Coronavirus Will Change the Grocery Industry Forever

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The new coronavirus outbreak is forcing Americans to buy their groceries online, a measure that could have a lasting effect on the supermarket industry. These days, shopping online for books, electronics, and ordering food through delivery apps have become staples of American life, however, most costumers still prefer to purchase their meat and vegetables at the store. Last year, just 4% of grocery sales in the United States came online, according to Nielsen.

Moreover, with costumers being stuck in their homes in the presence of the virus, online grocery shopping is exploding. Downloads of Instacart, Walmart’s grocery app, and Shipt increased 218%, 160%, and 124% respectively last Sunday compared with last year.

“We are seeing a larger percentage of customers over the age of 60 that are coming online,” said JJ Fleeman, chief e-commerce officer for Ahold Delhaize in the United States, which owns brands like Stop & Shop, Food Lion and the online delivery service Peapod. “We’re seeing a lot of new customers coming into the channel.”

A third of consumers said that they had purchased their groceries for online pickup or delivery services in the past seven days, according to a survey by analysts at Gordon Haskett Research Advisors. For 41%, buying groceries online a premiere.

“Consumer behaviors always shift in times of disaster,” said Doug Baker, vice president of industry relations at FMI, a trade group for food retailers. “People are learning new skills and how to shop online as a result of what we’re experiencing today.”

Maria Alvarado in Phoenix usually shops in person for groceries at Walmart or Safeway, but she tried ordering online last week for the first time through Walmart’s in-store pickup option. She plans to keep ordering online because she wants to avoid crowded places.

“Once things go back to normal, I will probably use online again,” she said. “It was really easy.”

Big grocers like Walmart, Albertsons, Stop & Shop, Meijer, Hy-Vee, and others have been searching for new ways to satisfy the online clients in recent years. They have increasingly looked to technology to reduce costs and keep aisles from jamming up with shoppers and workers picking customers’ orders.

Furthermore, grocers have been working on building automated mini-warehouses inside their own stores and opening up “dark stores”. “Dark stores” are the locations that look like supermarkets but are not allowing customers, because they were created for making deliveries and prepare pickup orders.

However, with all the previous work, the crush of demand in the wake of coronavirus has overwhelmed grocers’ delivery and pickup networks, causing long waits, cancellations, and outages in some parts of the country.

“The surge in online grocery orders is causing operational difficulties,” said Bill Bishop, CEO of grocery consulting firm Brick Meets Click.

Considering this situation, grocers are struggling to adjust and they’re constantly hiring workers to keep up with the work. Fleeman from Ahold Delhaize said the company was adding “web servers to help us process the increased demand” and offering more windows for customers to pick up their orders or get delivery.

The online shift during this outbreak may change the whole supermarket industry over time, by helping large grocers consolidate their grip, experts predict.

“We see this unfortunate period accelerating structural changes in consumer shopping,” possibly by five years, said Seth Sigman, analyst at Credit Suisse, wrote in a report. “This is driving significant growth in new customers” to Walmart (WMT).

With so many consumers switching to online grocery shopping, it may add up to the pressure that the small and mid-sized grocers already had, analysts say. These smaller chains don’t have the possibility to invest in building out their delivery system, because they lack capital, and delivery is less profitable for grocers than the traditional purchases in stores.

Coronavirus forced people to opt for online delivery and pickup, creating long-term challenges for smaller chains earlier than expected, Kelly Bania, analyst for BMO Capital Markets, said in a research report this week.

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