Distribution channel series – Grocery ecommerce market in the United States

Grocery ecommerce market overview

Store based grocery retailers represent over 99% of U.S. packaged food sales. Out of all grocery retailers, grocery ecommerce sales grew fastest by 26.4% annually over 2019 to 2023. Like off line grocery, grocery ecommerce is also highly consolidated with both led by Walmart.

Walmart has a massive presence in outlets that put in-store pick-up or quick delivery within range of most U.S. consumers. Amazon is Walmart's closest rival in grocery ecommerce. Amazon's warehouses and logistics network allows it to stock more stock-keeping units (SKUs), which gives Amazon the edge in shelf stable categories where variety matters most (hot drinks, snacks) and Walmart is ahead in perishables and staple food products.

Following strong growth of food and beverage retail sales online during the COVID-19 pandemic, grocery ecommerce remains the most dynamic channel. High U.S. inflation has caused a short-term slowdown in sales growth of U.S. grocery ecommerce but long-term prospects remain bright given the time pressures consumers face.

High-income, time sensitive families with young children are the most likely U.S. consumers to use grocery ecommerce. These tend to be Millenials but with Gen Z beginning to start families, they will make up an ever-larger share of the consumer pool. According to Euromonitor, expansion to new demographics will be key for the segment, as declining fertility rates and income inequality will limit the number of wealthier families in the future.

Growth of grocery ecommerce can be in large part attributed to its focus on high-income consumers, but the needs of lower-income consumers will be key to expanding usage. Expansion has slowed considerably under the pressure of food inflation and U.S. consumers cutting their grocery bills. How well online grocery players can convince consumers to make the money for time tradeoff will determine the rate of uptake for the channel overall.

Retail sales

From 2019 to 2023, grocery ecommerce saw robust annual retail sales growth of 26.4%, reaching US$206.8 billion. In offline retail, supermarkets, hypermarkets, and warehouse clubs are set to see fairly stable shares in 2023, with just slight declines, with small fluctuations for other distribution channels. Grocery ecommerce growth is driving market share of total grocery retail sales sales, almost doubling to 11.8% of total grocery sales in 2023. Within grocery ecommerce, double digit sales growth of every packaged food and drink category exceeded that of store based retailers over 2019-23. The categories that dominate grocery ecommerce are largely those that also dominate offline but there are some exceptions. Soft drinks, meals and soups, dairy, and processed meat are among the categories that do much better online than average. In general, categories that do well online are non-perishable with a huge variety, while fresh/perishable foods face either regulatory hurdles or consumer concerns about freshness.

Meals and soups continue to be growth areas for supermarkets. Kroger recently enhanced its fulfilment capacity for Home Chef, the meal kits brand it acquired in 2018, with a production facility in the Atlanta area. In addition, in October 2023, supermarket chain Wegmans opened a location at Astor Place in New York City showcasing its new hybrid supermarket concept; in addition to its traditional grocery inventory, where there is a food hall inside.

Staple foods saw a significant increase in sales via grocery ecommerce over 2019-23 due to its convenience and wide product range. Significant growth is expected in retail current value terms across all staple food categories driven by price increases. Retail volumes are not expected to keep up with retail value growth, as unit prices have constantly increased, making these products more expensive for consumers.

Key players

Grocery ecommerce retailers are highly consolidated in the U.S. with 61.8% of online grocery sales made from the top five retailers in 2023. Walmart is the largest grocery ecommerce retailer, reaching online sales of US$76.9 billion with a market share of 37.2% in 2023. Target is the second largest, with sales of US$18.1 billion and a market share of 8.7%. Kroger is the third biggest grocery retailer with sales of US$15.5 billion and a market share of 7.5%.

Amazon is Walmart's most direct competition in grocery ecommerce but is well behind Walmart in both online and offline grocery, lagging in perishables and staple foods but has the advantage in warehouses and logistics network that allows it to stock more SKUs and shelf stable categories where variety matters most (eg. hot drinks, snacks).

Large offline grocery retailers expanded their online food and drink products ordering options in response to overwhelming demand during the pandemic, especially click-and-collect. The most popular model of click-and-collect fulfilment in the U.S. is kerbside pickup, largely due to the U.S.' vehicle-centric culture. Kerbside pick-up is also experiencing higher growth post-pandemic because it is generally less expensive - for both retailers and customers - than grocery delivery options. It also gives consumers the opportunity to inspect their purchase before leaving the store, which is helpful for perishable items.

Walmart has a massive presence in outlets that put in-store pick-up or quick delivery within range of most of the U.S. population. Although Walmart leads the way in kerbside pick-up some supermarkets are not far behind - on a relative basis. By the end of 2023, Kroger offered a kerbside pick-up service at over 1,100 of its outlets across the U.S. According to Euromonitor, Investment in kerbside pick-up capabilities is no longer an option, but a must-have as many grocery stores still do not offer online pick-up options, highlighting the need for the physical and digital components of the grocery shopping experience to work together seamlessly.

Product launch analysis

Between 2019 and 2023, 1,657 food and drink products were launched online in the U.S. Canada was the largest foreign manufacture of online food and drink product launches. The top categories of food and drink products offered were healthcare, snacks, sauces and seasonings, bakery and hote beverages. The top claims (may contain more than one claim per package) were no/low allgergen, gluten free, kosher, GMO free and no addititives/preservatives. The top five companies were Amazon, Target, Williams-Sonoma, Cygnus Home Service, and Whole Foods. The top four storage types were shelf stable, frozen and chilled.

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Resources

• Euromonitor International:
  • Passport statistics, 2024
  • Retail e-commerce in the U.S. (March 2024)
  • The online grocery landscape of the U.S. (July 2023)
  • Staple foods in the U.S. (November 2023)
  • Supermarkets in the U.S. (March 2024)

Distribution channel series – Grocery ecommerce market in the United States
Global Analysis Report

Prepared by: Kris Clipsham, Market Analyst

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