convenience online shopping brings.

Online grocery sales will face a decline of 3.1% in 2023

After two years of remarkable growth fuelled by the pandemic, online grocery sales will face a slowdown in 2023 as customers return to in-store shopping. Inflation is the other factor directly impacting household spending patterns. In aggregate, price-sensitive households are trading down and out, choosing less expensive brands and opting out of higher fee based services like grocery delivery.

In 2023, online grocery sales are projected to see a year-over-year decline of 3.1% indicating that the impact of inflation is not over yet. Although temporary, this pullback will force retailers to adapt, innovate, reinvent their customer experience, and leverage personalized promotions, to protect their existing business and to keep customers coming back.  In addition, grocers should consider a variable fee structure for fulfillment services to encourage cost-sensitive shoppers to continue ordering online.

Key Takeaway: While Inflation will continue to impact buyer behavior in the near future, retailers can implement many strategies to appeal to cost-sensitive customers and keep them buying online.

As inflation will dictate US households’ grocery shopping and spending habits for the foreseeable future, there will continue to be a collision between cost and convenience in the consumers’ minds. It’s safe to assume that all their shopping behavior i.e where they shop(regional or mass retailers), how they shop (in-store or online), what they buy (private labels vs. global brands), and/or how they fulfill orders (pickup or delivery) will be motivated by a savings-focused mindset.

Pickup will capture 50% of the eGrocery market by 2027, while delivery and ship-to-home continue to slow down

The forecast proposes that the growth in eGrocery over the next 5 years will be anything but consistent across the three fulfillment methods. Pickup sales are expected to grow at an average rate of 13.6% over the next 5 years, while delivery will grow at 10.8% and Ship-to-Home will grow at 8.0%. Pickup will become the preferred receiving method in the U.S., capturing 50% of the online grocery market by 2027 because of the ideal balance of convenience, control, and cost-effectiveness it offers.

Growth in delivery is predicted to slow down, giving up gains in market share made during the pandemic that were fueled by sudden need as high cost will continue to be a concern for online grocery customers. Likewise, Ship-to-Home is also expected to decline as consumers will see more value and convenience in Pickup.

Key Takeaway: The continued preference for pickup as a fulfillment method among online grocery shoppers demonstrates its mutual benefits for both consumers and retailers.

The majority of American households continue to favor Pickup as their preferred fulfillment method due to its seamless integration with their lifestyle and routine, as well as its cost-effectiveness for both customers and retailers. By offering an online shopping experience tailored to customers’ preferences and proximity to their preferred grocery store, Pickup continues to over-index on the convenience factor. Moreover, it is a less expensive option compared to Delivery, benefiting not only the customer but also the retailer. Pickup provides end-to-end control of the shopping experience, with timely communication and a direct handoff of the order from the store to the customer, further cementing its position as the fulfillment method of choice> in the foreseeable future.

Grocery inflation will decline from its 2022 peak, but still be above pre-COVID levels

Inflation will continue to decline from the 2022 peak in the coming 5 years. But, it’s important to note that it will still be above the pre-COVID levels. In fact, persistent grocery-related inflation is projected to continue at a 5-year average of 4.8%, down from 10.9% in 2022 to finally 2.8% in 2027.

Even in this climate, households will continue to make purchase decisions based on cost and convenience. Inflation-sensitive households may require incentives to continue using online channels for their weekly or monthly shop. Cost, ultimately, could be a deal-breaker for some customers when shopping online resulting in them choosing to switch portions of their basket to mass or discount retailers.

Key Takeaway: Customer service and operational excellence is critical to retaining repeat online purchases

Growing share in a maturing market means first reducing customer churn, as those customers are likely to use a bad experience as a reason to switch to another retailer.  Households will expect comparable service levels across retail formats due to the experiences encountered with Mass retailers. Enhancing the experience is also key to building bigger baskets, which may take the form of better personalized promotions and/or expansion into underdeveloped product categories.

