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January 29, 2019 • Volume 30


It’s Official: Online Grocery is Having Its Moment

You read it here first:  The U.S. full assortment online grocery channel [composed of retailers that sell fresh, frozen, and shelf-stable groceries, in addition to other items] is legit. 

In the 12 months ended November 2018 the combination of Walmart Grocery, Instacart, Kroger.com, Shipt, Amazon Fresh, H.E.B.com, Peapod, Fresh Direct, Harris Teeter.com, ShopRite.com, Safeway.com, and Wegmans.com together generated $14 billion in total sales (including sales tax and delivery fees).  Based upon the growth rates that we’ve seen from this group of retailers of late, it seems likely that 2019 sales will be in the neighborhood of $20 billion. 

Let’s break that growth down a bit, comparing the period of December 2017 to November 2018 to the prior 12 months.

  • Overall growth was +79 percent
    • Buyer growth was +54 percent
    • Growth in spend per buyer was +16 percent
      • Orders per buyer was +14 percent
      • Average order size was +1 percent


Strong buyer growth is not surprising in this channel, although 54 percent buyer growth is toward the surprising end of the ‘not surprising spectrum’.  Walmart Grocery, Instacart, and Shipt are expanding aggressively into new markets, flush with capital from either their parent companies or private equity markets.  Many new consumers have well run, well priced, full assortment grocery options available.  And many have competing options to choose from, with marketing and promotional dollars supporting them.

I am most impressed with the growth in spend per buyer.  Why am I more impressed by 16 percent spend per buyer growth than 54 percent in new buyer growth?  With such extreme growth in new buyers, there is significant downward pressure on the spend per buyer metric.  New buyers are invariably ‘toe dippers’.  They rarely dive into online grocery shopping with the confident abandon of those that have tried it and liked it.  Some of those new buyers find that it isn’t as convenient as they’d hoped, some might’ve been lured in by an aggressive price promotion and hadn’t ever intended to come back.  The fact that, in aggregate, spend per buyer is up 16 percent tells us that there are a lot of existing full assortment online grocery shoppers that have jumped in with both feet.

Driving that growth in spend per person is 14 percent growth in purchase frequency, only slightly abetted by a 1 percent increase in average order size.  There are a growing group of Americans that are making online grocery shopping a habit.  Between December 2017 and November 2018, 16 million Americans bought from the full assortment online grocery channel an average of eight times, spending an average of more than $800 per person.  Within that, we will find a smaller, intense, committed group of shoppers.  Whether this group represents the grocery shopper of the future, or those temporarily deluded remains to be seen, but I’d not bet on the latter.  

Who's Winning?

Instacart and Walmart Grocery have been fighting it out for the top spot over the past few years.  Instacart has raised billions of dollars to expand into new markets. Walmart already had the money kicking around, but made the strategic decision to commit those dollars to the online grocery channel rather than invest in new stores or new countries.  It’s easy for me to downplay the difficulty of this decision, it’s a lot harder for a Fortune 1 company [yes, Walmart is number 1 on the Fortune 500 – this list is based upon revenue, not market capitalization, it turns out] to do so when it could have invested those dollars in places that would have been far more certain to return a short-term profit.

The other thing that is striking about the leading full-assortment online grocer list is that the top four only began to aggressively ramp up operations within the past few years.  Kroger had long been a laggard in the online grocery space, only recently committing to widespread adoption of online grocery through delivery and click & carry broadly. 


The resolute online grocers that stuck with the channel through the lean years of the early aughts, - Fresh Direct, Amazon Fresh, Peapod, ShopRite from Home – are smaller and growing much more slowly than those that have only recently caught the bug.  I’m betting that a few of these pioneers will recommit themselves to ramp up their growth and capitalize on their 10 plus years of experience, but that most will sit out this round of big investment, happy to have put losses behind them, having checked the ‘functional e-commerce presence’ box on their to-do list.


Any way you slice it, it’s an interesting time to be a grocer, for better and for worse.

Amazon Shipping Delivers the Goods – and Some Controversy

The Wall Street Journal just broke the news that Amazon has decided to expand its Amazon Shipping pilot beyond just London and Los Angeles. Unfortunately, I don’t have more specifics, and this is certainly something to be filed under ‘as expected’, but nevertheless, it’s super-consequential [and I’m not one to overuse the superlative ‘super’].

Amazon Shipping is the program where Amazon branded Mercedes Sprinter vans [leased from Amazon by the ‘sorta-preneurs’ that will do exactly what they’re told by Amazon] will deliver goods from Amazon and third party merchants to consumers. 

The Journal revealed that Amazon’s strategy is to focus on deliveries to residences and to not charge the fuel, residential delivery, and other surcharges that third party delivery firms charge that get retailers pig-biting mad.  One source in the know estimated that Amazon was underpricing competitors UPS and FedEx by about 10 percent when you net out those fees.

This, of course, follows a rate increase by the US Postal Service that may or may not have been precipitated by President Trump’s desire to punish the uppity owner of Amazon and The Washington Post.  The net result is that Amazon is dropping prices to acquire share at the same time that the rest of the market is, or was hoping to, increase prices – supporting Amazon’s desire to gain share quickly. 

The lesson here:  Don’t play three-dimensional business chess against Jeff Bezos. 

Oh, also, don’t bet against Tom Brady.  Root against him, sure, just don’t put any money down.

The Week in Good News

Finally, I’d like to introduce a new, periodic, feature to our weekly-ish newsletter, a link to a piece of objectively good news, unrelated to e-commerce, intended to pick up your spirit a little bit, helping us all contextualize the fact that there are lots of good things going on in the world to counter the steady stream of negatively focused news that inundates us all.

The American Cancer Society released data a few weeks ago that showed that cancer-related deaths had decreased by 27 percent over the past 25 years.  This is attributable to significant decreases in smoking and early detection.  No, we haven’t cured cancer yet, but we’re moving in the right direction.

Finally, I’d love to hear what e-commerce topics you’re thinking about, that you’d like me to be thinking and writing about here. Hit me up on twitter – I’d love to hear from you!