The E-grocery Onslaught?

It’s no secret that the rise of the millennial consumer has been a driving force in the acceleration of e-commerce growth. They’re tech savvy, they embrace e-commerce and they use their smartphones to shop. And, according to the Pew Research Center, millennials surpassed baby boomers as the largest living generation of consumers earlier this year – and they haven’t yet reached their peak. The same recent Pew analysis projected that millennials will reach 81.1 million consumers in 2036.

As powerful as those numbers are, online or “e-grocery” sales only account for a tiny share of the total grocery marketplace. Amazon has built its distribution chain out by over 40 million square feet, and can now offer delivery next-day – if not same-day – to many places throughout the continental U.S. In June, the company expanded its Amazon Fresh grocery delivery service to 69 postal codes in London, marking the international debut of an e-grocery concept that is already available in Baltimore, Boston, New York, northern and southern California, northern New Jersey, Philadelphia and Seattle.

So are we on the eve of a radical shift in how people buy their groceries, one fueled by demographics and technology that over the next decade will rival what we have seen for traditional retail hard goods over the past 10 years?

Not so fast. While experts anticipate continued aggressive growth ahead for online sales when it comes to hard goods of all types, is it reasonable to expect similar rates of growth to emerge for many of the categories where e-commerce has yet to be a major disruptor like furniture or groceries? Likewise, is it reasonable to expect consumers to abandon the physical act of shopping in the future? Dozens of surveys have consistently found that consumers still prefer physical shopping to purchasing items online. Of course, groceries may turn out to be the exception here.

According to a February 2016 survey conducted by Walker Sands Communications, 68 percent of consumers now prefer to purchase books online as opposed to in store. Likewise, the majority of respondents also preferred to purchase both consumer electronics and office supplies online. Yet the majority of those polled still preferred the in-store experience over shopping online for all other categories. When it came to shopping for groceries, only five percent of all consumers preferred to purchase food online while 95 percent of respondents still preferred shopping in physical stores.

It is anticipated that these numbers will continue to shift in favor of e-commerce on all fronts. However, with just one in 20 consumers currently preferring to buy groceries online, it would have to be a seismic swing to drive demand for e-groceries to similar levels of consumer demand that exists for categories like books, consumer electronics and office supplies. It is not out of the realm of possibility for this to occur over the next couple of decades. But what is most telling is that this hasn’t happened yet. This is despite the fact that demographic shifts driven by the rise of the millennial consumer have been so instrumental in driving the accelerated growth of e-commerce overall in recent years and for so many individual categories.

Against this backdrop of trends, landlords, investors, developers and market watchers are watching closely if the grocery industry is next to feel the full weight of disruption from Amazon.

This is part 1 of a 3-part series, “Feeding the e-Grocery Trend.” Read more about the latest in CRE research in the NAIOP Research Foundation newsletter. Subscribe to Market Share so you don’t miss the next post in this series.

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