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Online grocery shopping could grow five-fold over the next decade, with American consumers spending upwards of $100 billion on food-at-home items by 2025, according to a report released Monday.
Supermarket giants Wal-Mart Stores and Kroger already draw sales from their online efforts and compete with Amazon and other e-commerce challengers, but the report from Food Marketing Institute and Nielsen points out that the online channel is likely to capture significantly more market share in the decade ahead from the bricks-and-mortar stores.
Around a quarter of American households currently buy some groceries online, up from 19 percent in 2014, and more than 70 percent will engage with online food shopping within 10 years, according to "The Digitally Engaged Food Shopper" report. It also found that of those who will buy digitally, 60 percent expect to spend about a quarter of their food dollars online in 10 years.
The report also found millennial shoppers surveyed were more willing to buy groceries online in the future than other consumer groups. It also pointed out that roughly 3 in 5 grocery shoppers today are looking for sales or coupons on their mobile devices before entering the store and that just over half will use mobile apps to shop at the store.
"Grocery shopping will reach digital maturity and saturation faster than other industries that went online before, such as publishing or banking," said the report. "Younger, newer and more engaged digital shoppers adopt digital technologies more quickly, and will hasten the expansion of digital grocery shopping further."
Indeed, the number of U.S. households getting groceries digitally has risen significantly in recent years, fueled by increasingly tech-savvy millennial consumers and retailers offering the convenience of both delivery and so-called click-and-collect service.
Another digital opportunity for the grocery industry is Amazon Go — a grab-and-go store where smartphones are used to shop without any human cashiers. We may hear more about the AmazonFresh and Amazon Go businesses when the e-commerce giant holds its fourth-quarter earnings conference call Thursday.
A key takeaway of the FMI-Nielsen report is that online grocery spending could grow during the 2016-2025 forecast period from 4.3 percent of the total U.S. food and beverage sales to as much as a 20 percent share, or reaching more than $100 billion, based on the most upbeat scenario. Last year, online grocery sales were about $20.5 billion.
The most optimistic outlook has online grocery sales growing at a compound annual rate of nearly 20 percent during the 2016-2025 forecast period. Even under the most "conservative" scenario, the compound annual growth rate during the forecast period is seen rising at a 9 percent pace and the share of online grocery spend doubling from its current level.
Also, the study predicts that canned goods, condiments, spices and other so-called center of store products will likely shift faster to online than traditionally perimeter items such as fresh produce and meats.
Last year's online sales were the equivalent of 764 grocery stores, based on store volume; by 2025, the digital share could become comparable to nearly 3,900 stores.
The report doesn't see the rise of grocery e-commerce as leading to the demise of the brick-and-mortar supermarkets but rather as one that will "reconfigure" the role of the grocery store for the digital food shopper.
"Only the retailers that first develop an understanding of their digitally engaged shoppers, build a strategy around that understanding and cost-effectively integrate digital food retail into their banner and channel promise will be market leaders," the report stated.
Specifically, the authors of the study see a future where more grocery stores will expand areas such as the service delis, bakery and meat departments as well as add trendy cuisine sections such as sushi bars and food courts — all to attract new customers.
"We think that food retailers are so well positioned in this environment because they can leverage both their existing physical brick-and-mortar assets coupled with these digital capabilities," said Mark Baum, chief collaboration officer at FMI, a trade group of food distribution businesses, including grocery wholesalers and retail supermarkets.
Specialty offerings are considered particularly important to capturing a younger generation of consumers and as a critical differentiator between the online and in-store experience.
Then again, the report points out that grocery retailers are already experimenting with different business models and approaches to online.
"Retailers have a natural survival instinct and a natural growth instinct," said Thom Blischok, global retail strategic advisor to Nielsen. "But profitability going forward is really the key."
Blischok said he expects supermarkets also may see a reallocation of center store space now devoted to popular canned goods and packaged items going to the backroom area. And he said that backroom may be "robotically manned to fulfill the top-100 or top-500 items" sought for pickup by digital food shoppers.
"The issue of how you build your operating model as a retailer is probably one of the most significant challenges that retailers have today," he said. "We're going to find a tremendous amount of innovation in fulfillment going forward."
The report is part of a multiyear initiative by FMI and Nielsen to look at the digital transformation of the U.S. retail food landscape. The two sides see the need for retailers and food manufacturers to do more to reduce costs in the supply chain and to partner "to keep pace with innovation, embrace change and capture value."