US households will become older (>60 age group) and smaller (single-person)

The forecast predicts that the US population will get older< in the coming five years and the >60 age group will expand faster than any other. Also, birth rates will continue to decrease, death rates will keep increasing, marriages will decline, and single-person households will be on the rise. Immigration will be the main driver of popular growth in the coming years. As households become smaller and older, overall spending on groceries will rise.

The demographic shift itself will also greatly impact spending, here’s how:

• Older age group (60+) will account for more than one-third of overall growth in grocery spending
• The 30-44 age group will contribute to 50% of growth in online grocery sales<

Key Takeaway: Know your customer, the expansion of households and demographic shifts will lead to a rise in grocery spending

understand these customer segments inside out to target them effectively and offer an exceptional eGrocery experience and personalized promotions that will increase sales and customer life-time value.

Average Order Values (AOVs) will grow organically at a conservative rate of 1%

Households will continue to search for savings, i.e., look for ways to avoid paying more than necessary. This will motivate changes in household purchasing patterns into 2024, such as where they shop (grocery or mass), how they shop (in-store or online), what they buy (store brands vs. manufacturer), and/or how they complete the shop (pickup vs. delivery). These savings-focused behaviors will tend to depress U.S. sales growth.

We will see a flight to lower-priced retailers. As grocery retailers launch first-party ordering platforms and focus on migrating their customers away from third-party marketplaces, AOVs could contract by 10% or more due to differences in product pricing. The focus on faster order-to-receipt cycle times (less than two hours) generally also compresses spending due to fewer items in the basket as faster cycle times target more Quick Trip missions versus Stock Ups or Pantry Fill- ins.

Key Takeaway: Inflation’s impact will continue to limit size of basket growth

Order frequency is anticipated to increase from 1.9% to 3.3%

Average order frequency among active users is forecasted to rise from 1.9% to 3.3% by 2027. As seen with average order values, the growth is the lowest in the ship-to-home segment and the highest in the pickup category, with delivery coming in the mid-range.

Key Takeaway: Pickup will be credited for improving online grocery shoppers’ repeat purchase rate

Order frequency will increase considerably, especially within the pickup segment. This growth will be fueled by loyal and engaged customers who tend to purchase more frequently than a newly acquired online customer. Retailers face the challenge of enhancing the overall shopping experience to ensure consistency and seamless interactions, which will encourage consumers to return repeatedly. By investing in frictionless technology and developing a first-party platform, retailers can create a superior experience for customers, promoting loyalty and fostering long-term relationships.

Meet Customer Demand Head-on With a Well-Rounded Omnichannel Grocery Strategy

The only silver bullet to staying ahead of these changing trends and evolving consumer preferences is developing a well-rounded and flexible omnichannel grocery strategy.

Here are some of the key pillars of a winning grocery retail strategy to drive sustained growth in the next five years:

Focus on providing seamless and convenient omnichannel grocery shopping experiences. By integrating frictionless technology, first-party platforms, and personalized promotions, retailers can seamlessly improve customer loyalty and long-term success.

In-store grocery shopping has rebounded to pre-pandemic levels, while online channels continue to experience steady growth. This resurgence offers customers the flexibility to choose their preferred shopping methods, catering to individual preferences and lifestyles. So, what does this mean for retailers looking to strategize for uninterrupted growth in the coming years? The simple answer is omnichannel. 

The modern grocery shopper is omnichannel and expects to have seamless brand and shopping experiences across channels. Retailers that prioritize offering convenient solutions for their customers through a first-party eCommerce platform they control, while also concentrating on reducing the cost-to-serve, will be well-positioned for profitability. By delivering consistent and seamless omnichannel experiences that emphasize customer choice, these retailers can secure a sustainable and successful future.

