Year-over-year ecommerce grocery sales remained strong through the first six months of this year, but the growth rate has slowed since the Covid spike that took place in 2020.
The U.S. online grocery market finished November with $7.7 billion in total sales, down 10% compared to a year ago, but only 2% lower than the $7.8 billion reported for the two prior months, according to the monthly Brick Meets Click/Mercatus Grocery Shopping Survey fielded November 29-30, 2022. November U.S online grocery sales drop 10% from year ago – Produce Blue Book
While sales dollars were up earlier in 2022, it’s slipped in the second half, and volume has been down, mainly due to inflation. Shoppers are keeping their costs down by switching to mass and discount retailers, purchasing lower-priced or on-sale fresh produce items, or purchasing fewer fruits and vegetables.
Walmart et al
David Bishop, partner and research lead for Barrington, IL-based Brick Meets Click, cites inflation as a significant theme; shoppers are seeking lower prices and changing where they shop. Mass marketers, which already lead in online grocery sales, have taken share away from some traditional grocers as prices have risen.
“In today’s environment, Walmart and discounters like Aldi and even Dollar General are well positioned,” says Bishop. “Traditional grocers can’t compete against Walmart on price and expect to win. They can compete on the service that their customers value.
“More than half of consumers who use mass marketers for groceries indicate cost as the reason. For grocers, only 30 percent say price,” Bishop explains, with other shoppers citing convenience as a top draw. “It’s about tradeoffs—cost versus convenience.”
To cut costs, some shoppers are buying less fresh produce; IRI experts suggest suppliers and retailers could offer smaller-sized options sold at a lower price. This would serve as an entry point for cost-conscious consumers who might otherwise pass on the product due to price.
Sales and promotions
Shoppers are also looking for sales. But in a time of slim margins, retailers have pulled back on promotions. It’s important, however, to find a balance between rising prices and promotions.
“There is no way to get around cost,” says Bob Morales, principal and produce team leader for Chicago, IL-based Information Resources, Inc. (IRI). “But to maintain volume, you have to offset it with promotions. It will dictate what we see [in terms of volume] with fruits and vegetables.” Ultimately, it’s up to the retailer, he notes.
“Produce suppliers don’t pay for in-store ads,” says Tom Barnes, CEO of Category Partners, LLC, an Idaho Falls, ID-based research firm.
Online promotions, however, cost money, which can put fresh produce commodities at a disadvantage. They may be more suited to value-added items, he says, since they’re more specific to grower-shippers who may be willing to spend marketing dollars.
Ready-to-eat, value-added produce appears to be one sector that’s resilient in the face of inflation. In addition to convenience, packaged produce eliminates the perceived disadvantages of online shopping and helps mitigate safety concerns.
In 2021, dollar sales of value-added produce grew 12 percent, according to IRI, versus 1.1 percent for nonvalue-added produce.
In addition, IRI research shows that price increases on salad kits have a low impact on sales volume. Consumers who value convenience appear to be insensitive to price increases and are willing to pay a premium for what they deem as timesaving.
Could this trend offer significant opportunities for produce suppliers and retailers seeking to increase online fresh produce sales?
“Absolutely,” states Rebecca Catlett, director of marketing and communications for Okanagan Specialty Fruits, Inc., headquartered in Summerland, BC. “I think that trend will continue—consumers are after convenience.”
Okanagan’s specialty, Arctic apples, are fresh sliced apples bioengineered not to brown when sliced, providing up to a 28-day shelf life. The prepackaged apples are sold in convenience stores and on Amazon Fresh’s website in California, Arizona, and Nevada.
“For convenience stores, it is a way to look at growing their fresh produce sales,” Catlett points out.
This is an excerpt from the Applied Technology department in the November/December 2022 issue of Produce Blueprints Magazine. Click here to read the whole issue.