The Radical Changes Coming To The Grocery Business
Richard Kestenbaum, Contributor, Forbes
Sep 8, 2020
The pandemic and shutdown have caused the online grocery business to explode with growth. Earlier this year before Coronavirus, the online grocery business was well below 5% of total grocery sales. Now it appears to be well above 10% and is steadily heading to 20%. Unlike other sectors of retail, the profitability in online grocery is substantially different from in-store sales. The grocery business has very low profit margins and if the store has to supply the labor to take the products off the shelves and bring them to the parking lot for waiting customers or deliver to consumers’ homes, then the business loses money. Figuring out how to make money in online grocery is the squeeze that the grocery business is confronting and how it will be resolved is not yet known. The explosion in online grocery has made the question an urgent matter.
The clear leader in online grocery is Walmart. It is the leader in grocery overall and has invested massively in online. Walmart has been leading in grocery app downloads and has hired tens of thousands of people to facilitate picking, packing and delivering. Walmart manages online largely by having employees pick products in its stores and deliver to customers’ homes or bring groceries out to their cars for pickup.
Supermarkets are not set up to maximize efficiency for multiorder picking, they’re set up for consumers to travel to conveniently, make in-store purchase decisions, pay and get out. Operating the online grocery business with store personnel from inside existing stores is unlikely to ever be efficient enough to make money. Systems built from scratch are more likely to have the efficiencies required.
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