Develop and prioritize optimization of the grocery pickup program

Pickup is clearly the fulfillment method of choice among modern grocery customers, for a variety of reasons. A robust pickup program that is operationally efficient, frictionless, and promises a high customer satisfaction rate is a mainstay for grocers looking to grow in 2023 and beyond.

To satisfy online grocery shoppers, retailers must ensure a seamless and efficient pickup process that combines both convenience and cost-saving. By providing convenient pickup slots, minimizing wait times at curbside, and maintaining order accuracy, grocers can create a positive shopping experience. It is crucial to address any friction points in the process, as customers who encounter difficulties may be inclined to explore alternative services offered by competing retailers.

Customers want frictionless and convenient shopping solutions, and they have plenty to compare to with mass merchants like Walmart and Target who have invested in technology and pickup up programs. Grocers need to actively solve customer pain points like time slot availability, managing out-of-stocks, communicating order substitutions with the customer, reducing wait times at pickup and more.

The right technology will help grocers navigate the challenge of meeting modern customer expectations and support operational efficiency. With pick technology that allows store shoppers to pick multiple orders at a time, communicate with customers on out-of-stocks and substitutions, and effectively pack and stage the order for pickup, grocers will be able to support pickup programs more effectively from their stores. Offering a native mobile app and geo-location technology will allow for communication to be sent to the store operations, letting them know the customer is arriving or has arrived, to reduce wait times and allow the grocer the opportunity to offer more pickup time slots to customers.

Offer a variable fee structure, it’s a win-win for cost-conscious customers and retailers

Inflation will continue to impact customers’ spending patterns and cost will continue to be a pivotal factor in how US households shop for groceries. Retailers, optimizing product and service pricing to offer cost-effective solutions is key to beating competition at this stage.

Retailers must relook their pricing structure and identify opportunities to offset some of the costs to win over share of wallet. In terms of delivery and pickup-related costs, a variable fee structure is the way to go. It allows shoppers to save a few bucks in exchange for a later delivery/pickup slot and pay extra for a priority slot.

Invest in reactivating lapsed customers and retaining existing ones

As online grocery sales have been on a temporary decline, a fraction of customers have been lost, albeit not permanently. The coming months is the time to focus on reactivating lapsed shoppers to bring back lost business without having to spend on acquiring new customers.

A reactivation strategy will go a long way in helping regain some of the revenue margins that have suffered. At the same time, retaining existing customers becomes all the more important in this market dynamic where loyalty is very hard to earn and customers are inclined to cherry-pick.

Invest in private-label products that are cost-effective

With cost continuing to be a concern, shoppers are constantly on the lookout for cheaper alternatives for their favorite products. Private labels allow retailers to offer inexpensive products to customers and win their loyalty by driving repeat purchases. Now is the best time to invest in a private label to stay at par with mass merchants, beat competition on pricing, and win over customer loyalty.

Partner With Mercatus to Optimize Your Omnichannel Grocery Strategy for Growth

The future of online grocery is here and it’s exceptionally promising. The next five years will be a crucial and highly favorable time for retailers who want to take control of their eCommerce experiences and offer seamless end-to-end omnichannel shopping.

With the Mercatus platform, retailers can build a powerful, flexible, and scalable omnichannel grocery ecosystem - from consistent engagement to frictionless fulfillment. From capturing user attention to offering multiple ways to shop and fulfill orders to tracking and managing orders efficiently, Mercatus takes care of it all.

Retailers get complete control over their omnichannel experiences by offering unmatched convenience of grocery shopping at lower-than-ever costs. Ultimately, retailers get to:

• Leverage predicted market trends and turn them into actionable opportunities
• Enhance profitability by adapting quickly and meeting customer demand head-on
• Lower cost to serve by offsetting operational expenses with online ad revenue
• Deepen brand identity and recall by offering consistent experiences across channels
• Improve share of wallet in the long run by driving loyalty

Learn more about innovative Mercatus solutions for your short-term and long-term grocery retail strategies by scheduling a demo with our experts today!