e-Grocery Is Growing Dynamically. Are Retailers Ready to Deliver?

Exponential Growth

Online grocery sales have seen a significant increase since the start of the COVID-19 pandemic, and although the pace has slowed down, e-grocery volume is expected to remain high in 2023 and beyond. According to Future Market Insights (FMI) data, an impressive Compound Annual Growth Rate (CAGR) of 23% is forecast for the global online grocery market over the next 10 years. The market is expected to reach US$2778.4 billion by 2032, up from US$350.55 billion in 2022. Smartphone apps account for nearly 90% (by volume) of online grocery orders, with web-based platforms making up the remaining 10%.

As retailers recognized that consumers will increasingly shop for groceries online in the years ahead, many chose to make strategic investments to optimize their e-commerce and e-grocery operations. Kroger, one of the largest grocery retailers in the US, began investing in online grocery many years prior to the outburst of the pandemic, by forming a partnership with tech company Ocado that introduced automation and AI technology to better fulfill online orders. Another example is Netherlands-based Ahold Delhaize, which invested in the companies Peapod, Stop & Shop, Food Lion and FreshDirect and actually doubled down on e-commerce technologies and new distribution channels in the midst of the pandemic period.

The Latest Trends in Grocery Shopping

As a result of all events that have affected the economy and society recently, inflation is, understandably, leaving its marks on the purchasing behavior of consumers, who are changing their habits and choices. Their shift to more affordable brands is a given, at a time when retailers are trying to respond with initiatives, such as offers on private labels and the launch of new product categories, creating a value proposition for customers that want to buy everything from one place.

Changing consumer behavior is a major challenge for retailers, as the new era requires a different approach. The reposition of many consumers to more sustainable lifestyles is a fact, as they now give importance to purchasing products that are friendly to the environment, while many are also moving towards plant-based diets or becoming flexitarians.

On the trending side of things, one of the most innovative businesses that have grown in recent years is the meal kit delivery industry. As consumers are on the look for healthier eating, the food-at-home trend is also rising – to the benefit of grocers.

E-grocers should also address consumers’ growing consciousness about their environmental footprint, as they demand the companies they purchase from share the same values. Minimizing carbon emissions not only in their operations but also in the delivery of goods is growing in importance. Choosing environmentally friendly packaging and delivery options such as electric vehicles, bicycles, or even drones solves only one part of the problem. To truly minimize emissions more parameters need to be streamlined, such as reducing the actual miles driven and optimizing the routes to waste less fuel or energy.

A couple more trends to keep in mind are express delivery and subscription-based delivery models. In many cases, consumers want their groceries to be delivered within an hour or less. As they may need the ingredients for a recipe missing from their home pantry, they will turn to quick commerce services that will be ringing their doorbell in as less as 15 minutes. The increasing volume of online orders has also given birth to subscription-based models that allow customers to reduce delivery costs if buying frequently from the same vendor or marketplace. This trend is closely tied to customer experience and loyalty programs, as it presents a great opportunity for retailers to reward frequent buyers and sustain their client base.

The Delivery and Last-Mile Challenges

The demand for faster, more streamlined grocery delivery will continue to grow as consumer expectations rise. They expect an omnichannel experience whether they order online or in-store, and they also expect to have a wide range of options available when it comes to picking up their goods. As people are now back to their daily routines and many are on a hybrid working model, self-delivery options like click & collect or curbside pickup are must-have fulfillment models. This presents many challenges for grocery retailers, as they need to optimize a series of parameters to ensure timely and efficient delivery service. Fresh produce especially, needs to be delivered within a reasonable time to the consumer, and that may mean increased costs for the retailer. Many businesses use their own vehicles for deliveries while others rely on outsourced delivery services. In the case of the latter, businesses face the additional risk of losing recurring customers if the service is disappointing or frustrating since the retailer does not own (directly) the customer relationship.

For those running their own e-grocery delivery service, one of the biggest challenges is the need to dynamically optimize timeslot booking, as it involves considering a number of factors, such as the availability of delivery drivers, the distance to the delivery location, limited delivery windows, and the expected volume of orders. Due to that complexity, retailers are employing static strategies (fixed number of options per slot) resulting in missed opportunities for additional orders and, hence, revenue. Fortunately, with the use of advanced algorithms, the process of scheduling deliveries can be done in an automated way that allows retailers to maximize efficiency and minimize costs.

Automation technologies and route-optimization algorithms incorporated into real-tracking systems offer e-grocers the opportunity to streamline the delivery process and significantly improve the customer experience. Customers demand to have multiple options when it comes to delivery: they may want to collect their order from a pickup point themselves or change the delivery address on the fly as they realize they cannot be at the designated point at the scheduled time. Normally, this would translate to increased transport costs for the retailers and elongated delivery times as rescheduling takes place. Nevertheless, with the use of data analytics, real-time tracking and advanced prediction models, e-grocers are able to efficiently handle their resources (drivers, vehicles) taking into account factors affecting their routes, while still offering the desired flexibility to their customers.

Future-Proofing the e-Grocery Business

The growth in the grocery sector has been stormy in the last few years, with the new trends showing the way retailers should follow. In order to overcome the challenges, e-grocery delivery companies will need to focus on last-mile delivery and fulfillment logistics and explore technologies that can help to improve efficiency, reduce costs, and ensure superior customer experience. This involves experimenting with new technologies such as drone deliveries or new packaging methods that can keep groceries fresh for longer periods of time, but also investing in last-mile delivery software solutions that are powered by collection and analysis of large data streams. These solutions are specifically designed for the e-grocery delivery industry and can help companies optimize the routing and timeslot booking process, analyze customer behavior and predict demand, and streamline the execution of last-mile as well as include useful features for the customers, such as real-time tracking and automated notifications.

Companies that invest in innovative software solutions and new technologies will be well-positioned to take advantage of arising opportunities, remaining competitive and future-proofing their business while meeting the renewed demands of consumers.

At ORTEC, we have extensive experience in last mile delivery in the e-grocery sector, and we can help you apply these concepts to your specific retailing needs. Contact us today to learn more about how we can help you streamline your e-grocery delivery and increase the efficiency of your last-mile delivery process.