Will the traditional grocery store become a thing of the past, or will it continue in its current form?
In the not too distant past, virtually all shopping was done in-person in the store. Online ordering with either pickup or delivery was a novelty. However, COVID escalated the use of pickup and delivery of groceries (either retail delivery or third-party delivery, such as DoorDash).
Online grocery sales (pickup, delivery, and ship-to-home) represented about 12% of grocery sales in January 2023—up slightly over January 2022. The Average Order Value (AOV) grew 8% for pickup and 6% for delivery year-over-year in January 2023. However, overall online sales dipped slightly in January 2023, compared to January 2022.
So, what is the future of the traditional grocery store?
Existing retailers and new entrants have shown a wide variety of responses to these changing trends.
As we reported in a previous OM in the News post, Kroger has used a delivery only concept to expand into new markets.
Addie’s in Norwood, Massachusetts, and JackBe in Oklahoma City, Oklahoma, have opened pickup-only facilities. JackBe promises pickup orders will be ready in minutes.
In Michigan, Meijer has opened two of its new format grocery stores. This new format is approximately half the size of Meijer’s traditional 150,000 square foot store. The condensed format is intended to make shopping simpler. Interestingly, it still has many of the departments we expect at full-sized stores, including fresh produce, in-store meat cutters, a bakery, a full-service deli, pharmacy, and floral.
On the other hand, Walmart is going in the opposite direction. It has closed its three pickup/delivery-only stores. It appears that Walmart will use existing stores to fill pickup/delivery orders. Walmart’s decision is particularly important. The retail giant controls over twenty percent of grocery sales, with substantially greater control in some areas.
Additionally, online sales are trending away from traditional grocery stores toward mass retailers like Walmart, which raises many questions as to the future of in-person, traditional grocery stores.
This post is based on the NBC Boston article, Addie’s, an Online-Only Grocery Store, Opens First Mass. Location, by John Moroney, January 26, 2023; the Deli Market News article, JackBe Grocery Chain Launches in Oklahoma; Alex Ruhter Shares, by Melissa De Leon Chavez, January 26, 2023; the Supermarket News article, Shoppers Ramp Up Online Grocery Purchasing: Survey, by Richard Mitchell, February 10, 2023; the Winsight Grocery Business article, Online Grocery Sales Dip in January After Prior-Month Lift, by Russell Redman, February 14, 2023; the Forbes article, Walmart Closes Pickup-Only Grocery, But Others Are Just Getting Started, by George Anderson, February 13, 2023; the Supermarket News article, The First Smaller Format Meijer Grocery Stores Open in Michigan, by Richard Mitchell, January 26, 2023; and the YouTube videos in the Spotlight. Image source: Juice Images/Glow Images
1. What operational advantages are gained from a pickup/delivery-only grocery store/distribution center?
Guidance: The pickup/delivery-only approach has several efficiencies built into the design. Traditional grocery store layouts increase the number of products seen, and as a result the number of products sold. However, for picking online orders, this is inefficient. A pickup/delivery facility can be laid out to minimize distance traveled. It also allows for greater use of software and automation. Additionally, pickers are not getting delayed by trying to pick groceries around in-person shoppers.
Another consideration is the traffic flow outside the store. Traditional groceries stores have the combination of traffic from people driving into the lot to go into the store, driving to park in pickup areas, and delivery drivers using the parking lot. These present delays in traffic flow, as well as potential safety issues.
Pickup/delivery locations can improve vehicle flow as they won’t be dealing with customers walking into the store. The size of the facility can also be reduced based on its focus. Finally, control of inventory is improved in pickup/delivery facilities, as no customers are allowed in the facility.
2. Do you agree with Walmart’s decision to close its pickup/delivery facilities?
Guidance: The trend appears to be moving to pickup/delivery, especially for mass retailers like Walmart. Initial thought is that the efficiencies gained from a pickup/delivery facility would be an appropriate strategy.
However, Walmart appears to be avoiding building additional pickup/delivery facilities and is leveraging existing stores to cover all types of purchases—in-person, online pickup and delivery. Ninety percent of the United States population is within 10 miles of a Walmart store. The investment to gain that type of coverage from pickup/delivery-only facilities would be substantial.
3. What strategy do you recommend for grocery stores?
Guidance: Answers will vary greatly. However, it appears that organizations are trying to leverage existing facilities. Walmart and other mass retailers and grocery stores are using existing stores for multiple groups of shoppers. This does present some inefficiencies in picking orders, but greatly reduces investment in new facilities.
Kroger follows a mixed approach, using existing stores for multiple groups of shoppers, while entering new markets like Orlando and Oklahoma City with delivery-only facilities.
Meijer is looking at the future of the traditional grocery store. By using a small footprint store, the company is trying to make the shopping experience easier and faster for in-person shoppers, while still providing all the features of a traditional grocery store.
New startups like Addie’s and JackBe are going directly to the pickup/delivery-only facility—taking advantage of the picking efficiencies offered by this type of facility.
4. What will an in-person grocery store of the future look like?
Guidance: One response is that it will not exist—all sales will be online with either pickup or delivery. Convenience is cited as the primary reason for online ordering.
However, there are a variety of concerns with online ordering, including high fees, lack of product selection, and product stockouts. These may keep in-person groceries open.
One approach, adopted by Meijer, is to reduce the store footprint to make the shopping experience more convenient, but still provide all the amenities of the larger format stores, such as fresh produce, in-store meat cutting, cake decorating, etc.
Another approach would be to make it an experience to go into the grocery store. Many stores are already doing this through the amenities they offer. In-person stores will need to increase their focus on the customer experience, to keep foot traffic coming into the store, and prevent customers from shifting to online ordering.