Did the Pandemic Change Everything?

October 19, 2020

The pandemic accelerated the adoption of online grocery

The once-in-a-century global pandemic indisputably accelerated the adoption of online grocery. The industry analyst, Brick Meets Click, reported that online grocery sales were up sixfold in June 2020 versus the previous summer. And Instacart has been the unquestionable winner as it surged to $700 million in weekly sales and market-leading share of 60 percent of online grocery delivery. The 8-year-old company raised an additional $200 million at a valuation of $17.7 billion to support the pandemic scale-up which allowed it to achieve profitability and turn its 33 year old founder into a billionaire.

But, the question of whether the pandemic triggered a permanent change in the grocery landscape remains to be answered. This white paper—the third in a series— provides new insight on customer preferences for different service offerings via a conjoint survey of over 1,000 US households. We explore new attribute combinations building upon our original research findings and examine how behaviors changed among the primary shoppers during the pandemic. We also reflect on future threats and opportunities for online grocery players beyond the pandemic.

Superior value proposition of cost and convenience

Our first white paper in the series explored the tradeoffs among cost, variety, and speed as well as the profitability impact of different online grocery business models. We found that Amazon’s expansive selection does not translate into an advantage in grocery and that new micro-fulfillment technology enables a traditional grocer to offset the cost advantage of an automated, centralized distribution center.

The second white paper examined how competitive dynamics shape consumer preferences in previous grocery industry disruptions. We studied how A&P faltered after failing to respond quickly to the emergence of self-service supermarkets in the 20th century. Looking beyond the US we also discovered lessons in the faster growth of online grocery in the UK and France. Each country evolved along different paths: home delivery drove adoption in the UK while a “drive-up” model dominated in France. We revisited data from our original survey by creating a segmentation based upon the frequency of online and in-store shopping.

In short, the research highlights that winning in online grocery requires finding the right balance between cost and convenience that will attract profitable customers. Amazon’s investment in Go Grocery stores also demonstrates that a winning strategy requires an “omnichannel ecosystem.” No one—not even the global online leader—can treat online and traditional grocery shopping as independent operations.  
In finding the optimal balance between cost and convenience, the latter has been—and undoubtedly will continue to be—a moving target. The convenience benefits of combining the butcher, green grocer, and dry goods in a self-service supermarket led to the failure of A&P which had peaked at 15,709 full-service, dry goods stores in 1930.4 Amazon’s continued investment in “frictionless commerce”continues to shift consumer expectations—from “one-click ordering” online through to the “just walk out technology” in a Go store. The proximity of a grocery store to the consumer largely defined convenience for over a century but in today’s dynamic, competitive environment, that is no longer true.

Individual consumers define convenience differently but all consumers now consider the full experience from the identification of a need—for example, an empty milk carton or box of cereal—through to replenishment of the item in the refrigerator or pantry. Similarly, some consumers are more price sensitive than others—but cost remains the most important criterion across all consumers. Collectively, our research to date has demonstrated that grocery shopping habits are hard to change but consumers ultimately flock to the competitor offering a superior value proposition of cost and convenience.

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